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Source: The College Investor
The announced “Fresh Start” program promised to give borrowers who have defaulted on their student loans a “fresh start” once the student loan payment pause ends.
This program promised to be one of the most beneficial aspects of Biden's student loan reforms. However, borrowers would have to take action by September 30, 2024.
On August 17, 2022, the U.S. Department of Education notified colleges that it was restoring financial aid eligibility to 7.5 million federal student loan borrowers through the Fresh Start program. This guide provides more details about the Fresh Start program.
Here's what you need to know about the Fresh Start program to get out of default on your student loans.
The original Fresh Start announcement and background
The Fresh Start Initiative was first mentioned in an April 6, 2022, press release from the U.S. Department of Education regarding the sixth extension of the federal student loan payment pause and interest waiver.
This press release stated that all borrowers with suspended loans would be eligible for a “fresh start” on repayment by eliminating the impact of delinquency and default and allowing them to resume repayment in good standing. However, the press release did not provide any further information.
Student loan default occurs after 270 days of nonpayment and causes the borrower to lose eligibility for federal student aid.
A borrower can rehabilitate a defaulted loan by making 9 out of 10 consecutive, full, voluntary, reasonable and affordable payments, with eligibility restored after six payments and delinquency cleared from your credit history after nine payments.
But even with this option, more than 7.5 million borrowers were in default at the start of the pandemic.
New “Fresh Start” announcement with details
The U.S. Department of Education released new details in a Dear Colleague Letter GEN-22-13 and a fact sheet.
The Fresh Start Initiative provides the following benefits to borrowers with defaulted federal student loans. We have highlighted some of the most important aspects:
- Your eligibility for Federal student aid under Title IV is restoredmaking them eligible again for the Federal Pell Grant, Federal Work-Study and Federal Student Loan programs.
- You can enroll in an income-driven repayment plan or other repayment plans.
- You are entitled to rehabilitate a defaulted loan in the future if you have rehabilitated the defaulted loan during the payment break and interest waiver.
- The default value is removed from credit reports to credit bureaus and the loans are reported as short-term.
- Arrears will be deleted from your credit report after seven years.
- The The default setting is removed from the Federal Credit Alert Verification Reporting System (CAIVRS).which affects their eligibility for other loans such as mortgages.
- Involuntary debt collection efforts will be discontinued.
Schedule and qualifications
Eligible loans include certain loans that were in default prior to the start of the payment pause and interest waiver on March 13, 2020. These include defaulted loans in the William D. Ford Federal Direct Loan Program and defaulted loans in the Federal Family Education Loan (FFEL). ) program. These loans were held by or on behalf of the U.S. Department of Education.
Federal Perkins loans held by a college or university are not eligible, but Federal Perkins loans administered through the U.S. Department of Education's Debt Management and Collection System (DMCS) are eligible.
Defaulted HEAL program loans, loans remaining with the U.S. Department of Justice (DOJ) for litigation, and loans that become delinquent after the payment pause and interest waiver expire are also ineligible.
Ineligible defaulted loans
Note that a borrower who is ineligible for federal student aid for another reason, such as failure to satisfactorily maintain academic progress or owing a refund for an overpayment of a federal grant, will remain ineligible unless the borrower resolves the issue problems.
If a borrower's loans under the FFEL program go into default on or after March 13, 2020, the borrower will become eligible for federal student aid again once the loans are assigned to the U.S. Department of Education. If the loans are not yet allocated to the U.S. Department of Education, the borrower will again be eligible for federal student aid as of March 12, 2021, the publication date of Dear Colleague Letter GEN-21-03.
What happens after a new beginning?
Borrowers will have one year after repayment resumes to begin paying off their previously defaulted loans. (A calculated payment of zero under an income-based repayment plan is considered a payment.)
If borrowers have not made payment arrangements by the end of the one-year fresh start period, their loans will again become delinquent and subject to collection, and their renewed eligibility for federal student aid will be terminated.
The restart program is NOT automatic. You must take action!
How to apply for a fresh start
Borrowers can make payment arrangements by visiting myeddebt.ed.gov or calling the Default Resolution Group at 1-800-621-3115. When the borrower makes payment arrangements, their loans are transferred to a new loan servicer and the default status is removed from their credit reports.
If the student's loans were in default prior to the start of the payment pause and interest waiver on March 13, 2020, the student must sign this acknowledgment before becoming eligible again:
“I, [full name]Please note that I am eligible for Title IV assistance through the Fresh Start Initiative. As a New Start eligible borrower, I understand that by accepting federal student aid under Title IV HEA during the New Start period, I agree that my defaulted loans will be transferred to a new loan servicer – the company servicing my loan , that Title IV, HEA, continues eligibility for federal student aid beyond the Fresh Start Period. I understand that this transfer may not occur immediately and that I may contact the holder(s) of my defaulted loans to request an earlier transfer.”
Defaulting parent borrowers who wish to take out new Federal Direct PLUS loans must sign a similar acknowledgment.
Borrowers who defaulted on their FFEL program loans on or after March 13, 2020 are not required to sign the acknowledgment.
Additional information for borrowers is available at StudentAid.gov/FreshStart.
You must apply for the Fresh Start program by September 30, 2024.
Letters to universities
For the first time, college financial aid administrators are receiving letters like the following in connection with the Fresh Start initiative.
To whom it concerns:
The U.S. Department of Education (ED) has determined that the above individual will not be denied additional Title IV assistance because he or she has no student aid debt to ED.
The individual's loans held by ED fall under the Fresh Start initiative announced by ED on April 6, 2022.
Your default status will prevent that person from receiving assistance until one year after the end of the COVID-19 emergency relief (student loan payment pause). For more information on the planned end of COVID-19 emergency relief, visit StudentAid.gov/coronavirus.
Please note: This reinstatement letter only covers ED debts. It does not cover student loan debt that may be held by commercial lenders, guarantee agencies or schools. If there are additional loans in default with these other lenders, the person named above may still not be able to receive additional Title IV help. If you have any questions, you may contact the Department's Default Resolution Group at 1-800-621-3115 (TTY 1-877-825-9923).
Additional instructions
A key goal of the Fresh Start initiative is to enable defaulting borrowers to complete their studies. Borrowers who drop out of their studies have a higher risk of default. If the Fresh Start initiative helps delinquent borrowers graduate, it will “increase the long-term repayment success” of those borrowers.
The U.S. Department of Education encourages colleges to remove other barriers to student success that prevent defaulting borrowers from re-enrolling, such as withholding official transcripts and diplomas due to debt to the college.
The U.S. Department of Education also encourages colleges to make these borrowers aware of other federal programs that may be available to them, such as: E.g., the Child Tax Credit, the Supplemental Nutrition Assistance Program (SNAP), and the Affordable Connectivity Program.
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