The U.S. Education Department announced on Thursday a temporary reduction in interest rates for certain federal student loans, aiming to ease the financial burden on borrowers and promote the overall stability of the federal loan program. The rate cut amounts to a 1% decrease and will be in effect through June 30, 2028.

This reduction, however, applies only to a specific group of borrowers—those holding federal Direct Loans issued after July 1, 2012, who are enrolled in automatic payment plans or choose to enroll. To receive the lower interest rate, borrowers must take several steps, including signing up for autopay, and in some cases, consolidating their loans. These eligibility requirements mean many borrowers will not see immediate benefits.

For the nearly nine million borrowers currently in default—defined as missing nine months of loan payments—eligibility for the lower rate requires returning to good standing. This typically involves loan consolidation followed by enrollment in a new repayment plan. Education Undersecretary Nicholas Kent described the initiative as a way to enhance "the overall health of the federal student loan portfolio" while providing relief for those actively working toward repayment.

The Education Department emphasized that the reduction is temporary and limited in scope, applying only to borrowers who meet the stipulated conditions. Those holding loans disbursed before the July 2012 cutoff or not enrolled in autopay plans will not benefit from the rate cut. The announcement comes amid ongoing discussions about student debt reform and efforts to improve affordability and repayment outcomes.