The U.S. Department of Education announced a temporary 1% interest-rate reduction for a subset of federal student loan borrowers who are already enrolled in, or sign up for, automatic payments—starting July 1. The benefit applies only to Direct Loans issued after July 1, 2012 and is designed to push more borrowers into auto-pay enrollment, where only about 40% are currently participating. Officials said the change is part of a plan to improve affordability and “the overall health” of the federal student loan portfolio. For borrowers already in auto-pay, the incremental savings are smaller because they already receive a 0.25% rate discount, meaning the new reduction effectively adds 0.75%. The Department’s move comes as nearly 9 million borrowers are in default and millions more are behind on payments, highlighting the administration’s focus on operational incentives rather than broad rate changes. Borrowers in default would generally need to consolidate and return to good standing to qualify. Separately, a separate policy debate is intensifying in Washington over alleged “FAFSA fraud,” with the Department of Education and Congress working on mechanisms to curb “ghost student” schemes that have extracted federal dollars for years.