U.S. Education Department expands student loan rate discount for eligible borrowers

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Student loan rate discount expands

Highlights

U.S. Education Department will offer federal Direct Loan borrowers a temporary 1 percentage point autopay interest rate discount through June 30, 2028.
Borrowers must have Direct Loans disbursed on or after July 1, 2012, enroll in autopay by September 30, 2026, and remain enrolled to maintain the discount.
With the average federal student loan rate at 6.54%, the increased discount may modestly reduce monthly payments for over 40 million borrowers, though servicing errors remain a risk.

Eligibility rules and enrollment timeline

As reported by the U.S. Department of Education, borrowers who enroll in autopay can receive a 1 percentage point cut to their federal student loan interest rate under a temporary program announced in a June 18 press release. That is larger than the current 0.25 percentage point autopay discount and is available through June 30, 2028.

Eligible debt must come from the Direct Loan program, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans. Parent PLUS borrowers also qualify if their debt is issued through the Direct Loan program, according to higher education expert Mark Kantrowitz.

Loans under the Federal Family Education Loan, or FFEL, program are not eligible for the temporary discount, and the benefit does not apply to private student loans. Borrowers must also have loans disbursed on or after July 1, 2012, to qualify.

Borrowers already enrolled in autopay automatically receive the lower rate, while others must sign up by September 30, 2026. Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York, said borrowers also need to stay enrolled in autopay to keep the discount.

Borrower impact and repayment risks

More than 40 million Americans hold student loans, and the enhanced discount could modestly reduce monthly payments as households face higher living costs. Kantrowitz said the average interest rate on federal student loans currently stands at 6.54%.

For borrowers in default, the lower rate becomes available only after they return their accounts to good standing, the Education Department said. That can involve contacting the government’s Default Resolution Group and using options such as loan rehabilitation to become current again.

Consumer advocates generally support autopay because it lowers borrowing costs and can reduce missed payments. Nierman said there is usually little downside to enrolling for the next few years, although servicing errors remain a concern.

Those risks include incorrect billing tied to automatic withdrawals. Kantrowitz said borrowers who are charged the wrong amount should contact their loan servicer quickly, seek an immediate refund and request reimbursement for any related overdraft charges or late fees.

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