Federal student loans have a new interest rate discount — here's who qualifies
The Trump administration is offering federal student loan borrowers a deeper-than-usual discount on their interest rates if they sign up for automatic payments soon — but not everyone will qualify.
In a June 18 press release, the U.S. Department of Education announced that eligible borrowers who enroll in autopay will benefit from a 1 percentage point reduction on their interest rate. The temporary relief will last through June 30, 2028.
Borrowers on autopay currently have access to a 0.25 percentage point discount.
More than 40 million Americans hold student loans, and the discount could lower their monthly payments at a time when many are struggling with the rising cost of living. Currently, the average interest rate on federal student loans is 6.54%, according to higher education expert Mark Kantrowitz.
The rates on federal student loans are typically fixed and tied to the academic year. This isn't the first interest rate discount from the Education Department: during the Covid pandemic, all interest accrual was frozen on the loans, essentially setting borrowers' rates to zero.
Here's who will be eligible for the latest lower rate, which begins on July 1.
To qualify for the new discount, your debt must be from the Direct Loan program, Kantrowitz said.
Those include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans and Direct Consolidation Loans. Parent PLUS borrowers will also be eligible, as long as their loans are from the Direct Loan program, Kantrowitz said.
Federal Family Education Loans, or FFEL, aren't eligible for the temporary reduced rates. As the federal government is offering the discount, the benefit also does not extend to private student loans.
In addition, your loans must have been disbursed on or after July 1, 2012, for you to be eligible, Kantrowitz said. You can find your loan disbursement dates at Studentaid.gov or with your servicer.
The interest rate discount will be accessible to student loan borrowers in default only after they bring their accounts back into "good standing," according to the Education Department.
You can contact the government's Default Resolution Group and pursue a number of different avenues to get current on your loans, including signing up for loan rehabilitation.
Borrowers who've already enrolled in autopay will automatically receive the discount, the Education Department said. Otherwise, borrowers must sign up for autopay by Sept. 30, 2026, to qualify.
You'll also have to remain enrolled to continue to be eligible, said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York, a nonprofit that helps borrowers navigate repayment.
Consumer advocates usually recommend that federal student loan borrowers take advantage of a lower interest rate by enrolling in automatic payments. Doing so can also help you avoid missing a payment.
"Generally, there is little downside to signing up for autopay and getting the interest rate reduction over the next few years," Nierman said.
But some loan holders have run into problems with autopay.
For example, CNBC wrote in 2023 about a woman who was supposed to have a $0 student loan payment under the plan she was enrolled in, but was charged $2,074 one month. The Consumer Financial Protection Bureau has reported on similar errors.
If you've been billed the wrong amount, contact your loan servicer quickly, Kantrowitz said. Borrowers should demand an immediate refund, he said. They can also ask their servicer to cover any late fees from bounced checks or an overdraft, he added.
