Deadline to reduce your student loan interest rate extended: What to know

(NEXSTAR) – A day before the deadline was set to end, the Education Department extended the window in which student loan borrowers can get a small reduction on their interest rates.

Earlier this summer, the Education Department announced that borrowers could get a 1% decrease on their interest rates through the end of June 2028. At the time, borrowers had until Sept. 30 of this year to apply.

On Tuesday, just before that deadline, the Education Department said it would extend the application deadline.

How to get the 1% interest rate reduction

It’s relatively simple. You need to enroll in auto pay on your student loans by the new deadline, which is Dec. 31, 2026.

Earlier this year, the Education Department said only about 40% of borrowers were paying their loans via auto pay. Nearly 2 million more enrolled after the 1% reduction was announced.

If you are already enrolled in auto pay, you should be receiving that reduction. Prior to July 1 of this year, you would receive a 0.25% reduction to your interest rate for auto pay enrollment.

If you are not yet enrolled, you’ll need to access your loan servicer account. There, you should find an option to enter your bank account information and specify payment amounts to set up auto pay.

If you are in default on your federal student loans, the Education Department says you will need to consolidate your eligible loans via StudentAid.gov and apply for a new repayment plan before being eligible for auto pay.

Once on auto pay, the department said you will need to remain there and “meet all eligibility criteria” to continue receiving the 1% interest rate reduction. That includes having loans that “originate after July 1, 2012.”

Auto pay has other benefits, Education Department says

In addition to the interest rate deduction, being enrolled in auto pay grants “access to key benefits,” officials said.

They pointed to the Repayment Assistance Plan, a recently released repayment option that gives borrowers “a match on their on-time payments to ensure interest does not accrue and balances decline every month.”

On-time payments are also crucial to borrowers pursuing Public Service Loan Forgiveness, the Education Department explained.

Other changes may have impacted your loans this summer

In addition to the higher interest rate deduction rolled out this summer, the Education Department enacted other changes that may have impacted how you borrow or pay back federal loans.

Potentially the largest change was the end of the Biden-era Saving on a Valuable Education plan (better known as the SAVE plan ), which gave some of its 7 million federal student loan borrowers monthly payments as low as $0. Impacted borrowers were set to be notified in July that they would need to switch to a different repayment plan.

Limits on Parent PLUS loans and repayment options also took effect this summer, as did limits on how much graduate students can borrow . All borrowers, for the first time, have a lifetime limit on how much they can borrow in federal student loans.