Federal student loan borrowers who sign up for auto pay by 11:59 p.m. Eastern on December 31, 2026 get a 1 percentage point cut to their interest rate, and keep it through June 30, 2028 as long as they stay enrolled. The Department of Education first set the deadline at September 30 and extended it by three months on September 29. Borrowers already on auto pay have it now.
What changed
Auto pay has always lowered a federal loan’s rate by 0.25 points. Since July 1, 2026, the cut is 1 point in total for eligible loans. On a loan at 6.53%, that is 5.53% while the cut lasts. It is temporary: it ends June 30, 2028, and only borrowers enrolled by December 31, 2026 receive it.
Who qualifies
- Federal Direct Loans first disbursed after July 1, 2012, for students and parents alike, including Parent PLUS.
- Not eligible for the extra cut: FFEL Program, Perkins and HEAL loans. They keep the usual 0.25 point auto pay reduction where their holder offers it.
- Former SAVE borrowers qualify once they are on a different repayment plan.
- Loans in default do not qualify until they are back in good standing: consolidate the loans on StudentAid.gov, choose a repayment plan, then enroll in auto pay.
How to enroll
Sign in to your loan servicer’s website, choose Auto Pay from the menu, enter the bank account the payment should come from, and confirm the amount. Enrollment is done with your servicer, not on StudentAid.gov. If you have more than one servicer, enroll with each one.
When the cut changes what you pay
A lower rate means less interest. On a $40,000 balance, 1 point is about $400 a year, or about $33 a month, while the cut lasts. Whether that reaches you depends on your plan:
- Paying the loan off (Standard, Graduated, or extra payments): this is where the cut is worth the most. Less of each payment goes to interest, so the balance falls faster.
- On an income-driven plan (RAP, IBR, PAYE, ICR): your monthly payment is set by your income, not your rate, so the cut does not lower the payment. It lowers the interest charged, which matters if you expect to pay the balance off before forgiveness.
- On RAP with a payment below the month’s interest: the unpaid interest is already waived each month, so the cut changes little. Once your payment covers the interest, the cut lowers what you owe.
- Pursuing Public Service Loan Forgiveness: the cut does not change the payment or the 120-payment count. Auto pay still helps by making sure every payment is on time, and only on-time payments count.
To see which plan your loans qualify for and what each one costs, run your numbers in the free Finology calculators. Our projections apply each loan’s stated rate without the auto pay cut, and say so on every result.
Sources
- U.S. Department of Education, “U.S. Department of Education Extends Enrollment Period for Student Loan Interest Rate Reduction”, September 29, 2026.
- Federal Student Aid, IDR Plan Court Actions: Impact on Borrowers, updated September 29, 2026.
This article explains federal rules and is not individual financial advice.
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