Fresh Start Program for Student Loans: How to Apply

Are you one of the millions struggling with defaulted federal student loans as payments are set to resume in October 2023? If so, the Fresh Start initiative could be the lifeline you’ve been waiting for. Designed to assist borrowers like you who defaulted before the pandemic, this program provides a golden opportunity to re-enter repayment in good standing and regain control of your financial future.

Anecdotal evidence from online forums such as Reddit has seen individuals share significant credit score increases, with jumps of over 150 points, after participating in the Fresh Start program. Here’s how you can take advantage:

• Current Status on Credit Reports: Your defaulted loans can be updated to “current” status, enhancing your credit profile.

• Erase Negative Marks: Negative default marks will be removed, providing a clean slate.

• Regain Access to Government Loans: Access to government loans, including federal student aid, will be restored.

• Flexible Repayment Options: Choose from various repayment plans that suit your financial situation.

• Short-Term Relief: Deferment and forbearance options are available for immediate relief.

• No Collection Efforts: Collection efforts will halt even after the payment pause concludes.

To unlock some of these benefits, you’ll need to enroll in the program and commit to a repayment plan. The good news? There’s no need for a lump-sum payment, loan consolidation, or making nine consecutive monthly payments.

Related: How to Get Student Loans Out of Default Fast

The Fresh Start program isn’t just a lifeline; it’s your path to financial stability and success. Act now to take control of your student loan debt and start a new chapter in your financial journey.

Biden’s Fresh Start initiative is a one-time temporary program from the U.S. Department of Education (ED) designed to restore financial control to borrowers with defaulted federal student loans. These benefits, automatically granted to nearly all defaulted borrowers, include access to federal aid, paused collections, eligibility for government loans, and more.

But there’s a catch: To keep these benefits long-term, action is required. Borrowers must use Fresh Start to get out of default; otherwise, the benefits will cease one year after the payment pause ends.

About 7.5 million borrowers with defaulted federal student loans can benefit from the Fresh Start Program, which encompasses loans held by the Education Department and defaulted FFELP loans held by guaranty agencies. Here’s a rundown of the key advantages they’ll experience:

1. Access to Federal Student Aid (Without Enrollment): Fresh Start allows eligible borrowers to reconnect with federal student aid, offering a chance to secure federal Pell Grants and loans for those thinking about resuming their education. This assistance can help borrowers complete unfinished degrees and make loan repayment more achievable.

2. Paused Collections (Without Enrollment): Collections relief from the COVID-19 payment pause carries over into the Fresh Start period, ensuring tax refunds, child tax credits, wage garnishments, Social Security payments, and collection calls stay suspended.

3. Eligibility for Other Government Loans: Many lenders, especially those offering government-backed loans, deny applications from individuals with an “in default” status in the government credit reporting system. The Fresh Start program boosts eligibility for government-backed loans like mortgages by eliminating the “in default” status from CAIVRS, the government credit reporting system.

4. Restored Loan Rehabilitation: Fresh Start doesn’t affect the one-time opportunity to rehabilitate loans, granting borrowers another chance at rehabilitation if they default again.

5. Credit Reporting Changes: Starting in December 2022, defaulted loans held by ED are reported as “current” rather than “in collections” to credit bureaus. For loans held by a guaranty agency, this shift begins in February 2023. This change positively impacts borrowers’ credit reports, removing the negative mark of default.

6. Access to Short-term Relief (After Enrollment): By enrolling in Fresh Start, borrowers regain access to short-term relief options, including forbearance and deferment, allowing for temporary financial hardship relief measures.

7. Restored Eligibility for Income-Driven Repayment (IDR) Plans (After Enrollment): Re-entering good standing through Fresh Start restores access to income-driven repayment plans, enabling borrowers to tailor monthly payments based on income and family size.

Enroll Quickly: Although student loan borrowers will have one year to enroll in Fresh Start after forbearance ends, you should apply quickly. The sooner you get eligible loans out of default status, the sooner you can get credit toward student loan forgiveness programs like PSLF and the IDR Waiver.

The Fresh Start Program is open to nearly all federal student loan borrowers. Curious about your eligibility? Here’s what you can do:

1. Check Your Loan Status: Contact the Default Resolution Group (a department responsible for handling defaulted loans) at 1-800-621-3115 to verify your loan’s current status.

2. Confirm Your Loan Type Qualifies: Fresh Start is open to these loans:

• All Direct Loans: Federal loans borrowed directly from the U.S. Department of Education.

