Washington, June 21, 2026, 10:03 (EDT)
- Federal Direct Loan borrowers who sign up for auto pay are getting a temporary 1-point interest rate cut through June 30, 2028.
- More than 7 million SAVE borrowers will get notices and have around 90 days to choose a new repayment plan, or they’ll be reassigned if they don’t act.
- Most new federal student loan borrowers will face just two repayment plan choices from July 1, as new borrowing caps hit grad students and parents.
U.S. Education Department is set to implement big changes for federal student loans beginning July 1. Two new repayment plans are on the way, and people who choose automatic debit with their servicer get a temporary interest rate cut of one percentage point. Not all federal borrowers are eligible for the rate cut.
Federal loan debt is near $1.7 trillion. About 9 million people are in default, having skipped nine or more months of payments. Now the administration is pushing a discount to get more borrowers back on track, while phasing out Biden-era programs and moving to a stricter system going forward.
Federal Direct Loan borrowers with loans from after July 1, 2012 can get the discount. People not enrolled in auto pay must sign up by September 30. Those already on auto pay get the usual 0.25-point reduction, plus an extra 0.75-point cut. To keep the new rate, borrowers have to stay on auto pay.
Auto-pay enrollments have fallen since the pandemic pause, with just about 40% of borrowers signed up by late 2025 compared to 83% back in 2019, Education Undersecretary Nicholas Kent said. “The incentive was designed to help borrowers pay down their balances more quickly,” Kent said. Borrowers with loans at the current 6.39% undergraduate rate would get a temporary drop to 5.39%. KGOU
The new income-driven Repayment Assistance Plan, or RAP, will base monthly payments on both the borrower’s income and the number of dependents. Payment rates range from 1% to 10% of income, with borrowers getting $50 off for each dependent. Borrowers who make full, on-time payments see any unpaid interest for that month canceled. If a payment doesn’t cover $50 of principal, the government could contribute up to $50 monthly. After 360 monthly payments, leftover balances can be wiped out.
The department will begin contacting borrowers from the closed Saving on a Valuable Education, or SAVE, plan. Servicers are expected to give these borrowers 90 days each to choose a legal repayment option. If they don’t respond, borrowers get switched to either the Standard plan or the Tiered Standard plan, both with fixed payments and no income-based changes.
The Tiered Standard plan sets repayment length by total balance: 10 years if the debt is less than $25,000, 15 years for balances of at least $25,000 but under $50,000, 20 years for loans from $50,000 to $99,999, and 25 years for $100,000 or more. Anyone taking out or consolidating a federal loan from July 1 typically drops all old plans for those loans, leaving RAP and the tiered option. Parent PLUS loans aren’t eligible for RAP.
Borrowing rules are set to tighten. The Grad PLUS program, which allowed borrowing up to the entire cost of attendance, is closing to new loans. Most grad students will be capped at $20,500 a year and $100,000 total for loans. Some professional students can take up to $50,000 a year, with a max of $200,000. Parent PLUS loans now have a limit of $20,000 per year per dependent, or $65,000 for each child.
Limits on borrowing could mean some families have to use private credit, where borrower safeguards are usually weaker. Betsy Mayotte, president of the Institute of Student Loan Advisors, said families need to consider the full price tag from the beginning. “You need to plan for that whole degree program to make sure you don’t run out of federal funding.” RAP might lower payments for some, but could also push costs up for others, she said, depending on their circumstances. WJLA
Lower rates may not mean much if borrowers have higher payments or lose options. Borrowers on SAVE have to leave that plan first. Those in default must make loans current to qualify. RAP pauses unpaid interest from adding up, but some borrowers will see monthly bills hundreds higher than with SAVE.
Simple setup. Borrowers making steady auto-payments get a slight price cut for two years. The changes shift weight onto these payments and reduce flexibility after taking out more debt. July 1 matters—consolidating after that starts a new loan and may lock out options for older income-driven repayment plans permanently.
