Student Loan Changes Arrive July 1: New Repayment Plans, a 1 Percent Autopay Discount and Record Defaults

Federal student loan repayment changes on July 1, 2026. On June 18, the U.S. Department of Education announced that borrowers enrolled in autopay will receive a 1 percent interest rate reduction beginning July 1, the same day two new repayment plans open: the income-driven Repayment Assistance Plan (RAP) and the Tiered Standard plan ¹. The same day, Department data showed that the number of borrowers in default reached a record 9.16 million in April ². For many households, the next few weeks are a chance to choose a plan before choices are made for them.

The new autopay discount

Today, servicers cut a borrower’s rate by 0.25 percent for enrolling in autopay ¹. Starting July 1, borrowers already in autopay will automatically receive an additional 0.75 percent reduction, for a total of 1 percent ¹. The lower rate lasts until June 30, 2028, both for current autopay users and for anyone who signs up by September 30, 2026, provided they remain in autopay ¹. The benefit applies to Federal Direct Loans originated after July 1, 2012 ¹.

Borrowers in default are not in repayment and cannot simply switch on autopay. The Department says they must log in to StudentAid.gov, consolidate eligible loans and apply for a new repayment plan first ¹. Only 40 percent of borrowers currently use autopay, compared with more than 80 percent of borrowers in active repayment before the pandemic ¹.

How RAP and Tiered Standard work

Under RAP, monthly payments run between 1 and 10 percent of income, reduced by $50 per month for each dependent ³. When a borrower makes an on-time payment, remaining unpaid monthly interest is waived, and if the payment does not reduce principal by at least $50, the Department adds a matching principal payment of up to $50 ³. Any balance left after 360 on-time monthly payments can be discharged ³. Eligible borrowers making on-time monthly payments can also work toward Public Service Loan Forgiveness, which discharges certain loans after 120 payments ¹.

Under the Tiered Standard plan, the size of the balance determines the repayment term, which is fixed at 10, 15, 20 or 25 years ³. In the Department’s example, a $30,000 balance that required $341 a month under the old 10-year standard plan would require $262 a month over 15 years ³.

Deadlines for SAVE borrowers and the rise in defaults

Borrowers still in the SAVE plan, which the Department now calls defunct, must choose a legal repayment plan starting July 1 ¹. The earlier article on the end of SAVE covers how that plan wound down. According to Bloomberg, the 7 million-plus borrowers enrolled in SAVE get a 90-day window to pick a new plan before they are reassigned, and only about 400,000 had moved to another plan ². The Department’s fact sheet separately states that certain borrowers in phased-out plans with loans made before July 1, 2026, have until July 1, 2028, to choose between RAP, Tiered Standard or Income-Based Repayment ³. Because the rules differ by plan and loan, borrowers should confirm their own deadline with their servicer.

The default numbers explain the urgency. Defaults rose from 7.7 million in December and 6 million last August to 9.16 million in April, so roughly 20 percent of the country’s 43 million federal student loan borrowers have fallen more than a year behind on payments, and about 3 million more are at least 90 days late ². Collections and credit reporting penalties have resumed, and while plans to garnish wages were halted early this year, officials say they will revisit them after the new plans launch ². An earlier article on the garnishment delay explains that pause.

Steps to take before July 1

• Log in to StudentAid.gov and the servicer account to confirm loan types, current plan and payment status.
• Turn on autopay if a payment is affordable, to capture the full 1 percent reduction ¹.
• Consent to IRS data sharing on any income-driven application, which the Department says speeds processing ¹.
• If in default, start consolidation and plan enrollment now, since autopay and RAP benefits require loans back in repayment ¹.

When student loans, credit cards, a car note or medical bills are all competing for the same paycheck, the right plan depends on the whole picture. Anyone in South Florida in that position can request a confidential consultation with The Roca Law Firm, in English or Spanish.