Student loan borrowers can get a 1% interest rate discount — how to make sure you qualify

You may soon be eligible for a lower student loan interest rate – at least temporarily.

Starting July 1, borrowers with federal student loans can get a 1% interest rate discount by signing up for automatic payments. The gain comes amid changes to loan limits and repayment plans that will affect many borrowers from July.

According to the Department of Education, only 40% of borrowers are paying off their loans today – a big drop from the 80% who used to default before the pandemic. So far, automatic payments can get you a 0.25% interest rate reduction on your loan. Now, that’s up to 1%.

“This reduction in interest rates will help borrowers as they consider new affordable payment plans and work to pay back their loans on time,” said Nicholas Kent, Under Secretary of Education, in an announcement by the Department of Education. “We expect this short-term incentive to increase repayment rates and significantly improve the overall life of the student loan portfolio.”

You must register by September 30, 2026, to take advantage of the discount, and the reduced rate will last for a limited time. Here’s how to make sure you’re eligible:

Read more: A complete timeline of student loan changes

How to qualify for a 1% interest rate reduction.

If you’re already signed up for automatic payments, you don’t need to make any changes. You will automatically receive a 1% reduced rate (plus a 0.75% reduction on top of the 0.25% you already receive) from 1 July.

If not, you should enroll in autopay by September 30, 2026. But you don’t have to wait until that date. The new auto-pay discount will be effective from July 1, so the sooner you sign up, the more you can save.

You may qualify if you have Federal Direct Loans that began after July 1, 2012. That includes student and parent borrowers. There are no limits based on your payment plan, whether you use an existing income-driven repayment plan or enroll in the New Payment Assistance Plan or the Standard Tiered Plan. As long as you have a qualifying loan and are making regular payments, you may qualify.

Exceptions for borrowers enrolled in the Savings Program. SAVE has been removed, and loan officers will begin notifying borrowers about the ending plan, starting July 1. You will have 90 days to switch to a different plan (if you do not choose a new plan, you will be enrolled in a Standard Repayment Plan or a Standard Tiered Plan after 90 days).

However, you don’t want to wait for that deadline to pass. If you signed up for a Savings Plan and want to qualify for a reduced rate of automatic payments, you must first select a new payment plan. After that, you can enroll in autopay by the September 30 deadline and qualify.

Once you’re signed up, you’ll get a discounted rate until June 30, 2028 – as long as you continue to use automatic payment on your monthly student loan payments.

How to sign up for automatic payments

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

To sign up, log into your account with your loan provider and navigate to the automatic payment page. Enter your bank account information, link your accounts, and review the amount to be deducted each month.

Before signing up, make sure you can commit to having that full payment in your bank account every month. If your loan officer takes out more than you have, you could be at risk of overdraft fees and negative account balances.

Student loan default

If your loan is currently non-performing, you will need to get back into good standing before you can take advantage of the interest rate discount.

Another way to get out of default is to consolidate the loan into a Direct Consolidation Loan. Then, choose an income-driven repayment plan or make three consecutive payments in full on your loan before consolidating. If you choose the latter, you can choose any payment plan that suits you.

After going through the consolidation process to get back into good standing, you can sign up for automatic payments and qualify for a 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 a short-term one – can save you a significant amount of money on your overall payment.

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

With your initial 6.4% interest rate, you’ll pay about $260 a month. With a short-term rate discount, your interest rate will drop to 5.4%, and your monthly payment will be approximately $243 per month.

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

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

With a lower interest rate, more of your payments this term will go toward reducing your principal amount – lowering the total amount you pay on your full loan over time. Even if the reduced rate is temporary, it can help you save over the life of your loan.