The U.S. Department of Education announced an interest rate cut for federal student loan borrowers on Thursday.
Borrowers who automatically pay their monthly payments are currently eligible for a 0.25 percent reduction in their interest rate. But beginning July 1, that cut will increase to a full percentage point. The benefit lasts through June 30, 2028.
“No matter your age or college credential, we want to make sure that borrowers can understand their options and choose a repayment option that works best for them. This interest rate reduction will help borrowers as they consider new, affordable repayment plans and work to repay their loans on time. We expect this temporary incentive to drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.”
The Department of Education offers an auto pay function through its several federal loan servicers. To enroll, borrowers need to log in to their particular servicer, enter their banking information, and set a recurring payment amount.
The reduction applies to loans instated after July 1, 2012. To qualify, federal student loan borrowers must enroll in auto pay by Sept. 30; borrowers already enrolled will have their interest rate reduction automatically boosted.
The interest rate reduction lasts through June 30, 2028.
This rate cut coincides with an overhaul of the repayment system, established by the Working Families Tax Cut Act of 2025. The Act provided for two new repayment plans. The Repayment Assistance Plan, an income-driven plan that bases payments on a borrower’s reported income and dependents. Borrowers can consent to have their federal tax information transferred directly from the IRS to the Department of Education in order to accelerate the application process.
The department also said that borrowers in this plan can receive a matching contribution for their on-time payments so that interest does not accrue, and balances decline every month. The plan also allows borrowers in qualifying public service or nonprofit organizations to be eligible for the Public Service Loan Forgiveness program, which discharges their loans after 10 years of on-time payments.
The Tiered Standard Repayment Plan offers fixed terms of 10, 15, 20, or 25 years, based on the borrower’s outstanding balance.
The plans take effect on July 1, and both plans qualify for the reduced interest rate.
