Education Department Offers 1-Point Rate Cut on Some Federal Student Loans Through 2028 but Adds New Borrowing Limits

U.S. Education Department announced Thursday a temporary one-percentage-point interest-rate reduction for certain federal student-loan borrowers. The cut applies only to federal Direct Loans issued after July 1, 2012, and requires borrowers to be enrolled in automatic payments or to sign up for them.

75 percent reduction under the new policy. The interest-rate reduction will remain in effect through June 30, 2028. 3 percent of student loans were delinquent, the highest share in six years and a twenty-fold increase since mid-2024, according to data from the Federal Reserve Bank of New York.

7 trillion, and nearly 9 million borrowers are currently in default. " Currently, 40 percent of student-loan borrowers are enrolled in autopay. Defaulted borrowers must consolidate their loans and apply for a new repayment plan to regain eligibility for the interest-rate reduction.

The change does not apply to all borrowers. New limits on federal student-loan borrowing amounts and repayment options will take effect July 1 under the Trump administration.