• Federal Family Education Loans: Including those with guaranty agencies like ECMC or Trellis. These are federally-backed loans provided by private lenders.

• Ed-owned Perkins Loans: Special low-interest federal loans.

• Privately held FFEL Program Loans that defaulted before March 13, 2020: FFEL loans that are not owned by the government.

3. Be Aware of Ineligibility: Some loans aren’t eligible for Fresh Start:

• Private student loans: Loans provided by private lenders without federal backing.

• Defaulted Perkins Loans held by a school: If the school holds the loan, it’s not eligible.

• Defaulted Health Education Assistance Loan Program loans: Specific to health education and not part of the program.

• FFEL and Direct Loans that default after the payment pause ends: Loans that default after a specific date.

• Loans where the government secured a judgment through legal action: If legal action has been taken, the loan is ineligible.

4. Read More: For a comprehensive understanding, consult the U.S. Department of Education’s Fact Sheet.

5. Act Now: Don’t delay checking your eligibility and considering enrollment. The Fresh Start Program offers a unique opportunity to regain control of your financial future.

The Fresh Start initiative provides a helping hand to eligible FFEL Program borrowers who defaulted before March 13, 2020. By requesting a “Fresh Start Transfer” to Nelnet, a federal loan servicer, these borrowers can regain access to financial aid and stop collection activities, putting them back on track for successful loan repayment.

Eligibility and Guaranty Agencies’ Role

Eligible borrowers have a one-year window after the pandemic payment pause to either transfer to Nelnet or seek Title IV aid from an eligible school. Guaranty Agencies (GAs) play a crucial role in informing borrowers of their transfer rights and gathering the information to help with the transfer.

Ineligibility and Collections

Unfortunately, borrowers who defaulted on or after March 13, 2020, don’t qualify for the Fresh Start initiative and will face collections.

End of Fresh Start Period

GAs must keep affected borrowers updated about the Fresh Start period’s end and offer guidance on preparing for repayment or collections if they don’t choose a transfer.

Example: Kim’s Loan Transfer Process

• Initial Status: Kim has a commercially-held FFEL Program loan that defaulted before March 2020. The guaranty agency will report this loan as current on her credit reports.

• Transfer to a Non-default Servicer: The guaranty agency will remove the defaulted loan from her credit report and transfer the loan to ED, then to a non-default loan servicer.

• Potential Re-default Consequences: If Kim doesn’t switch within a year after the payment pause ends and she re-defaults, her loan will be reported as “in collections” on her credit reports. The original delinquency date won’t be reset, keeping the seven-year timeline on her credit report unchanged.

Applying for the Fresh Start student loan program is a breeze. Just follow these steps:

1. Identify Your Loan Holder

• Contact the U.S. Department of Education (ED) if they hold your loans, or the guaranty agency if they do.

• Unsure? Give the Default Resolution Group a call at 1-800-621-3115 or visit StudentAid.gov.

2. Opt-in

• While some benefits are available now, make sure to opt into Fresh Start to keep them after the program ends. The easiest way to opt in is to visit myeddebt.ed.gov and log in to your account.

• This will also lead to positive changes on your credit report, as defaulted loans will be reported as “current” rather than “in collections.”

3. Set Up a Payment Plan

Collaborate with the Department of Education’s Default Resolution Group or your loan holder to establish a long-term payment plan.

4. Transfer Your Loans

• Once you agree on a payment plan, your loans will move to a new loan servicer.

• This transfer will remove the negative mark of default on your credit report, enhancing your credit standing.

5. Provide Necessary Details

When signing up online or making a call, you’ll need to provide these details to establish a payment arrangement to enroll in an IDR plan:

• Your family size

• The number of dependents you support

• Your tax filing status from your most recent federal tax return (e.g., married filing jointly, single, married filing separately, or head of household)

• Your adjusted gross income (line 11 of IRS Form 1040) from your most recent federal tax return

• Your spouse’s adjusted gross income (if you’re married but file separately).

Operation Fresh Start is a remarkable, one-time opportunity designed to assist borrowers in safely returning long-defaulted student loans to good standing. This chance comes just in time, before the student loan payment pause ends and even after payments resume.

By taking part in Fresh Start, you’ll gain access to an income-driven repayment plan and reestablish eligibility for loan forgiveness programs. If you’re in default, this program offers a clear path to regaining control, and it’s one that every affected borrower should consider.

Have specific questions about how this process applies to you? Feel free to book a session with me for personalized guidance on managing your student loans. Together, we’ll review your loans and your unique situation, crafting a strategy that accelerates your path to debt relief

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