Reduce your total student loan cost by enrolling in automatic payments by Sept. 30
The U.S.Department of Education is providing a temporary 1% interest rate reduction for federal student loan borrowers who enroll in automatic payments before September 30, 2026.
The move was announced by the Department on June 18, and it went into effect on July 1.The 1% reduction is a fourfold increase over the previous 0.25% reduction offered to borrowers who previously signed up for autopay.This temporary reduction comes amid the biggest overhaul of the federal loan program in decades as the government works to simplify how students borrow, how much they can borrow and how they repay their loans.Before the COVID-19 pandemic, autopay rates on student loans were more than 80%, but pandemic disruptions, including long periods of forbearance, took a toll, and now only 40% are enrolled, according to the Department of Education.
The new 1% incentive is intended to get more student loan borrowers into autopay and back on track to a record of on-time payments.“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,” said Under Secretary of Education Nicholas Kent in a press release.“We expect this temporary incentive to drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.”The extra bump in savings is welcome news to borrowers, though the benefit is only temporary.
When older repayment plans are phased out and replaced with the new Repayment Assistance Plan (RAP) and the Tiered Standard Plan on July 1, 2028, the discount will return to its former 0.25% level.Mark Kantrowitz, author of “How to Appeal for More College Financial Aid” says the benefit isn’t primarily about the money.“It saves $100 per year, $200 total, per $10,000 owed, up from $25 and $50, respectively, from the current discount.
It helps, but saves just a single monthly paymen...