Student Loan Borrowers Can Get a Bigger Interest Rate Discount With Autopay For a Limited Time

For a limited time, federal student loan borrowers who enroll in autopay will have a reduced interest rate.

Borrowers who sign up for autopay between July 1 and Sept. 30 will qualify for a temporary interest rate reduction, the Department of Education announced Thursday.1 Eligible borrowers' interest rates will be one percentage point lower through June 30, 2028.

This reduction is available to all borrowers whose student loans originated after July 1, 2012. However, borrowers still on the now-defunct Saving on a Valuable Education plan will have to transfer to an active repayment plan to be eligible for the reduction.

The Department of Education is pushing all borrowers in default to resume repayment, and student loan collections are expected to resume soon. The temporary reduction will make repayment cheaper, since most borrowers pay interest on top of their principal balance monthly.2

The reduction is a part of an effort to bring more borrowers back into repayment. Defaulted borrowers (those who have not made a payment for over 270 days) must consolidate their loans and resume payments before enrolling in autopay.

Before the student loan payment pause during the COVID-19 pandemic, more than 80% of borrowers were enrolled in autopay. At the time, they could receive a 0.25-percentage-point interest rate reduction. Now, only 40% of borrowers have their payments automatically withdrawn from their accounts each month.

Since the pandemic payment pause was lifted, borrowers have had trouble resuming payments. There are currently 9 million borrowers in default, or 20% of the entire federal student loan portfolio, Nicholas Kent, undersecretary at the Department of Education, said in a press call. Another 3 million borrowers are in delinquency.

Borrowers already enrolled in autopay will receive an automatic 0.75% reduction to match that of new autopay enrollees.