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Student Loan Borrowers Eligible for a Temporary 1% Auto Pay Discount

September 1, 2026

The U.S. Department of Education has temporarily increased the interest rate discount for federal student loan borrowers enrolled in auto pay from 0.25% to 1% as of July 1, 2026. The enhanced discount will remain available through June 30, 2028, and applies to borrowers already enrolled in auto pay as well as borrowers who sign up for auto pay by September 30, 2026.

The change is intended to make monthly payments more affordable and help borrowers stay on track with repayment. The Department also hopes the enhanced discount will boost auto pay enrollment to pre-pandemic levels, when approximately 80% of borrowers used auto pay, compared with 40% today.

What is auto pay?

Auto pay is an optional feature that allows a borrower’s monthly student loan payment to be automatically withdrawn from a checking or savings account. Prior to July 1, 2026, borrowers enrolled in auto pay received a 0.25% interest rate reduction. Under the new policy, that discount increased to 1% on July 1, 2026.

Who is eligible?

The new interest rate reduction is available to borrowers with Federal Direct Loans issued after July 1, 2012, including both student and parent borrowers. Here are the details on what different borrowers need to do:

Borrowers already enrolled in auto pay. Borrowers already enrolled in auto pay do not need to take any action. The additional 0.75% discount will be applied automatically.
Borrowers not yet enrolled in auto pay. Borrowers who are not yet enrolled in auto pay must sign up by September 30, 2026, to be eligible for the 1% discount. Borrowers can sign up on their loan servicer’s website and must provide their bank account information.
Borrowers who are in default. Borrowers who are currently in default on their federal student loans (and thus not in repayment) must consolidate their eligible loans and then apply for a new repayment plan before enrolling in auto pay.
Borrowers who are enrolled in the SAVE Plan. Borrowers enrolled in the Saving on a Valuable Education (SAVE) Plan must first choose another repayment plan to be eligible for the 1% interest rate reduction because the SAVE Plan is being phased out.

To continue receiving the 1% interest rate discount through June 30, 2028, borrowers must remain enrolled in auto pay. For the latest information, borrowers can visit the Federal Student Aid website.

Source: U.S. Department of Education, June 18, 2026

Note: Both student and parent borrowers are eligible for the new 1% interest rate reduction if they are enrolled in auto pay or if they enroll by September 30, 2026.

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