One-percent interest cut for federal student loans ends Sep. 30 for new autopay enrollees

The Education Department announced that federal student-loan borrowers who enroll in automatic payment processing by September 30 will obtain a temporary one-percentage-point reduction in their interest rates, a benefit that will remain in effect through June 30, 2028. The program, which began on July 1 for those already using autopay, adds a three-quarters-point cut to the existing quarter-point discount for current participants.

Borrowers must be in good standing; those in default are excluded until they cure the default, and the reduction ends if a loan enters deferment or forbearance. The rate cut applies only to direct federal loans disbursed on or after July 1, 2012, whose rates range from 6.5% to over 9%. Undersecretary Nicholas Kent said the incentive should raise repayment rates and improve the loan portfolio’s health, while Rep. Anna Paulina Luna called for a statutory cap of 2% on loan interest. The initiative is part of a broader repayment overhaul launched in July, which aims to simplify the system amid reports of billing errors and higher monthly payments.