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2w ago

Education Department Offers Temporary 1% Interest Cut for Autopay Borrowers

The short-term incentive is meant to boost on-time payments and nudge borrowers into automatic debit ahead of a broad repayment overhaul starting July 1.

People walk on the UCLA campus on July 30, 2025 in Los Angeles, California. (Photo by Mario Tama/Getty Images)
FILE - The U.S. Department of Education building is seen in Washington, Nov. 18, 2024. (AP Photo/Jose Luis Magana, File)
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FILE - Students study in the Perry-Castaneda Library at the University of Texas at Austin on February 22, 2024, in Austin, Texas. (Photo by Brandon Bell/Getty Images)

Overview

  • The department announced the change on Thursday, June 18, and the one percentage-point reduction takes effect July 1, runs through June 30, 2028, and requires new enrollees to sign up for autopay by Sept. 30, 2026 to qualify.
  • The benefit applies only to federal Direct Loans first disbursed on or after July 1, 2012, and borrowers in default must return to good standing before they can enroll and receive the cut.
  • Borrowers already on autopay will get the new reduction automatically when servicers apply the change, increasing the existing 0.25% discount by an extra 0.75 percentage points for the two-year window.
  • Education officials estimate the program will cost about $6 billion, and fiscal groups argue it mainly helps those already repaying while borrower advocates warn autopay can cause billing errors and accidental withdrawals.
  • The move seeks to reverse a drop in autopay participation—from roughly 80% before the COVID payment pause to about 40% now—and comes as a $1.6–1.8 trillion federal loan portfolio and new July 1 repayment rules reshape borrower choices.