NEW YORK (AP) — Student loan borrowers now have until the end of 2026 to enroll in automatic payments and lower their interest rates by 1%.
The original deadline was September 30, but the U.S. Department of Education extended the deadline to give borrowers more time to register. The rate cuts will continue until June 2028.
Borrowers currently using automatic payments already receive an interest rate discount of 0.25%, so the new rate cut is only 0.75%.
According to the Department of Education, this temporary benefit is intended to support borrowers and those returning to make payments and ensure they continue to receive new repayment assistance programs that require on-time payments.
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Lesley J. Turner, an associate professor of public policy at the University of Chicago, said lower interest rates could benefit borrowers with large balances and fixed payments.
“For a limited time, borrowers will be able to lower their rates by a full percentage point if they sign up for an auto debit card,” Turner said. “So that’s four times the previous benefit. That’s a pretty big benefit, especially for borrowers with large balances.”
Nearly 2 million borrowers have signed up for automatic payments since rate cuts were announced this summer.
As of June, about 9 million Americans were in default on their federal student loans, according to the Department of Education. Hundreds of thousands more have defaulted on their loans this year and are at risk of default.
If you want to enroll your student loans for automatic payments, here’s what you need to know:
If you’re new to automatic payments, sign up before the end of the year
To get the 1% interest deduction, you must sign up for automatic payments by December 31.
First, log into your student loan servicer account and select automatic payments. You’ll need to enter your banking information to automatically withdraw your monthly payment from your checking or savings account.
Even without an interest rate cut, automatic payments are a great way to keep your student loans going, Turner said.
“We all know life is busy, and if you have to log in every month and make a payment manually, you might forget and then your loan will be in arrears,” she said.
If you have already registered you already get the discount
Borrowers who signed up for automatic payments before the July announcement automatically saw their interest rates reduced by 1%, according to the Department of Education.
Consolidate your loans if you are currently in default
If you are in default on a student loan, you must log into Studentaid.gov and consolidate your qualifying loans to sign up for automatic payments.
Read more: As student loan defaults rise, experts worry about what’s next
Involuntary collection on federal student loans remains on hold. The Trump administration announced earlier this year a plan to delay payments to student loan borrowers who are behind on their payments. A borrower is considered in default when a payment is at least 270 days past due.
To apply for loan consolidation online, visit studentaid.gov/loan-consolidation. If you have multiple federal student loans, you can consolidate them into a fixed-rate, monthly payment loan. The integration process typically takes approximately 60 days to complete. You can consolidate your loans only once.
If your student loan is in default, you can also contact your loan holder to apply for a loan rehabilitation plan. Through this program, borrowers can enroll in a reduced repayment plan and wage garnishment ends after five successful payments.
Borrowers can find more information about loan rehabilitation here.
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