What retirement savers need to know
June 18, 2026
The Department of Education recently announced that it would provide a temporary, increased interest rate reduction to people with federal student loans who sign up for auto pay.
Starting July 1, 2026, people who are enrolled in auto pay or who sign up for auto pay by September 30, 2026, will get a 1% reduction in their student loan interest rate. Currently, borrowers on auto pay already get a .25% interest rate reduction, so this new change will increase that benefit temporarily to 1%. The increased interest rate reduction lasts through June 30, 2028. This benefit will apply to all Direct Loans that were issued after July 1, 2012, including Parent PLUS Loans.
A lower interest rate means you could pay less on your student loan debt over time. While this temporary benefit won’t solve the student loan crisis, it’s still a good way to save some money.
How do I get the lowered interest rate?
You need to sign up for auto pay with your loan servicer by September 30, 2026. To do this, log in to your account on your loan servicer’s website and select auto pay under the repayment options menu. If you have more than one loan servicer, you’ll need to do this for each of those accounts.
If you’re already signed up for auto pay, you don’t need to do anything else, and the interest rate reduction will be applied automatically.
Does it matter what type of payment plan I’m enrolled in?
No. It generally doesn’t matter what type of payment plan you’re enrolled in, as long as you are signed up for auto pay, you should automatically receive the interest rate reduction beginning July 1, 2026. But if you’re on the SAVE plan you first need to switch plans and sign up for auto pay again in order to get this benefit.
What if I’m in default on my loans?
Unfortunately, you can’t just start making payments on your federal loans once they’re in default to get this benefit. You first have to take steps to get your loans out of default in order to then sign up for auto pay and get the interest rate reduction.
Right now, the two common ways most borrowers get their loans out of default are consolidation or loan rehabilitation.
A loan rehabilitation is less risky right now for most borrowers in default, but it takes nine months to complete. In a loan rehabilitation, you enter an agreement to make nine full, on-time, reasonable and affordable payments over nine months to remove your loans from default. If you haven’t already started this process, you won’t have time to do this before September 30, 2026–the deadline to sign up for the temporary increased interest rate reduction on auto pay. See our page on the ins and outs of loan rehabilitation.
You may be able to consolidate your loans to get them out of default in time to sign up for auto pay by the September 30th deadline; however, there are major downsides to consolidating loans right now. If you consolidate your loans to get out of default right now, you will lose access to many repayment plans on all your loans going forward. In addition, you will likely lose any time you’ve earned on the loans being consolidated that would count towards forgiveness in income-driven repayment plans. For more information on these risks, see our page on consolidation.
