Student Loan Fresh Start: The Operation to Help Borrowers in Default

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When federal student loan payments resume (maybe in September?) nearly 8 million borrowers in delinquency and default will get a fresh start from the Department of Education and be returned to good standing. This will grant them access to repayment plans and student loan forgiveness programs.

Here’s what you need to know about the student loan fresh start.

Learn More:

Operation Fresh Start: Student Loan Help

Federal student loan payments, interest, and collection activity have been frozen for tens of millions of borrowers since the start of the pandemic. The Biden administration urged delinquent borrowers to use this reprieve as an opportunity to exit default and get into more affordable payment plans, like those based on their income. But the default status made that challenging to do. Borrowers first had to exit student loan default before they could access income-driven repayment plans.

Under normal circumstances, that process is challenging — especially if borrowers don’t have a lump sum payment to clear the student loan debt. Consolidation is a straightforward option: borrowers combine the defaulted loans into a new, fixed interest rate loan. But going that route tacks the interest and collection fees to the principal balance.

Alternatively, borrowers can rehabilitate their loans. The problem with that is two-fold. First, borrowers must work with private collection agencies that often provide shoddy customer service, which hinders borrowers’ efforts to get out of default. Second, they have to make nine out of 10 consecutive monthly payments before their loans are restored to good standing. Two missed payments, and borrowers have to start the process over again.

Earlier this year, the Education Department announced it would remove those obstacles through a plan referred to internally as “Operation Fresh Start.” Before payments resume, the department will wipe the slate for all federal student loan borrowers and return their accounts to good standing. This is a clean-slate action where the goal is to improve defaulted borrowers’ ability to repay once the pause ends.

Related: Do Student Loans Go Away After 7 Years?

What the student loan fresh start will do:

  • Return all borrowers with Direct Loans and commercially held Federal Family Education Loans to good standing, including those with spousal consolidation FFEL Loans.
  • Remove borrowers from CAIVRS so they can qualify for federally-backed mortgages (FHA, VA, USDA, and so on).
  • Allow defaulted borrowers to access one of the IDR plans so they can get a monthly payment that meets their financial situations.
  • Stop all wage garnishments, tax refund offsets, and Social Security benefit seizures for federal student loans.
  • Erase the default status from credit reports (it’s not yet clear whether the late payments will be erased as well).
  • Restore eligibility for loan cancellation opportunities like the Public Service Loan Forgiveness Program, PSLF Limited Waiver Opportunity, income-driven repayment plan forgiveness, the IDR Waiver, and so on.
  • Allow borrowers to receive new federal student aid, including grants, scholarships, and new federal student loans.

Operation Fresh Start will have no impact on delinquent or defaulted private student loans.

Learn More: Defaulted Student Loan Forgiveness

When will the fresh start happen?

The Education Department has yet to release details of when borrowers’ accounts will be moved out from default to a student loan servicer. Democrats like Senator Elizabeth Warren from Massachusetts and Raphael Warnock of Georgia sent a letter to Education Secretary Miguel Cardona pressing the department for more details. But the department hasn’t updated its relief page to give a clear timeline.

Bottom Line

If your federal student loans are in default, help is on the way. The U.S. Department of Education will bring your loans current and restore your eligibility for flexible repayment plans, forgiveness programs, deferment, forbearance, and so on.

It’s yet to be determined when this will happen, but hang in there! The department could extend the payment pause, which may lead to it pushing out the timeline to fix defaults.

If you need to get out of default sooner, let’s talk. Schedule a free 10-minute call with me today. We can work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.

UP NEXT: Student Loan Forgiveness Programs

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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