If you’re a federal student loan borrower, you may be eligible for a 1% discount on your interest rate. As of July 1, 2026, the Department of Education (ED) started offering a 1% interest rate reduction to borrowers who use autopay (automatic payments from a bank account) to pay back their student loans.
This 1% discount is an increase from the previous 0.25% rate cut that ED offered for using autopay. This new incentive may only be around until mid-2028, but it’s worth taking advantage of now so you can save on interest for the next two years.
Here’s a closer look at the new student loan interest rate reduction, including who qualifies and the deadline to enroll.
Education Department Announces New Student Loan Interest Rate Discount
The Department of Education recently announced a temporary interest rate discount to borrowers who use autopay to pay back their federal student loans. If you enroll in autopay you can get a full percentage point knocked off your rate, an increase from the previous discount of 0.25 percentage points.
If your loans have an interest rate of 6%, for instance, your rate could drop to 5% if you use autopay (previously it would have only dropped to 5.75%). If you’re already getting a 0.25% rate cut from using autopay, you’ll get another 0.75 percentage points knocked off.
To claim this new discount, you’ll need to enroll in autopay by September 30, 2026 (or remain enrolled if you’re already using it). ED is offering this higher discount until June 30, 2028 after that, it may revert back to the usual 0.25%.
This new measure is largely intended to incentivize more borrowers to use autopay on their student loans, which helps ensure they pay on time. Prior to the Covid-19 pandemic, more than 80% of borrowers in active repayment were using autopay, while today only 40% are.
Here’s Who Qualifies for the Interest Rate Reduction
You’ll need to meet a few basic requirements to qualify for the 1% interest rate discount. These include:
- Having eligible Direct loans, including Direct subsidized and unsubsidized loans, Grad PLUS loans, Parent PLUS loans, and Direct consolidation loans
- Having loans that were disbursed on or after July 1, 2012
- Enrolling or remaining enrolled in autopay by September 30, 2026
Older Federal Family Education Loans (FFEL) and private student loans aren’t eligible for this 1% rate discount. If you’re not sure what type of loans you have, you can find details by signing into your account on the Federal Student Aid website or your loan servicer’s website. You can also reach out to your loan servicer to confirm whether your specific loans are eligible.
How You Can Get the Interest Rate Discount
If you have eligible federal loans, there’s only one simple step you need to take to get the 1% interest rate discount: enroll in autopay by the September 30th deadline. You can sign up by:
- Logging into your student loan servicer account
- Selecting the autopay or automatic payment option
- Filling in your bank account information
- Reviewing and confirming your payment details
Make sure you’re on the correct loan servicer website before sharing your bank account information.
If you’re already using autopay, you don’t need to do anything but stay in it. Your loan servicer should automatically apply the interest rate discount to your loans.
How Much Money Could You Save?
A 1% interest rate discount isn’t huge, but you could still see worthwhile savings depending on your loan balance. Let’s say, for example, that you owe $30,000 at a 6% interest rate and are starting to pay it back on a 10-year repayment plan. Over the course of two years, you could save nearly $550 if your interest rate went from 6% to 5%. Your actual savings will depend on multiple factors, including your loan balance, current rate, and how long you receive the discount.
Pros and Cons of Using Autopay for Your Student Loans
Reducing your interest rate is always a good thing, but you’ll want to make sure autopay works for your situation before you enroll. Autopay lets your loan servicer automatically deduct payments from your bank account every month. It helps you avoid missing payments, but you’ll need to make sure you have enough in your bank account each month to cover your student loan bills.
Here are some pros and cons of autopay to consider before you enroll:
Pros of Autopay
- You’ll get an interest rate discount: Autopay on federal student loans historically comes with a rate cut of 0.25%, and now may grant you a full 1% discount for the next two years. If you have private loans, you might also get a rate discount for using autopay. College Ave, for example, offers a 0.25% discount for using autopay on all its student loans.
- You’ll avoid late or missed payments: By opting into automatic payments, you won’t miss your payment due dates. That means you’ll also avoid racking up late fees, damaging your credit, and going into delinquency or default.
- You can mostly set it and forget it: After you set up autopay, you won’t have to worry about tracking bills from your servicer each month, which can give you peace of mind. That said, it’s still wise to review your statements periodically to ensure everything is processing correctly.
Cons of Autopay
- You need enough money in your bank account: Enrolling in autopay authorizes your loan servicer to deduct student loan payments from your account each month regardless of your balance. It’s your job to ensure you have enough funds in there for the payment to go through, which may be especially tough for borrowers with irregular income or unpredictable expenses.
- Overdrafts could lead to hefty fees: If your automatic student loan payment overdraws your account, you could face high overdraft fees, which may cost $35 per transaction.
- You may miss changes to your loan account: If you overly rely on autopay, you may end up ignoring your student loans and missing important notifications about your repayment plan or other loan details.
Using autopay can be a great way to remain current on your student loan payments, but stay proactive about monitoring your loan balance and student loan statements.
Refinancing Has the Potential to Lower Your Interest Rate
While the Department of Education’s interest rate discount is one way to lower your interest accrual, refinancing could be another.
When you refinance student loans, you replace your current loans with a new loan that may have a lower interest rate. This interest rate reduction isn’t temporary, either, but will remain for the life of your new loan.
Refinancing tends to make sense for borrowers who have strong credit and a stable income. You’ll want to be careful about refinancing federal student loans, though, since doing so means losing eligibility for federal repayment plans, forgiveness programs, and other benefits.
Before refinancing any federal loans, carefully weigh the benefit of potential savings against the downsides of giving up federal protections. If refinancing makes sense for you, many lenders, including College Ave, let you check your potential interest rates with no commitment or impact on your credit score.
Final Thoughts
If you’re paying back your federal student loans on autopay, you could see your interest rate drop soon. And if you’re not using autopay yet, consider signing up by the September 30th deadline to snag the new interest rate discount. While this 1% rate cut will only be around through mid-2028, you could still see meaningful savings during this two-year period. If autopay makes sense for your situation, make sure to sign up (or remain enrolled) to lower your costs of borrowing.
