Key facts
- The Education Department announced a reduction in federal student loan interest rates.
- The rate reduction is temporary, effective until June 30, 2028.
- Borrowers with federal Direct Loans issued after July 1, 2012, who are enrolled in or sign up for automatic payments are eligible.
- Eligible borrowers will receive a 1% interest rate reduction.
- Borrowers already using auto pay will see a 0.75% reduction, as they already receive a 0.25% discount.
The U.S. Education Department has announced a temporary reduction in federal student loan interest rates, aiming to ease repayment burdens for borrowers and combat rising default rates. The change, effective July 1, will offer eligible borrowers a 1% interest rate reduction, with those already enrolled in automatic payments receiving an additional 0.75% discount. This initiative targets borrowers with federal Direct Loans issued after July 1, 2012, who are enrolled in or sign up for auto-pay. The administration views this as a measure to improve the overall health of the federal student loan portfolio, which has grown to nearly $1.7 trillion. The reduction is set to last through June 30, 2028, and is part of a broader effort to encourage auto-pay enrollment, a figure currently standing at 40% of borrowers. For the nearly 9 million borrowers currently in default, regaining good standing, often through loan consolidation and new repayment plans, is a prerequisite for eligibility.