WASHINGTON, D.C. — The U.S. Department of Education extended the deadline for borrowers to enroll in auto pay to receive a 1 percent interest rate reduction until December 31, 2026. The agency moved the date from September 30, 2026, to give borrowers more time to enroll. Borrowers already enrolled in auto pay receive a 0.25 percent interest-rate discount, meaning the new reduction provides an additional 0.75 percent decrease. At nearly 2,100 colleges and universities, at least 25 percent of students are enrolled in federal student loan programs.

Borrowers with loans in default must consolidate their eligible loans via studentaid.gov to sign up for auto pay. The loan consolidation process typically takes around 60 days to complete. Borrowers can only consolidate their federal student loans once. Borrowers are considered in default when they are at least 270 days behind on payments.

The national cohort default rate rose from 0 percent to 0.4 percent over the last year. The 0.4 percent default rate is the first increase in four years. More than 9.3 million borrowers are in default on student loans.

Around 9 million Americans were in default on federal student loans as of June 2026, according to the Education Department. Approximately 400,000 borrowers entered default in the second quarter of 2026.

The Department of Education's most recent cohort default rate report includes borrowers who entered repayment from October 2022 to September 2023 and tracks defaults before the end of September 2025. The Department of Education stated the recent default rate should be "interpreted with caution as the results may provide an overly favorable picture of borrower repayment outcomes." "My main takeaway from that report is don’t be fooled," said Ben Cecil, deputy director of higher education policy at Third Way. "I would caution against using the 0.4 [percent] number as a measure of borrower health in repayment right now." He said the nonpayment rate should be treated like the canary in the coal mine of what could be to come.

"For a long time the general notion has been that once a student is no longer on campus, it’s not necessarily the institution’s responsibility to make sure that these students are effectively repaying their student loans," Cecil said. He said schools can play a role in helping borrowers return to effective repayment, noting that servicer contact information is sometimes outdated.

Why It Matters

The extension of the auto-pay enrollment deadline affects millions of borrowers facing high default rates and rising interest costs. With more than 9.3 million borrowers in default, the 1 percent interest rate reduction offers financial relief while encouraging consistent repayment behavior through automation. The policy change reflects ongoing efforts to manage the scale of student loan debt and improve borrower outcomes during shifting default trends.

The context of rising cohort default rates, even at low levels, signals potential challenges in borrower repayment health that institutions and policymakers monitor closely. The requirement for borrowers in default to consolidate loans before accessing auto-pay benefits adds a procedural step that impacts eligibility for the interest reduction. These factors combine to shape the immediate financial landscape for federal student loan holders.

Timeline

Borrowers who were enrolled in auto pay before the July 2026 announcement have had their interest rate automatically reduced by 1 percent, according to the Education Department. Nearly 2 million borrowers have enrolled in auto pay since the interest reduction was announced in July 2026. The original deadline for the 1 percent interest rate reduction was September 30, 2026. Student loan borrowers have until December 31, 2026, to enroll in auto pay to receive a 1 percent interest rate reduction.

What's New

"For a limited time, borrowers are now able to get a full percentage point reduction in their interest rate if they sign up for auto debit," said Lesley J. Turner, associate professor of public policy at the University of Chicago. "It’s a pretty big benefit, especially for borrowers who have large balances." She said the change represents a quadrupling of the earlier benefit. "We all know life gets busy and if you have to log in every month and manually make your payment there may be a chance that you forget and then you end up having your loans go delinquent," she said. The U.S. Department of Education extended the auto pay enrollment deadline to give borrowers more time to enroll.