Student Loan Borrowers: Only One Week Remains to Lock in Reduced Interest Rates

KEY TAKEAWAYS

• Federal student loan borrowers must enroll in autopay by Sept. 30 to qualify for a temporary one percentage-point interest rate reduction.
• The interest rate reduction for borrowers who sign up will only last through June 30, 2028.
• Borrowers in delinquency or defunct repayment plans may not qualify unless they return to repayment and bring their loans into good standing.

Federal student loan borrowers have one week left to enroll in autopay and receive an interest rate reduction.

Borrowers must sign up for autopay by Sept. 30 to qualify for a temporary one-percentage-point reduction on their student loans.1 Those already enrolled in auto-pay will see their interest rate fall automatically following the sign-up deadline, and for those not in auto-pay yet, they can log into their student loan servicer account to sign up for this payment option

The reduction has some terms and conditions, though. The interest rate reduction will only last through June 30, 2028, and borrowers must be in repayment and have student loans originated after July 1, 2012, to be eligible.

Why This Matters

An interest rate reduction can lower a borrower’s monthly payments, as most borrowers pay interest on top of their principal balance.2

The interest rate reduction is one of several actions by the Department of Education to encourage the growing number of borrowers in default to return to repayment.

To receive the interest rate reduction, borrowers must be in good standing. Borrowers who are delinquent (missed payments for 31 to 270 days) can get back into good standing by repaying past-due amounts or changing their repayment plan and resuming payments.3

If a borrower is in default (missed payments for 271 days or more) and has not already begun the process of returning to repayment, it may be too late for them to receive the interest rate cut.

The two options for defaulted borrowers are loan consolidation and loan rehabilitation, which can take up to six weeks to consolidate or up to nine months to rehabilitate, well past the deadline to sign up for the interest rate deduction.45

This offer was designed to encourage borrowers who are still on the now-defunct Saving on a Valuable Education plan to transfer to an active repayment plan early so they can be eligible for the reduction. SAVE borrowers are now receiving notifications to withdraw from their payment plan, and some have a Sept. 29 deadline to exit.

Many student loan servicers are processing plan transfer applications within a day, leaving enough time for SAVE borrowers to receive the interest rate reduction.

If a borrower is still in forbearance while their application is being processed, they can apply for autopay, and once they enter their requested plan and resume payments, the 1-percentage-point reduction should apply.6 Borrowers should call their student loan servicer to confirm their auto-pay policies.

Article Sources

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1. Department of Education. “U.S. Department of Education Announces Student Loan Interest Rate Reduction.”
2. Federal Student Aid. “Interest Rates and Fees for Federal Student Loans."
3. Federal Student Aid. “Student Loan Delinquency and Default.”
4. MOHELA. “Loan Consolidation.”
5. Federal Student Aid. “Getting Out of Default.”
6. MOHELA. “Auto Pay Interest Rate Reduction.”