Student-loan borrowers have 1 month to enroll in a temporary repayment benefit

Student-loan borrowers have until the end of September to enroll in a temporary repayment benefit. By signing up for autopay, borrowers can lock in a lower interest rate for two years, starting immediately. The benefit, in effect since July 1, will run until June 30, 2028. Enrolled borrowers will see their interest rate reduced by an additional three-quarters of a percentage point, compared to the quarter-percentage-point reduction they already enjoy.

Those who currently owe $50,000 at a 7.94% interest rate could save nearly $23 per month during the two-year period. Borrowers in default or those who move to deferment or forbearance are not eligible for the benefit. Direct federal loans disbursed on or after July 1, 2012, are covered. Undersecretary Nicholas Kent said the incentive aims to boost repayment rates and improve the overall health of the federal student loan portfolio.

Interest rates on federal student loans range from 6.5% to over 9%, so the reduction is seen as significant. The benefit comes as the Department of Education implements its repayment overhaul, which started on July 1. The new system has led to higher payments and administrative errors, such as incorrect bills and account statuses.

The overhaul is meant to simplify the complex repayment system and encourage colleges to lower tuition costs.