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Trump's student loan rate cut excludes most of the 9 million borrowers in default
Fortune • • general
Key Points:
- The Trump administration announced a temporary 1% interest rate reduction for federal Direct Loan borrowers who enroll in automatic payments, aiming to ease student loan repayment and improve the federal loan portfolio's health.
- The reduction only applies to loans issued after July 1, 2012, and borrowers must be enrolled in or sign up for auto pay; currently, only 40% of borrowers use this option.
- Borrowers already on auto pay receive a 0.25% discount, so the new reduction effectively lowers their rate by an additional 0.75%, with the benefit lasting until June 30, 2028.
- Nearly 9 million borrowers in default must first rehabilitate their loans, often through consolidation and new repayment plans, to qualify for the rate reduction.
- The move is part of broader efforts by the Education Department to manage rising delinquency rates and replace Biden-era repayment options with new plans, including income-driven repayment.
