The Department of Education unveiled a temporary interest-rate reduction for certain federal student loan borrowers as the Trump administration seeks to improve repayment rates and address a growing wave of loan delinquencies.

Under the program, which was announced Thursday, eligible borrowers can receive a 1 percentage point reduction in their student loan interest rates by enrolling in automatic payments, a move administration officials say will encourage borrowers to stay current on their obligations.

The announcement comes as student loan delinquencies have surged. According to data from the Federal Reserve Bank of New York, 10.3% of student loans were delinquent during the first quarter, the highest level in six years and a sharp increase from mid-2024.

Education Undersecretary Nicholas Kent said the initiative is aimed at "making student loan repayment easier than ever" and improving "the overall health of the federal student loan portfolio."

The federal student loan system now carries nearly $1.7 trillion in outstanding debt, highlighting the long-term challenges facing taxpayers and borrowers alike.

The interest-rate reduction is not available to all borrowers.

The benefit applies only to borrowers with federal Direct Loans issued after July 1, 2012, who either already participate in automatic payments or sign up for the program. Some borrowers may also need to consolidate existing loans before becoming eligible.

Administration officials hope the incentive will increase participation in automatic payments, which currently are used by only about 40% of federal student loan borrowers.

Borrowers who already use auto pay will receive a smaller benefit because they currently receive a 0.25% interest-rate discount. Under the new program, those borrowers will receive an additional 0.75% reduction.

The administration is also using the program to encourage borrowers in default to resume repayment. Nearly 9 million borrowers are currently in default after missing at least nine months of payments.

To qualify for the lower rate, those borrowers must first restore their loans to good standing, generally through consolidation and enrollment in a repayment plan.

The interest-rate reduction is temporary and is scheduled to remain in effect through June 30, 2028.

The move comes as President Donald Trump's administration prepares to implement broader reforms to the federal student loan system beginning July 1.

The changes will place new limits on borrowing and revise repayment options, part of a wider effort to rein in a student loan program that has expanded dramatically over the past two decades.