Students sit in an auditorium until class ends at the University of Texas at Austin on February 22, 2024 in Austin, Texas.
Brandon Bell | Getty Images
The Trump administration announced Thursday that it will reduce interest rates by 1 percentage point starting July 1 for federal student loan borrowers who enroll in AutoPay.
Autopay borrowers are currently eligible for a 0.25 percentage point discount.
Federal student loan holders who have not yet enrolled in AutoPay must do so by September 30th if they want to benefit from lower interest rates. Discount lasts until June 30, 2028.
“The Trump Administration is making it easier than ever to repay student loans,” said Education Undersecretary Nicholas Kent in a statement. “Borrowers should not wait to take advantage of this temporary interest rate reduction to stay on track with key student loan benefits.”
According to the Congressional Research Service, more than 42 million Americans have federal student loans, totaling more than $1.6 trillion in outstanding debt.
Interest rate discount will be given before loan review
The announcement comes as tens of millions of borrowers prepare for a major overhaul of the federal student loan system this summer due to changes from President Donald Trump’s “One Big Beautiful Bill.” The law narrows affordable repayment plans and other relief for borrowers.
According to the U.S. Department of Education, only 40% of current student loan borrowers are enrolled in AutoPay, down from more than 80% before the coronavirus outbreak.
Borrower has encountered automatic payment errors in the past
Consumer advocacy groups typically advise federal student loan holders to seize the opportunity to lower their interest rates by enrolling in automatic payments. This will also help prevent missed payments.
However, some loan holders are running into problems with automatic payments.
For example, in 2023, CNBC wrote about a woman who was charged $2,074 a month in student loan payments when her plan was supposed to have $0 in student loan payments. The Consumer Financial Protection Bureau has reported similar errors.
Savings may be “minimal”
Higher education expert Mark Kantrowitz said interest rate discounts are unlikely to save borrowers much money.
“The economic benefits are minimal,” Kantrowitz said. For example, he calculated that reducing a $10,000 student loan with an interest rate of 6.5% to 5.5% would save the borrower about $8 a month.
“In any case, borrowers should enroll in Autopay as they are less likely to be late on their payments,” he added.
