Student Loan Auto-Pay Now Comes With a 1% Interest Rate Cut

Starting July 1, federal student loan borrowers who enroll in automatic payments will receive a 1 percentage point reduction on their interest rate – a significant jump from the 0.25% discount that has long been the standard.

The benefit is temporary, running through June 30, 2028, but the enrollment window extends to September 30, 2026, so there’s time to spread the word.

Here’s what counselors should know to pass along to recent graduates and current students with federal loans:

Who qualifies: Borrowers with Federal Direct Loans first disbursed on or after July 1, 2012 including student and parent borrowers.

Already enrolled in auto-pay? No action needed. Servicers will automatically apply an additional 0.75 percentage point reduction, bringing the total discount to a full 1%.

Not yet enrolled? Log into your loan servicer account, select auto-pay, and enter your bank account information before September 30, 2026.

One catch: If auto-pay is canceled due to three consecutive failed payments, the rate reduction is lost.

Auto-pay enrollment dropped sharply during the pandemic payment pause – from over 80% of borrowers before COVID to roughly 40% today. This initiative is designed to bring more borrowers back into active repayment as major changes to federal repayment plans also take effect July 1.

For borrowers on income-driven repayment plans, the rate cut won’t lower monthly payments (those are based on income), but it can slow interest accumulation over time.

Source: StudentAid.gov