Student loan borrowers have until Dec. 31 to lock in a 1% interest rate discount

Student loan borrowers now have until the end of the year to qualify for a lower student loan interest rate, after the Department of Education extended its original deadline by three months. 

Federal loan borrowers must enroll by Dec. 31, 2026 to receive the special rate discount. As long as you remain enrolled in autopay, the lower rate will be in effect until June 30, 2028.

Why is there a student loan discount?

Starting July 1 this year, federal student loan borrowers became eligible for a 1% interest rate discount by enrolling in autopay. The benefit came amid major changes to loan limits and repayment plans that were also instituted in July. 

According to the Department of Education, only 40% of borrowers actively repaying their loans were enrolled in autopay — a major drop from the 80% who used it before the pandemic. Previously, autopay could get borrowers a smaller 0.25% interest rate reduction on their loans. Now, that’s increased to a full 1%.

“Following the Trump Administration’s announcement of the interest rate reduction earlier this year, nearly 2 million borrowers have enrolled in autopay — helping borrowers reduce long-term interest accrual,” said Nicholas Kent, under secretary of education, in an announcement from the Department of Education.

“We are excited to see millions of borrowers take advantage of this temporary benefit, which is already driving up repayment rates and improving the overall health of the federal student loan portfolio.”

Read more: A complete timeline of federal student loan changes

How to qualify for the 1% interest rate reduction

If you’re already enrolled in autopay, you don’t need to make any changes. You’ve automatically gotten the 1% reduced rate since July 1.

Otherwise, you should enroll in autopay by Dec. 31, 2026. But you don’t have to wait until that date. The new autopay discount is already in effect, so the sooner you enroll, the more you can save.

You can qualify if you have Federal Direct Loans that originated after July 1, 2012. That includes student and parent borrowers. There are no limitations based on your repayment plan, whether you’re using an existing income-driven repayment plan or you enroll in the new Repayment Assistance Plan or Tiered Standard Plan. As long as you have an eligible loan and you’re actively repaying via autopay, you can qualify. 

The exception is for borrowers enrolled in the SAVE Plan. SAVE has been eliminated, and loan servicers began notifying borrowers about the plan’s end in July. You have 90 days to switch to a different plan (if you don’t choose a new plan, you’ll be enrolled in either the Standard Repayment Plan or Tiered Standard Plan after 90 days). 

However, you don’t want to wait until that deadline passes. If you’re enrolled in the SAVE Plan and you want to qualify for the reduced autopay rate, you must first choose a new repayment plan. Then, you can enroll in autopay by the Dec. 31 deadline and qualify.

Once you enroll, you’ll get the discounted rate through June 30, 2028 — as long as you continue to use autopay for your monthly student loan payments. 

How to enroll in autopay

Autopay allows your student loan servicer to automatically take your monthly payment from your checking or savings account each month. 

To enroll, log in to your account with your loan servicer and navigate to the autopay page. Enter your bank account information, connect your accounts, and review the amount that will be deducted each month.

Before enrolling, make sure you can commit to having that full payment in your bank account each month. If your loan servicer withdraws more than you have available, you could risk overdraft fees and a negative account balance.

Defaulted student loans

If your loans are currently in default, you’ll need to return to good standing before you can take advantage of the interest rate discount. 

One way to get out of default is by consolidating your loans into a Direct Consolidation Loan. Then, either choose an income-driven repayment plan or make three consecutive payments in full toward your loan before consolidating. If you choose the latter, you can choose any repayment plan you qualify for. 

After going through the consolidation process to get back in good standing, you can enroll in autopay and qualify for the discount. 

Read more: Student loan defaults are rising. What borrowers should know before it’s too late.

How much can you save with 1% reduced interest? 

Saving 1% interest on your loan — even temporarily — can save you a significant amount of money on your overall repayment.

As a simplified example, let’s say you have $30,000 in federal student aid with a fixed interest rate of 6.4% and you enroll in the new Tiered Standard Plan. Your maximum repayment period under that plan, based on your loan amount, is 15 years. 

At your original 6.4% interest rate, you’ll pay about $260 per month. With the temporary rate discount, your interest rate will go down to 5.4%, and your monthly payment will be about $243 per month. 

The big difference is the amount you’ll save in interest payments. Without the reduced interest rate, you’ll pay $6,232 in the same time period, with $3,687 going toward interest and $2,545 toward the principal.

But after the autopay discount, you’ll pay a total of $5,844 over two years, with $3,100 going toward interest and $2,744 toward principal.

With a lower interest rate, more of your payments over this period will go toward reducing your principal amount — lowering the overall amount you pay toward your full loan over time. Even though the reduced rate is temporary, it can help you save throughout the lifetime of your loan.