Repayment after the 2025 law · guide
The auto pay interest rate reduction
Federal Direct Loan borrowers who pay by automatic debit get a lower interest rate, and since July 1, 2026 the reduction is 1% in total instead of the usual 0.25%, for borrowers enrolled in auto pay by December 31, 2026. The lower rate lasts until June 30, 2028, as long as you stay enrolled. The Department announced the offer on June 18, 2026 with a September 30 enrollment deadline, then extended the deadline by three months on September 29, saying nearly nearly 2 million borrowers had signed up. Borrowers already on auto pay received the extra reduction automatically. On a $40,000 balance, one percentage point is worth about $400 of interest a year, against $100 with the usual discount. The offer covers Direct Loans originated after July 1, 2012, parent PLUS loans included, and former SAVE borrowers once they enroll in a lawful plan. Defaulted borrowers must first get out of default. On the Repayment Assistance Plan, auto pay also protects the on-time payments that the interest waiver and matching payment require.
What the auto pay rate cut is worth
Interest saved per year with the offer
$400
| Rate with the offer | 5.52% |
| Usual 0.25-point cut, per year | $100 |
| Extra from the 2026 offer, per year | $300 |
First-year approximation on the current balance.
A temporary offer that quadruples the usual auto pay discount on federal student loans, and why it matters more on RAP.
Checked by Radif Partners · Editorial policy · How we calculate
What one point is worth
| Balance | Usual discount, per year | With the 2026 offer, per year | Over two years of the offer |
|---|---|---|---|
| $15,000 | $38 | $150 | $300 |
| $40,000 | $100 | $400 | $800 |
| $75,000 | $188 | $750 | $1,500 |
| $150,000 | $375 | $1,500 | $3,000 |
On a fixed plan the saving shows up as a shorter loan. Keeping the same $455 payment on $40,000 with 1% less interest, a borrower who kept the lower rate for the whole term would finish in 114 months instead of 120. Since the offer ends on June 30, 2028, the real effect is smaller, roughly the yearly figures in the table for the time the offer runs.
The announcements, in order
On June 18, 2026 the Department announced that borrowers enrolled in auto pay would get a 1 percent reduction beginning July 1, for those enrolled by September 30, 2026, kept through June 30, 2028 (Department of Education, June 18, 2026). It noted that before the pandemic more than 80 percent of borrowers in active repayment used auto pay, against 40 percent at the time. On September 29, 2026 it extended the enrollment deadline to December 31, 2026 and reported nearly nearly 2 million new enrollments (Department of Education, September 29, 2026). Both releases describe the offer as temporary and tie it to the new repayment plans.
Why it matters on RAP
The Repayment Assistance Plan rewards on-time payments: interest an on-time payment does not cover is waived, and principal gets a matching reduction of up to $50. A payment that arrives late loses both for that month. Auto pay makes the due date automatic. A borrower earning $40,000 with one child pays $50 on RAP; with auto pay, every month meets the condition, and the lower rate reduces the interest that the waiver has to absorb. The waiver and matching payment page shows the monthly arithmetic.
Why it matters on IBR and fixed plans
On IBR, interest that the payment does not cover accrues on the account, so a lower rate directly slows the growth of the balance for borrowers whose payments are small. On the 10-year standard and Tiered Standard plans, the payment is fixed; the lower rate changes how each payment splits between interest and principal, so the balance falls faster and the last payment comes earlier. In every case the reduction is worth taking unless your bank account cannot reliably hold the payment on the due date.
Comparing the cut with other ways to save
A point off the rate is the same as earning a guaranteed point on the money you owe, without spending anything. To match it by prepaying, a borrower would need to send extra cash; to match it by refinancing, they would need a private loan at a rate at least one point lower, and would give up every federal plan in exchange. For a $40,000 balance at 6.52%, the offer brings the effective rate to 5.52% until June 30, 2028. On graduate loans at 8.07% it brings the rate to 7.07%, and on PLUS loans at 9.07% to 8.07%. Those are the figures to beat before considering a private lender, as the refinance calculator explains.
The cut also combines with every other tool. Prepaying principal while on auto pay saves interest at the reduced rate on what remains. Moving to RAP while on auto pay keeps both the waiver and the discount. Nothing about the offer locks you into a plan, and switching plans does not cancel it as long as the debit continues.
What the offer does not do
It does not change the fixed rate written in your promissory note, does not apply to private student loans, and, according to the announcements, applies only to Direct Loans originated after July 1, 2012. It does not reduce the payment on an income-driven plan, which follows income, and it does not erase interest that accrued before you enrolled. It is also temporary by design: the Department calls it a temporary incentive and ties its end to June 30, 2028, the same day the older income-driven plans close.
Practical points
Auto pay draws the scheduled amount on the due date from the account you name. If your RAP or IBR payment changes at recertification, the debit follows. Keep enough in the account a day or two before the due date: a returned debit is a missed payment, and the servicer may remove you from auto pay, which ends the discount. If you change banks, update the servicer before the next due date. Payments for PSLF count the same way whether made by auto pay or by hand, but auto pay removes the main risk to an on-time count. The payoff calculator lets you enter the reduced rate to see your own payoff date.
Who should not wait
Former SAVE borrowers choosing a new plan, borrowers who just entered repayment, and anyone moving to RAP have the most to gain from enrolling now: they set up the new plan and the debit together, and they start earning the full reduction from the first payment. Borrowers who already use auto pay need do nothing. Borrowers in default should start with rehabilitation or consolidation, then enroll as soon as their loans are back in repayment.
Borrowers with several servicers, for example after a transfer of some loans, should check that auto pay is active on each account, since the discount is applied loan by loan by the servicer that holds them. A quick look at the next statement, where the interest rate shown should be one point below the rate in your loan details, confirms that the reduction was applied.