Full Breakdown
Education Department Extends Deadline for 1% Student-Loan Interest Cut
By Drooid · · How we work
Extended Application Window
The U.S. Department of Education announced that borrowers can now enroll in automatic-payment (auto-pay) to receive a 1 % reduction in their federal student-loan interest rates through the end of the year. The original deadline fell at the end of September, but the agency moved the cutoff date just before that deadline expired. To qualify, borrowers must remain in auto-pay and meet all eligibility criteria, including having loans that originated after July 1, 2012.
How the Auto-Pay Reduction Is Applied
Borrowers who enroll in auto-pay automatically receive the 1 % interest-rate cut. Those already on auto-pay should see the reduction applied without further action. Prior to July 1 of this year, the Department offered a smaller 0.25 % cut for auto-pay participants. New enrollees must set up auto-pay through their loan servicer’s online portal, providing bank-account details and payment amounts. Borrowers in default must first consolidate eligible loans via StudentAid.gov and select a new repayment plan before becoming eligible for auto-pay.
Additional Policy Shifts Affecting Borrowers
The extension coincides with several broader changes announced this summer. The Biden-era Saving on a Valuable Education (SAVE) plan, which allowed up to 7 million borrowers to make monthly payments as low as $0, ended, prompting those borrowers to transition to other repayment options. New limits on Parent PLUS loans, graduate-student borrowing, and a lifetime cap on total federal student-loan debt were also implemented.
Implications for Repayment Strategies
Beyond the interest-rate reduction, the Department highlighted that auto-pay enrollment unlocks access to the Repayment Assistance Plan, which matches on-time payments to prevent interest accrual and helps balances decline each month. Staying in auto-pay also supports eligibility for Public Service Loan Forgiveness, which requires consistent, on-time payments. Borrowers who have not yet enrolled are encouraged to review their loan-servicer accounts promptly to take advantage of the extended deadline.