ED Announces Temporary 1% Interest Rate Reduction for Borrowers Enrolled in Auto Pay
By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) on Thursday unveiled a new initiative to help student loan borrowers return to repayment, announcing that borrowers enrolled in auto pay will be eligible for a 1% interest rate reduction on their federal loans beginning July 1.
Auto pay is an option for federal student loan borrowers to get their monthly loan payment automatically deducted from their checking or savings account by their federal loan servicer. If a borrower enrolls in auto pay, servicers typically reduce the borrower’s interest rate by 0.25%.
ED noted that the borrowers who enroll in auto pay by September 30, 2026, or who are already enrolled in auto pay, will receive this 1% interest rate reduction benefit through June 30, 2028.
ED Under Secretary Nicholas Kent said the department hopes this temporary initiative will “drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.”
“The Trump administration is making student loan repayment easier than ever, and borrowers should not wait to take advantage of this temporary interest rate reduction to stay on track for key student loan benefits,” Kent said in a statement. “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.”
ED noted that prior to the COVID-19 pandemic, over 80% of borrowers in active repayment were enrolled in auto pay. Today, only 40% are enrolled.
Since the Trump administration took office, a key priority has been returning student loan borrowers to repayment. Already, ED has announced a campaign in which, starting July 1, the 7 million borrowers enrolled in the Saving on a Valuable Education (SAVE) plan will be directed to choose a new repayment plan or be automatically enrolled in either the current standard plan or the new Tiered Standard plan.
Notably, this initiative was announced just two weeks before the administration launches its two new repayment plans enacted through the One Big Beautiful Bill Act – the Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan.
The department listed instructions for borrowers to enroll in auto pay in its press release.
Publication Date: 6/22/2026
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