Approximately 7.5 million student loan borrowers are in default, according to the Department of Education. If you're one of them, I don't have to tell you about the toll this takes -- no access to further student aid and relief programs, a negative mark on your credit report, and the stress of knowing you've got less help. But a new government initiative could give you some hope.
The Department of Education has launched its Fresh Start program, which is available to many student loan borrowers in default. But it's a limited-time offer: You must apply by September 2024 to take full advantage of its benefits. Here's what you need to know.
Image source: Getty Images.
What is the Fresh Start program?
The Fresh Start program is a program that puts defaulted loans back into good standing for qualifying borrowers. It offers two tiers of benefits.
The first set of benefits are available to all eligible borrowers starting right now, even those who have not yet enrolled in the Fresh Start program. These include:
- Restored access to federal student aid, including federal grants and loans
- Stopped collections, including no tax refund, wage, or Social Security garnishment or collection calls
- Restored eligibility for other government-backed loans, including mortgages
- Restored ability to rehabilitate your loans (normally a one-time offer for getting your loan out of default)
- Default status removed from your credit reports
These benefits automatically remain in effect for all qualifying borrowers through September 2024. But you must formally enroll in the Fresh Start program to keep them beyond this date. Once you do so, you'll also gain access to the following other perks:
- Access to income-driven repayment (IDR) plans, which tie your monthly payments to your income and could be as low as $0 per month
- Access to student loan forgiveness programs, like Public Service Loan Forgiveness
- Access to short-term relief options like deferment or forbearance
These options may make it easier for you to keep up with your student loan payments going forward so you can avoid defaulting again.
Which loans qualify for Fresh Start?
This table indicates which student loans are and aren't eligible for the Fresh Start program:
|
Loans Eligible for Fresh Start |
Loans Not Eligible for Fresh Start |
|---|---|
|
|
Data source: Department of Education.
Those with FFEL Program loans that defaulted during the COVID-19 payment pause will automatically have these loans restored to good standing as a result of expanded COVID-19 relief. So these loans aren't eligible for the Fresh Start program.
If you have any doubts about whether your loan qualifies for Fresh Start, you can contact the Department of Education's Default Resolution Group to learn more.
How do you enroll in Fresh Start?
Borrowers interested in Fresh Start must contact the agency that holds their student loan debt. If this is the Department of Education, you can contact the company by phone or by mail. But it's easiest to log in to your MyEdDebt.ed.gov account and apply online.
If your loan is held by a guaranty agency, you'll need to look up its contact information and reach out via email, phone, or mail to sign up.
It can take four to six weeks for your loans to transfer to your new, nondefault servicer. The Department of Education should keep you updated by mail about the process. But you can start taking advantage of some of the program's benefits, like access to new federal student aid, right away.
When you sign up, you may also be asked to select a payment plan you'll adhere to going forward. You can use this Loan Simulator tool to help you find your best option.
What happens if you default again after enrolling in Fresh Start?
Fresh Start only erases the current default from your record. It will not prevent your loan from going back into default if you fail to keep up with your new payment schedule.
If this happens, you will have the option to rehabilitate your loan. This allows you to get your loan back to current status by making nine consecutive on-time payments within 10 months. You'll work with your lender to determine what these payments will be.
If you choose not to rehabilitate your loan or the rehabilitation is unsuccessful, you should note that the government will use your loan's original date of delinquency -- the date you went into default before you enrolled in Fresh Start -- when it provides information to credit reporting agencies.
This is actually a good thing for you. Negative marks, like defaulted loans, only remain on your credit report for seven years, and the more recent they are, the greater their effect on your score. Using your old default date ensures the default has a smaller effect on your credit score for a shorter period.
It's also worth noting that you won't be able to take advantage of Fresh Start benefits for new loans you take out going forward. Fresh Start benefits will also expire after September 2024 if you don't formally enroll in the program before then. So if you think it could help you get your finances back on track, contact your student loan servicer to enroll as soon as possible.
