Trump's Loan Rate Reduction Leaves Millions of Defaulters Behind

WHO:

Fortune - Education Undersecretary Nicholas Kent announced the interest rate reduction.

Committee for a Responsible Federal Budget - Maya MacGuineas is the president of the Committee for a Responsible Federal Budget.

WHAT:

Fortune - The Education Department announced a temporary, 1% reduction in federal student loan interest rates.

Fortune - The interest rate reduction will only affect borrowers with federal Direct Loans issued after July 1, 2012, who are enrolled in or sign up for automatic payments.

Fortune - Nearly 9 million student loan borrowers are currently in default.

Committee for a Responsible Federal Budget - The auto-pay incentive will cost at least $5 billion.

Committee for a Responsible Federal Budget - The current auto-pay interest discount of 0.25% has been in effect since 1999.

WHERE:

Fortune - The announcement was made by the U.S. Department of Education.

WHEN:

Fortune - The interest rate reduction will begin on July 1 and last through June 30, 2028.

Fortune - Borrowers must typically consolidate their loans to regain good standing after being in default for nine months.

WHY:

Fortune - The reduction is part of a plan to make higher education more affordable and to improve the overall health of the federal student loan portfolio.

Committee for a Responsible Federal Budget - The expansion of the auto-pay incentive is viewed as a form of debt cancellation targeted at borrowers already making repayments.

HOW:

Fortune - Borrowers must enroll in automatic payments to qualify for the interest rate reduction.

Fortune - The Education Department aims to increase the current 40% enrollment rate in auto pay among borrowers.

(UPDATED June 21, 2026 01:48 UTC)

The U.S. Department of Education has announced a temporary 1% reduction in federal student loan interest rates, which will take effect on July 1 and last through June 30, 2028. This reduction will specifically benefit borrowers with federal Direct Loans issued after July 1, 2012, who enroll in automatic payments, a move aimed at making higher education more affordable and improving the federal student loan portfolio's health. However, nearly 9 million borrowers are currently in default, and the expansion of the auto-pay incentive, which has been in place since 1999, is expected to cost at least $5 billion.