June 22, 2026
If you are one of the 43 million Americans with federal student loan debt, you know the interest is a real problem. Many say despite paying their bill every month, their loan balance is larger now than it was when they first took the loan out, and that’s because of the so-called runaway interest.
But now, the Department of Education is introducing a new program to at least try and help.
DOE says if you have a federal student loan and you enroll in AutoPay, you will be eligible for a 1 percent interest rate reduction. Right now, if you enroll in AutoPay, you only get a quarter-percent reduction in your interest rate. So, one full percentage point knocked off is a significant increase.
So what does that mean? Well, for example, in 2026, the fixed interest rate on a federal Direct Subsidized Loan for an undergraduate degree is 6.39 percent. That means you will pay 6.39 percent interest on your loan amount. But if you sign up for AutoPay, your fixed interest rate would be 5.39 percent on your loan amount.
Now, I know one percentage point doesn’t sound like a lot, but depending on the size of your loan balance, knocking off one percentage point in interest could save you hundreds or thousands of dollars. In order to qualify for this 1 percent interest rate reduction, your loan must be a federal Direct Loan, including student and parent borrowers, that originated after July 1, 2012.
What’s the catch? Well, there’s a couple. According to the Education Department, if you want this 1 percent interest rate reduction, the deadline to enroll in AutoPay is September 30. And the other catch is this 1 percent reduction will only last from July 1, 2026, to June 30, 2028.
Importantly, this is optional. You don’t have to enroll in AutoPay if you don’t want to. But if you do want to knock off that 1 percent, how do you sign up?
Well, if you are already enrolled in AutoPay, you don’t have to do anything. DOE says you will automatically be eligible for that 1 percent interest rate reduction. But if you aren’t already enrolled in AutoPay and your loan is in good standing, according to the Education Department, you just log into your student loan servicer account and select “AutoPay” from the navigation menu. Then you will have to enter either your checking or savings account number. Then you confirm the specific payment amount, and you’re done.
Now, if you are one of the millions of borrowers who is enrolled in the SAVE income-driven repayment plan, you know that plan has been discontinued. So if you want to get access to this 1 percent interest rate cut, you will have to first choose a different repayment plan before you can enroll in AutoPay. Those new programs will be available for you to choose from on July 1. And if your loan is in default and you want to get access to this 1 percent interest rate reduction, you will have to bring your loan back into good standing first.
Lastly, you should know that the Big Beautiful Bill completely overhauled the federal student loan system for every single borrower. So I will have a separate video about all the repayment plans that are disappearing—and there’s a lot of them—and all the new plans that are being created. That’s coming soon.
See more from Dept. of Education here.
