Student Loans: Deadline to Secure Lower Interest Rates Hits in Just Days
Millions of federal student loan borrowers have only days 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 temporary 1-percentage-point reduction in their student loan interest rate but only if they enroll in automatic payments by September 30.
“This rate change can produce significant savings on larger balances while reducing the likelihood that someone simply forgets a payment,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “The challenge is that this incentive is arriving during one of the most confusing periods federal student loan borrowers have experienced in years.”
Why It Matters
With student loan repayments resuming for many borrowers and millions still struggling to return to good standing, even a small reduction in interest rates could translate into meaningful savings.
The Department of Education is offering the reduced interest rates to encourage borrowers to make on-time payments and improve the overall health of the federal student loan portfolio, officials say.
“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 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. We expect this temporary incentive to drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.”
Student Loan Interest Rate Reduction Deadline: September 30
Federal student loan borrowers must sign up for autopay by September 30 to receive the temporary reduction. The benefit will apply to eligible federal student loans originated after July 1, 2012. Once enrolled, eligible borrowers will receive a full 1-percentage-point interest-rate reduction through June 30, 2028.
“I understand what the Department is trying to do. Autopay removes one opportunity to miss a payment,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek. “And a full percent off the interest rate gives borrowers a legit reason to sign up. For borrowers who can afford their payment, that should improve payment consistency at the margin.”
Those not already enrolled can sign into their student loan servicer account and authorize automatic payments from a checking or savings account.
Still, Ryan said the autopay option will not solve the affordability crisis many borrowers are facing.
“For someone whose checking account simply doesn’t have enough money in it, well automatically withdrawing the payment doesn’t solve the underlying problem. It’s realistically only going to create another problem,” Ryan said.
What To Know
Source: U.S. Department of Education.
How Much Could Student Loan Borrowers Save?
Savings depend on a borrower’s balance and interest rate. A borrower with $50,000 in student debt and a 7.94 percent interest rate could save nearly $23 per month during the temporary reduction period.
Experts say the interest rate drop could be particularly valuable for borrowers with large graduate school balances or Parent PLUS loans carrying relatively high interest rates.
“A one-percentage-point decrease in rates could be substantial, especially on larger loan amounts,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
“The Ed Department also knows there are plenty of people in good standing who simply aren’t signed up for autopay. Getting those borrowers connected to a bank account allows payments to come in on a more established timeline, while also potentially getting some people who may be behind on payments to sign up because of this one-time change.”
Interest rates on many newer federal student loans currently range from about 6.5 percent to more than 9 percent.
Which Student Loan Borrowers May Not Qualify?
Not all borrowers will automatically qualify.
Borrowers must generally be in repayment and in good standing to qualify. Those who are delinquent may regain eligibility by bringing their loans current or switching repayment plans and resuming payments.
However, borrowers in default face a bigger challenge. Defaulted borrowers typically must complete loan consolidation or rehabilitation before returning to repayment, and these are processes that can take weeks or months.
“The reduction is a pretty good carrot for borrowers who are already close to being on track,” Ryan said. “It is a much weaker tool for the borrowers the Department most needs to bring back into repayment though.”
What Happens Next
After September 30, borrowers who have not enrolled in autopay will lose the opportunity to receive the temporary 1-percentage-point interest rate drop. For those who enroll in time, the reduced interest rate will remain in effect through June 30, 2028.
“I do believe we will see more money moving back into the student loan system as more people sign up for the RAP (Repayment Assistance Plan) program and take advantage of lower interest payments,” Thompson said. “But overall, this does very little to solve the rampant cost of education around the country.”
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: Jason Lemon and Sam Wilson.