"Making student loan repayment easier than ever." – Education Undersecretary Nicholas Kent
Federal Student Loan Auto-Pay Discount Triples to 1% for Three Years
The U.S. Department of Education has announced a temporary increase in the interest rate discount for federal student loan borrowers who enroll in automatic payments. The discount will rise from 0.25 percentage points to 1.0 percentage point for a three-year period.
Eligibility and Effective Dates
The 1% interest rate reduction applies to borrowers with Direct Loans issued after July 1, 2012, who are enrolled in auto pay. The increased discount takes effect from July 1, 2025, through June 30, 2028. Borrowers must sign up for automatic payments by September 30, 2026, to qualify.
Current auto pay users already receiving a 0.25% discount will see an additional 0.75% reduction. Borrowers who are in default—approximately 9 million individuals—must return to good standing, typically through loan consolidation and applying for a new repayment plan, to qualify for the discount.
Portfolio Context and Administration Goals
The federal student loan portfolio is approximately $1.7 trillion, with rising delinquency and default rates. Currently, about 40% of borrowers are enrolled in auto pay. The department aims to increase this figure.
Administration Statements
Education Undersecretary Nicholas Kent stated that the change is a way of "making student loan repayment easier than ever" and improving "the overall health of the federal student loan portfolio."
Background on Repayment Policy
The administration is phasing out repayment options established during the previous administration and introducing its own income-driven repayment plan.