The Education Department announced Tuesday that borrowers who enroll in automatic payment (auto‑pay) by Dec. 31, 2026 will receive a 1% reduction in their federal student‑loan interest rate. The cut will remain in effect through June 2028. The deadline was originally set for Sept. 30, but President Trump’s administration extended it to give families more time to take advantage of the benefit.
How the reduction works
Borrowers already using auto‑pay enjoy a 0.25% discount. The new policy adds an additional 0.75% discount, for a total of a full 1% reduction. The benefit is temporary but designed to support borrowers who are returning to repayment or who have large balances and fixed‑payment plans.
Why the change matters for families
“For a limited time, borrowers are now able to get a full percentage‑point reduction in their interest rate if they sign up for auto debit,” said Lesley J. Turner, associate professor of public policy at the University of Chicago. “This is a quadrupling of the earlier benefit. It’s a pretty big benefit, especially for borrowers who have large balances.”
Turner added that auto‑pay also helps families avoid missed payments. “We all know life gets busy and if you have to log in every month and manually make your payment there may be a chance that you forget and then you end up having your loans go delinquent,” she explained.
Enrollment steps
To claim the reduction, borrowers should log in to their loan servicer’s website, select the auto‑pay option, and provide bank account information for automatic withdrawals. Even without the discount, auto‑pay is a proven way to stay current on loan obligations.
Borrowers already in default must first consolidate their eligible loans at studentaid.gov before enrolling in auto‑pay. Consolidation creates a single loan with a fixed rate and a single monthly payment, typically taking about 60 days to complete. Each borrower may consolidate only once.
Default relief and broader policy context
The Trump administration also announced earlier this year that it is delaying plans to withhold wages from borrowers who fall into default. Under federal rules, a loan is considered in default after 270 days of missed payments. Involuntary collections on federal student loans remain on hold while the administration reviews enforcement priorities.
According to the Education Department, roughly 9 million Americans were in default as of June, with hundreds of thousands more behind on payments and at risk of default this year. The extended auto‑pay deadline and interest‑rate cut aim to reduce those numbers by encouraging timely payments.
Additional options for struggling borrowers
Borrowers in default can also explore loan rehabilitation programs, which place them on a reduced‑payment plan. After five consecutive on‑time payments, wage garnishment ends. More information on rehabilitation is available on the Department’s website.
With nearly 2 million borrowers already enrolled in auto‑pay since the policy was announced this summer, the administration expects the extended deadline to boost participation and help families keep their finances on track.
Original reporting: Alexandria, VA News – WTOP News — read the source article.
