Washington, June 21, 2026, 10:03 (EDT)
- Federal Direct Loan borrowers using auto pay get a temporary 1 percentage point drop in interest rates until June 30, 2028.
- Over 7 million SAVE borrowers are set to get notices, with roughly 90 days to pick a new repayment plan or get reassigned automatically.
- Starting July 1, most new federal student loan borrowers will only have two repayment plan options, with new caps set on how much grad students and parents can borrow.
The U.S. Education Department said it will roll out major changes to federal student loans starting July 1, with two new repayment plans coming and a temporary rate cut for people who opt for auto-debit payments through their servicer. The rate cut is one percentage point. It doesn’t apply to all federal borrowers.
Federal loan debt stands close to $1.7 trillion, with nearly 9 million borrowers in default after missing nine or more months of payments. The administration is offering a discount to try to bring more borrowers back into repayment, at the same time it winds down Biden-era options and makes the system tighter for borrowers in the future.
The discount is for eligible federal Direct Loans made after July 1, 2012. Borrowers who don’t use auto pay yet have to sign up by September 30. Anyone already on auto pay will see a 0.75-point rate cut added to the usual 0.25-point benefit. Staying in auto pay is required to keep the new lower rate.
Auto-pay sign-ups have dropped since the pandemic pause, with only about 40% of borrowers enrolled by late 2025, down from 83% in 2019, Education Undersecretary Nicholas Kent said. “The incentive was designed to help borrowers pay down their balances more quickly,” Kent said. A loan at today’s 6.39% undergraduate rate would see a temporary cut to 5.39%. KGOU
The new income-driven Repayment Assistance Plan, or RAP, will set monthly payment amounts using both a borrower’s income and how many dependents they have. Payments will be between 1% and 10% of income, with a $50 reduction per dependent. If a borrower makes a full payment on time, any unpaid interest for that month gets wiped out, and the government might pay up to $50 a month toward the loan principal if the borrower’s payment isn’t enough to cover that much. After 360 monthly payments, any remaining loan balance can be discharged.
The department plans to start reaching out to borrowers in the shuttered Saving on a Valuable Education, or SAVE, plan. Servicers are set to give these borrowers individual 90-day windows to pick a legal option. If borrowers don’t take action, they’ll be moved to either the current Standard plan or the Tiered Standard plan; both have fixed payments instead of income-based adjustments.
The Tiered Standard plan bases repayment time on how much is owed: 10 years for under $25,000, 15 years if the debt is at least $25,000 but less than $50,000, 20 years for $50,000 up to $99,999, and 25 years for $100,000 or more. Anyone who gets or consolidates a federal loan starting July 1 will usually lose any older plans for all of their loans, so RAP and the tiered plan are what’s left. Parent PLUS loans can’t enroll in RAP.
Rules on borrowing are getting tighter, too. The Grad PLUS program, which let students borrow up to the full cost of going to school, is ending for new loans. Most grad students will see borrowing capped at $20,500 a year and $100,000 total. Some professional students can borrow up to $50,000 a year, $200,000 overall. Parent PLUS loans will now be limited to $20,000 a year per dependent, with a $65,000 cap per child.
Limits on borrowing could send some families to private credit, where borrower protections tend to be weaker. Betsy Mayotte, who heads the Institute of Student Loan Advisors, said families should look at the total cost upfront: “You need to plan for that whole degree program to make sure you don’t run out of federal funding.” She added that RAP might cut bills for some but push them higher for others, depending on a borrower’s situation. WJLA
But the lower interest might not help much if borrowers face bigger bills or lose repayment options. Anyone on SAVE has to exit that plan first, and those in default need to bring loans current before they can qualify. RAP stops unpaid interest from growing balances, but compared with SAVE, some borrowers could end up paying hundreds more each month.
Not a complicated trade here. Borrowers able to keep up with auto-payments get a small, two-year break on price. The new rules lean more on regular payments, cutting flexibility after fresh borrowing. July 1 is key—consolidating then starts a new loan that can bar access to some older income-based repayment plans for good.
