The Trump administration is promising student loan borrowers a greater incentive to sign up for autopay: a hefty discount on their debt.
On Thursday, the Education Department said people who opt to have their student loan payments automatically withdrawn from their bank accounts will qualify for a discount of 1 percentage point on the interest rate, up from the standard 0.25 percentage point.
That could result in savings of hundreds or thousands of dollars over the lifetime of a student loan. Interest rates on federal student loans stand at 6.52 percent for undergraduates, 8.07 percent for graduate students and 9.07 percent for parent loans in the 2026-2027 academic year.
The discount is temporary. It will start July 1 and end June 30, 2028. It is available to people who borrowed on or after July 2012, representing the vast majority of borrowers, according to the Education Department.
People already enrolled in autopay will automatically receive the new benefit. Those interested in the discount will have until September to enroll for the benefit. People who are in default must consolidate their loans and then apply for a new repayment plan before enrolling in autopay.
“This temporary incentive is designed to help borrowers pay down their balances more quickly, take full advantage of new repayment benefits, remain on track toward loan discharge opportunities, and to strengthen the overall health of the federal student loan portfolio,” Education Undersecretary Nicholas Kent told reporters on Thursday. He estimates that the temporary discount will cost $6 billion.
The Trump administration is making a play to lure borrowers into repaying their education debt. Many have struggled with their monthly bills after the termination of the more than three-year pause on payments imposed during the covid pandemic.
Only 37 percent of the nearly 43 million Americans with federal student loans are paying down their debt, which is a slight improvement from a year ago, according to the Education Department. About 9 million people are in default, while 3 million are delinquent.
Nearly 7 million other borrowers are still enrolled in the defunct Saving on a Valuable Education plan, a Biden-era repayment plan that the Trump administration is winding down. Kent said that about 400,000 of those borrowers have switched to other repayment plans. He expressed hope that the new interest benefit and the release of new repayment plans will encourage more borrowers to act.
Starting July 1, borrowers will have the option of a new income-driven repayment plan, the Repayment Assistance Plan, which ties monthly payments to a borrower’s income, ranging from 1 to 10 percent depending on earnings. The plan cancels the remaining balance after 30 years of payments, instead of the current 20 or 25 years.
There will also be a new standard plan that will stretch monthly payments out from 10 to 25 years. The larger the debt, the longer the repayment term.
correctionA previous version of this article misstated the new discount for student loan payers who enroll in autopay. The discount will increase from .25 percentage point to 1 percentage point.
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