The Department of Education has announced a significant increase in the interest discount for federal student loan borrowers who enroll in autopay. Starting July 1, 2026, the discount will rise from 0.25% to 1%, providing substantial relief for eligible borrowers. This change is part of a broader overhaul of the federal student loan program, aimed at making repayment more manageable.
With over 42 million borrowers nationwide, federal student loans have become a critical issue. The new discount is expected to incentivize more borrowers to enroll in autopay, which not only reduces interest rates but also ensures timely payments. This article explores the details of the new discount, who is eligible, and what other changes are on the horizon for student loan borrowers.
The New 1% Interest Discount: Who Benefits?
Borrowers who are already enrolled in autopay will automatically receive the additional 0.75 percentage point discount, bringing their total discount to 1%. Those who are not yet enrolled have until September 30, 2026, to sign up and qualify for the discount. The new rate will be in effect until June 30.
To be eligible, borrowers must have loans that originated after July 1. This includes both student and parent borrowers. However, those who have defaulted on their loans or are still on the defunct federal SAVE plan will need to apply for a new repayment plan before they can enroll in autopay.
The autopay benefit is particularly timely as the Education Department aims to boost repayment rates. Before the pandemic, over 80% of federal borrowers used autopay, but that number dropped to 40% during the payment pause. The new discount is expected to encourage more borrowers to re-enroll in autopay and stay on track with their payments.
Additional Changes to the Federal Student Loan Program
Alongside the increased autopay discount, the federal government’s “Big Beautiful Bill” has introduced several new changes to the student loan repayment process. Starting July 1, 2026, new borrowers will have to choose between a standard repayment plan or the income-based Repayment Assistance Plan (RAP).
The RAP replaces previous income-driven repayment plans and extends the repayment period to 30 years before the remaining loan balance is forgiven. This is an increase from the previous 20 or 25 years under older plans. Borrowers with existing loans can continue with their current repayment plans if they choose.
Other changes include new caps on federal student loans, restrictions on Pell Grants, and limits on loan forbearance. The Trump administration has also announced new restrictions on the Public Service Loan Forgiveness (PSLF) program, which will affect borrowers working at nonprofits that do not align with the government’s policy agenda.
The Broader Impact of Student Loan Reforms
The Trump administration has taken a firm stance on student loan policies, with Education Secretary Linda McMahon stating, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.” The administration has also moved the federal student loan portfolio to the Small Business Administration, although most loan activity remains under the Education Department.
Debt collections on defaulted student loans resumed last year, impacting millions of borrowers. The Education Department has also started garnishing wages and reporting delinquencies to credit bureaus, which can significantly affect borrowers’ credit scores.
For borrowers enrolled in the SAVE plan, the transition to new repayment options will begin on July 1, 2026. Those who do not act will be automatically placed in the standard repayment plan, which has fixed payments over 10 years. The new RAP offers a more flexible approach, with monthly payments tied to income ranging from 1% to 10% of earnings.
As the student loan landscape continues to evolve, borrowers must stay informed about these changes and take advantage of available benefits, such as the increased autopay discount. By doing so, they can better manage their debt and work towards financial stability.
