The U.S. Department of Education said borrowers who enroll in automatic payments will get a one percentage point interest rate discount starting July 1.
Auto pay has long offered a .25 percentage point discount, but millions of borrowers opted out during the long COVID repayment pause and the department's student debt portfolio swelled to $1.7 trillion.
The department said the rate cut will last from July 1, 2026, through June 30, 2028; an undergraduate borrower with a loan at the current 6.39% would see the rate drop to 5.39%. Borrowers already enrolled in auto pay do not need to act and will automatically receive the rate cut, and others will have until Sept. 30 to sign up and qualify.
Undersecretary Nicholas Kent said that, in 2019, roughly 83% of borrowers were enrolled in auto pay but by late 2025 participation had dropped to 40%.
"This temporary incentive is designed to help borrowers pay down their balances more quickly," Kent told reporters, "take full advantage of new repayment benefits, remain on track for loan discharge opportunities and to strengthen the overall health of the federal student loan portfolio."
July 1 will also usher in a host of big new changes to the federal student aid world, including the introduction of two new repayment plans and controversial new caps on graduate student loans.