Student Loan Update: Borrowers Face Deadline to Secure Lower Interest Rates
Federal student loan borrowers have less than one month remaining to qualify for a temporary interest rate reduction that could lower their borrowing costs through mid-2028.
The U.S. Department of Education is offering eligible borrowers a 1-percentage-point interest rate reduction if they enroll in automatic payments by September 30. The department said this is designed to encourage on-time repayment as the Trump administration continues implementing its sweeping student loan overhaul.
“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,” Under Secretary of Education Nicholas Kent said in a statement.
“No matter your age or college credential, we want to make sure that borrowers can understand their options and choose a repayment option that works best for them. This interest rate reduction will help borrowers as they consider new, affordable repayment plans and work to repay their loans on time.”
The deadline is approaching as millions of borrowers adjust to new repayment plans and higher monthly bills under the Department’s changes that took effect on July 1.
Why It Matters
Student loan interest rates have become a growing concern for borrowers following broader reforms to the federal student loan system under the Trump administration.
Interest rates on newly issued federal student loans currently range from roughly 6.5 percent to more than 9 percent, so even a 1-percentage-point reduction could translate into significant savings over time.
What To Know
Borrowers who enroll in autopay by the end of September will receive a temporary 1 percentage point reduction in their federal student loan interest rate. The benefit became available July 1 and applies through June 30, 2028.
Autopay allows loan servicers to automatically deduct monthly payments from a borrower’s checking or savings account, reducing the risk of missed payments. Federal borrowers have long been eligible for a 0.25 percentage point interest rate discount through autopay. But under the temporary program, the administration increased that benefit by an additional 0.75 percentage points, bringing the total reduction to 1 percentage point.
“Many borrowers are struggling to balance higher costs of living with higher monthly repayments, especially after the repeal of the SAVE plan,” Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek. “Every little bit helps, and a one-percent interest rate deduction in return for setting up automatic payments is a win.”
Borrowers already enrolled in autopay do not need to take any additional action because the lower interest rate will be applied automatically.
“The temporary interest-rate reduction is one of the more straightforward benefits to emerge from the administration’s student-loan overhaul,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“Borrowers should consider that this relief arrives as new federal student loans carry rates ranging from 6.52 percent for undergraduates, meaning Americans financing college today can still accumulate substantial interest over a decade or longer even after receiving the discount.”
Who Qualifies?
The interest rate reduction is available to borrowers with eligible Federal Direct Loans disbursed on or after July 1, 2012, who enroll in autopay by September 30.
However, not all borrowers are eligible.
Borrowers in default must first return their loans to good standing before receiving the benefit. The interest rate reduction also ends if a borrower enters deferment or forbearance.
“Borrowers should view this as useful short-term relief rather than a solution to the student-debt affordability problem,” Beene said. “When the discount goes away, the underlying fixed interest rate remains, and for people stretching repayment over 15, 20, or 25 years, those rates can substantially increase the total amount ultimately repaid.”
How Much Could Borrowers Save?
The actual savings will depend on a borrower’s balance and interest rate.
A graduate-level borrower with $50,000 in student debt at a 7.94 percent interest rate could save nearly $23 per month under the temporary reduction. However, over the benefit’s two-year term, those savings could add up to several hundred dollars.
“Borrowers should understand that interest rates do matter, but with all of the issues we have seen within the student loan system, can you really trust that the payment withdrawn will be what was quoted?” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
“There is no worse feeling than seeing a larger-than-expected amount come out of your checking account without any ability to pull it back. Autopay does just that, it automatically pulls the payment.”
Experts say the benefit may be most valuable for borrowers focused on reducing their interest accumulation and paying down principal balances more quickly.
“Longer term, you may see higher repayment rates as a result of these incentives,” Thompson said. “However, what the government needs to understand is that interest rates are only part of the problem. The monthly payment itself is what is keeping many borrowers with student loans underwater.”
What Happens Next
Borrowers who sign up before the September 30 cutoff will keep the enhanced interest-rate reduction through June 2028, provided they remain enrolled in autopay and maintain their eligibility.
Meanwhile, the administration is continuing to roll out its broader repayment changes, including the Repayment Assistance Plan (RAP).
As borrowers navigate those changes, the temporary interest-rate incentive could be one of the few opportunities to lower borrowing costs before the September deadline passes.
“The administration is offering a financial incentive to encourage repayment,” Powers said. “This feels like recognition that there needs to be both a give and a take to help student loan borrowers.”
Contact Newsweek editors on this story: Jason Lemon and Sam Wilson.