The U.S. Department of Education has extended the deadline for federal student loan borrowers to enroll in a temporary 1-percentage-point interest rate reduction through December 31, 2026, the agency announced on Tuesday.
The benefit, which applies to borrowers enrolled in automatic payments, will remain in effect until June 30, 2028, according to a department press release. Previously, the enrollment deadline was set for September 30, 2026.
Nearly 2 million federal student loan borrowers have already signed up for the discount since it became available in June, the department said. Borrowers currently on autopay receive a 0.25-percentage-point reduction as a standard benefit; the new temporary discount adds an additional 0.75 percentage points, bringing the total reduction to 1 percentage point.
Eligibility and Scope
The interest rate reduction applies only to direct federal loans originated after July 1, 2012. Borrowers who have defaulted on their loans are ineligible until they return to good standing. The average interest rate on federal student loans is currently 6.54%, according to higher education expert Mark Kantrowitz.
The department stated that the benefit is designed to support its Repayment Assistance Plan (RAP), a new income-driven repayment option introduced as part of a broader repayment overhaul that took effect on July 1. RAP is intended to be a more affordable alternative for borrowers compared to previous plans.
Policy Context and Background
More than 42 million Americans hold federal student loans, with total outstanding debt exceeding $1.7 trillion. The high interest rates on federal loans have contributed to borrowers seeing their balances grow beyond their original loan amounts, according to reports.
The department did not specify whether the extension reflects low enrollment numbers or a strategic adjustment to maximize participation. Undersecretary of Education Nicholas Kent stated in a press release that the benefit is already improving repayment rates and the financial health of the federal student loan portfolio.
Repayment Plan Changes
The extension comes amid shifts in federal repayment policies. The Trump administration’s repayment overhaul eliminated the Biden-era SAVE plan, which had offered lower monthly payments and additional forgiveness provisions. Some borrowers have reported higher monthly bills under the new RAP compared to the SAVE plan, though the department has not provided comparative payment data.
The department emphasized that the temporary interest rate reduction is part of a broader effort to assist borrowers under the new repayment framework, though it did not detail long-term plans for maintaining or expanding the benefit after its scheduled expiration in 2028.