The Trump administration says it is cutting student loan interest. Not everyone qualifies.

The Education Department on Thursday said it is temporarily cutting interest rates for some federal student loan borrowers, a move aimed at easing repayment costs as delinquencies climb to their highest level in six years.

The reduction – a temporary shave of 1 percentage point from borrowing costs — comes as 10.3% of student loans were delinquent during the first quarter, representing the highest share in six years and a twenty-fold spike since mid-2024, according to data from the Federal Reserve Bank of New York. 

Education Undersecretary Nicholas Kent said the change is a way of “making student loan repayment easier than ever” and of improving “the overall health of the federal student loan portfolio.”

The federal student loan portfolio has ballooned to almost $1.7 trillion, with millions of borrowers struggling to keep up. 

But the change does not apply to all borrowers, and those pursuing the reduction will need to meet eligibility criteria. At the same time, the Trump administration is overhauling student loans beginning July 1 with new limits on how much Americans can borrow and their repayment options.

Here are details of the plan and some context behind them:

Who is eligible for the interest rate reduction?

The change will only affect a subset of borrowers — those with federal Direct Loans issued after July 1, 2012, who are already enrolled in automatic payments or sign up for them.

Many borrowers won’t see any immediate benefit. To qualify, they have to first take a set of actions including signing up for auto pay and, in some cases, consolidating their loans.

Currently, just 40% of borrowers are enrolled in auto pay — a figure the department is hoping to increase with the new incentive of the interest rate reduction.

Nearly 9 million student loan borrowers are in default, meaning they’ve missed nine months of payments. For them to become eligible for the rate reduction, they must get back in good standing, typically by consolidating their loans and then applying for a new repayment plan.

What if you already have autopay set up?

For borrowers already enrolled in auto pay, the savings will be smaller. 

Borrowers who currently use auto pay already receive an interest-rate discount of 0.25%, so the new reduction takes off just 0.75%.

When does the interest rate reduction end?

For all borrowers, the rate reduction will be temporary, lasting through June 30, 2028.