US Department of Education Boosts Student Loan Autopay Discount to 1%
Borrowers must enrol by September 2026 to secure the increased interest reduction, which replaces the previous 0.25% incentive and coincides with major repayment structure reforms.
The US Department of Education has announced a temporary increase to the interest rate discount for federal student loan borrowers who enrol in automatic payments, raising the benefit from 0.25% to 1%. Effective 1 July 2026, the new rate applies to Federal Direct Loans originated after 1 July 2012, including those held by student and parent borrowers. Nicholas Kent, under secretary of education, stated the department expects the incentive to drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.
The measure coincides with the elimination of the SAVE repayment plan and the introduction of new repayment structures, specifically the Repayment Assistance Plan and the Tiered Standard Plan. Borrowers currently enrolled in the SAVE plan must switch to a different repayment structure to qualify for the autopay discount. Loan servicers will begin notifying borrowers of the SAVE plan’s end on 1 July 2026, providing a 90-day window to select a new plan. Failure to choose a new plan will result in automatic enrolment in either the Standard Repayment Plan or the Tiered Standard Plan.
To qualify for the 1% discount, borrowers must enrol in automatic payments by 30 September 2026. The benefit remains in effect until 30 June 2028, provided borrowers maintain their autopay enrolment. Existing autopay enrollees will automatically receive the increased rate, which amounts to an additional 0.75% on top of the previous 0.25% reduction, starting 1 July 2026, without needing to take further action.
Eligibility is not limited by the borrower's current repayment plan, provided they are actively repaying via autopay. However, borrowers whose loans are in default must return to good standing before they can enrol in autopay and qualify for the discount. This can be achieved by consolidating loans into a Direct Consolidation Loan or by making three consecutive payments in full. The Department of Education notes that only 40% of actively repaying borrowers are currently enrolled in autopay, a significant decline from the 80% rate observed prior to the pandemic.
The temporary discount offers potential savings for borrowers transitioning to the new repayment frameworks. For example, a borrower with $30,000 in federal student aid at a 6.4% interest rate under the Tiered Standard Plan would see their monthly payment decrease from approximately $260 to $243 with the 1% discount. Over the repayment period, this reduction lowers the total interest paid, allowing more of each payment to reduce the principal balance.
