Auto pay borrowers get student loan rate cut, defaulted borrowers excluded

Borrowers who stay current and sign up for automatic payments will get a temporary break on their federal student loans, but the nearly 9 million Americans already in default will not. The change gives a clear reward to borrowers who can keep up, while leaving out the people most at risk of falling further behind.

The Education Department announced the policy on June 18, saying federal student loan borrowers enrolled in auto pay will receive a 1 percentage-point interest-rate reduction beginning July 1, 2026. Borrowers who enroll by Sept. 30, 2026, or who are already enrolled, will get the lower rate through June 30, 2028. Because borrowers in auto pay already receive a 0.25 percentage-point discount, the new policy effectively adds another 0.75 percentage points of relief for people already paying automatically.

That cutoff matters. Borrowers in default generally have to get back into good standing before they can qualify, often by consolidating their loans and moving onto a new repayment plan. The exclusion leaves the deepest distressed borrowers outside the benefit just as the federal student loan system is under heavy strain. The Education Department has said its loan portfolio is nearly $1.7 trillion, fewer than 40 percent of borrowers are in repayment, and almost 25 percent are in default.

The scale of default has become a central part of the administration’s case for the move. One recent report put the number of borrowers in default at a record 9.16 million in April 2026, after the end of the post-pandemic collection pause pushed more borrowers into delinquency. Treasury is now set to assume operational responsibility for collecting defaulted federal student loans, underscoring how aggressively the government is trying to push repayment back into motion.

The Trump administration has framed the auto pay discount as part of a broader overhaul of repayment rules taking effect around July 1. Education Undersecretary Nicholas Kent said the move would make repayment “easier than ever” and improve the “overall health of the federal student loan portfolio.” But the structure of the policy creates two tiers of borrowers: those able to keep paying, who get a lower rate, and those already in the worst financial trouble, who must first dig out of default before seeing any relief.