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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsA temporary 1% interest-rate reduction was announced for certain federal student loan borrowers enrolled in autopay, but the announced September 30, 2026 enrollment deadline has passed. The Department of Education’s announcement says the reduction runs from July 1, 2026 through June 30, 2028 for borrowers who enrolled by the deadline or were already enrolled. It does not establish whether late enrollment is accepted or precisely which loans qualify, so check with your servicer or StudentAid.gov before relying on it. This reduction is separate from the federal student loan interest tax deduction.
What the announced 1% reduction does—and what remains unclear
The U.S. Department of Education announced a temporary 1% rate reduction beginning July 1, 2026, for federal student loan borrowers enrolled in autopay. Its stated conditions were enrollment by September 30, 2026, or already being enrolled, with the benefit continuing through June 30, 2028. As of October 3, 2026, the announced enrollment deadline has passed.
The announcement does not provide enough detail to verify the exact eligible loan types, account or servicer conditions, or whether enrollment after September 30 is still accepted. Contact your loan servicer or check StudentAid.gov for current instructions. Do not assume the reduction applies to every federal borrower, or that a new autopay enrollment now qualifies.
The Department’s June 18, 2026 announcement attributed a statement about the reduction to Under Secretary of Education Nicholas Kent. That was the agency’s characterization; it is not an independent estimate of borrower savings. The announcement did not provide an average savings figure.
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Autopay rate reduction versus tax deduction
| Benefit | What it changes | Timing and key limit |
|---|---|---|
| Temporary autopay rate reduction | Can reduce interest charged on eligible federal loans while the temporary benefit applies. | The Department announced a 1% reduction through June 30, 2028, for borrowers enrolled by September 30, 2026, or already enrolled. Whether late enrollment is accepted is not established. |
| Student loan interest deduction | Can reduce income subject to federal income tax; it does not change the loan’s rate and is not a tax credit. | For tax year 2025, the deduction is the lesser of $2,500 or qualifying interest paid, subject to eligibility rules and income phaseouts. |
The two benefits are not interchangeable. The rate reduction concerns interest charged by a lender or servicer; the deduction concerns qualifying interest already paid and reported on a federal tax return. The $2,500 figure is a maximum deduction from taxable income, not a $2,500 payment or tax credit.
How to check whether autopay enrollment can still help
- Review your account. Sign in to your servicer’s website and check whether automatic payments are active. The announced deadline has passed, so existing enrollment and any new enrollment may be treated differently.
- Ask the servicer about this specific temporary reduction. Ask whether your loan and account meet the Department of Education’s conditions, whether enrollment after September 30, 2026 is accepted, and when any qualifying rate change would appear.
- Confirm the rate change in writing. Check account notices or statements for the applicable rate and effective date rather than assuming that enabling ordinary autopay automatically applies this temporary reduction.
Federal Direct Loan rates depend on when and what you borrowed
The temporary autopay announcement does not establish eligibility based on the rate table below. Separately, Federal Student Aid lists these fixed rates for federal Direct Loans first disbursed from July 1, 2025 through June 30, 2026:
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| Loan type | Borrower category | Fixed rate for first disbursements July 1, 2025–June 30, 2026 |
|---|---|---|
| Direct Subsidized and Unsubsidized | Undergraduate | 6.39% |
| Direct Unsubsidized | Graduate or professional | 7.94% |
| Direct PLUS | PLUS borrowers | 8.94% |
These are rates for that first-disbursement window, not universal rates for all federal borrowers. A loan’s rate is fixed for that loan’s life; loans first disbursed in another annual period can have different rates.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Who may claim the student loan interest deduction for 2025
The IRS deduction is available only if the taxpayer and loan meet the rules. Among the requirements, the taxpayer must have paid interest on a qualified student loan, be legally obligated to pay it, not file married filing separately, and not be claimed as someone else’s dependent.
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →A qualified loan must have been taken out solely to pay qualified higher-education expenses for the taxpayer, spouse, or a person who was the taxpayer’s dependent when the loan was taken out. Additional IRS timing and student requirements apply.
For tax year 2025, the deduction is not reduced at modified adjusted gross income (MAGI) up to $85,000 for single, head-of-household, or qualifying-surviving-spouse filers, or up to $170,000 for joint filers. It phases out as follows:
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| 2025 filing status | MAGI range where deduction phases out | Deduction eliminated at or above |
|---|---|---|
| Single, head of household, or qualifying surviving spouse | $85,000–$100,000 | $100,000 |
| Married filing jointly | $170,000–$200,000 | $200,000 |
| Married filing separately | Not eligible | Not eligible |
These are tax-year 2025 thresholds; use the IRS rules for the relevant year rather than carrying these figures forward to another return.
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How to claim the deduction on a 2025 federal return
- Gather interest records. Look for Form 1098-E from your lender or servicer and compare it with your loan records. An institution generally must provide the form if it received at least $600 in interest during 2025. The form may not capture every amount of qualifying interest, so check your records.
- Calculate the allowable amount. Use the student loan interest worksheet in the IRS Schedule 1 instructions, applying the $2,500 cap, qualifying interest paid, filing status, MAGI, and other eligibility rules.
- Enter the deduction. Report the allowable amount on Schedule 1 (Form 1040), line 21, for the 2025 return. You do not need to itemize deductions to claim it if you otherwise qualify.
- Check eligibility if your situation is uncertain. The IRS Interactive Tax Assistant asks about filing status, income, AGI, and education expenses paid with nontaxable funds. Its result depends on the answers provided and is not written tax advice.
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