Trump administration to cut student loan interest rates

The Department of Education is reducing interest rates for student loans, referring to it as a part of a broader plan to make higher education more affordable. 

According to The Associated Press, the Trump administration floated a temporary 1% cut in student loan interest rates as relief for borrowers enduring challenges repaying their loans. 

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However, this change does not apply to all student loan borrowers, and those seeking the reduction must meet certain eligibility requirements. 

Here’s what you need to know. 

Which student loan borrowers are eligible for the student loan interest rate cut?

Why you should care:

The Associated Press reported that the interest rate change will only impact a portion of student loan borrowers, specifically those with federal Direct Loans issued after July 1, 2012, who are already enrolled in automatic payments or signing up for them.

For student loan borrowers to qualify, there’s a process they must follow, including signing up for auto pay and, in some cases, consolidating their loans.

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Approximately 40% of student loan borrowers are enrolled in auto pay — a statistic the Department of Education is hoping to boost with the new incentive of the interest rate cut.

Almost 9 million student loan borrowers are in default, meaning they have missed nine months of payments. 

For student loan borrowers to become eligible for the interest rate cut, they are required to return in good standing, usually by consolidating their loans and then applying for a new repayment plan. 

How much of an interest rate cut will student loan borrowers see?

By the numbers:

The Associated Press reported that the Department of Education announced that student loan borrowers enrolled in auto pay will be eligible for a 1% interest rate cut starting July 1. 

But student loan borrowers already enrolled in auto pay, likely won’t see signigicant savings. Borrowers who currently use auto pay already receive an interest-rate discount of 0.25%, so the new reduction removes only 0.75%.

The slight student loan interest rate reduction will be temporary, lasting through June 30, 2028.

According to the AP, the federal student loan portfolio has spiked to nearly $1.7 trillion, with millions of borrowers struggling to maintain their monthly payments. 

Furthermore, the goal of the student loan interest rate reduction is to get more borrowers back on track with student loan payments. 

Separately, the Department of Education is offering its own borrower plans for repayment, including an income-driven option.

 

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