#1 Student Loan Lawyer
Updated on April 7, 2023
In recent months, President Biden’s Fresh Start program has notably impacted student debt delinquency and default rates. The New York Federal Reserve’s Q4 2022 Household Debt and Credit report reveals that $34 billion worth of delinquent or defaulted student loan accounts has been moved to “current” status.
As federal student loan payments start up again, borrowers with defaulted student loans can take advantage of the Fresh Start initiative to regain good standing.
This program offers various benefits, including updating loans to “current” status on credit reports, erasing negative default marks, regaining access to government loans, flexible repayment options, short-term relief through deferment and forbearance, and halting collection efforts even after the payment pause concludes.
To access some of these perks, you’ll need to enroll in the program and commit to a repayment plan. But there’s no need for a lump sum payment, loan consolidation, or making nine consecutive monthly payments.
While benefits like federal student aid access are already in place, others require enrollment in Fresh Start and commitment to a repayment plan.
Biden's Fresh Start Initiative explained
Biden’s Fresh Start initiative is a one-time temporary program from the U.S. Department of Education (ED) that offers special benefits, such as restoring access to federal student aid, to borrowers with defaulted federal student loans.
These benefits are automatically granted to nearly all defaulted borrowers.
But to keep these benefits long-term, borrowers must use Fresh Start to get out of default; otherwise, the benefits will stop one year after the payment pause ends.
NEWS - Biden admin is planning to automatically erase the defaults of millions of federal student loan borrowers -- part of effort to provide borrowers with "fresh start" once payments resume.— Michael Stratford (@mstratford) April 6, 2022
(We previously reported this was under consideration https://t.co/6j2VpMdtED) pic.twitter.com/wuCDkYUUaC
Fresh Start Benefits
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. Fresh Start allows eligible borrowers to reconnect with federal student aid, providing an opportunity 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. 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 in the future.
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.
Impact on repayment plans and forgiveness
Returning to good standing enables borrowers to access income-driven repayment plans and pursue Public Service Loan Forgiveness (PSLF). An April 2022 survey by the New York Federal Reserve revealed that borrowers enrolled in income-driven repayment plans encounter fewer challenges repaying their debt, with payments as low as $0.
But the Education Department clarifies that months in default, including during the pause, will not count toward PSLF or income-driven repayment forgiveness under existing federal regulations.
Who benefits from the Fresh Start Program?
The Fresh Start Program is open to nearly all federal student loan borrowers. Curious about your eligibility? Here’s what you can do:
First, contact the Default Resolution Group at 1-800-621-3115 to check your loan status.
Second, see if your loan type qualifies:
All Direct Loans
Federal Family Education Loans, including those with guaranty agencies like ECMC or Trellis
Ed-owned Perkins Loans
Privately held FFEL Program Loans that defaulted before March 13, 2020
Finally, remember some loans aren’t eligible for Fresh Start:
Private student loans
Defaulted Perkins Loans held by a school
Defaulted Health Education Assistance Loan Program loans
FFEL and Direct Loans that default after the payment pause ends
Loans where the government secured a judgment through legal action
For more details, check out the U.S. Department of Education’s Fact Sheet.
“By and large, borrowers who default on their loans are people who have been failed by the policies and lagging investments in college affordability," Education Department Undersecretary James Kvaal said. "They provide the most compelling evidence that the student-loan system needs fundamental change.”
The Fresh Start Transfer
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 and has been delinquent for less than seven years. The guaranty agency will report this loan as current on her credit reports.
Transfer to a Non-default Servicer: If Kim transfers to a non-default servicer, the guaranty agency will ask credit reporting agencies to remove the defaulted loan from her credit report and transfer the loan to ED. Afterward, ED will move Kim’s account to a non-default loan servicer.
Potential Re-default Consequences: Her new loan servicer will keep the loan’s status as current on her credit reports. But suppose Kim doesn’t switch to a non-default servicer within a year after the payment pause ends and she re-defaults. In that case, her loan will be reported as “in collections” on her credit reports. The original delinquency date won’t be reset, and the seven-year timeline on her credit report will remain unchanged.
How to apply for the Fresh Start Program
Applying for the Fresh Start student loan program is a breeze. Just follow these steps:
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.
Opt-in. While some benefits are available now, make sure to opt into Fresh Start to keep them after the program ends.
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.
Transfer your loans. Once you agree on a payment plan, your loans will move to a new loan servicer.
Website to apply for Fresh Start student loan program
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)
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.
Operation Fresh Start is an exceptional, one-time program crafted to guide borrowers out of default and minimize the impact on their credit scores.
By participating, you’ll be placed in an income-based repayment plan and regain eligibility for loan forgiveness programs. Honestly, I see no drawbacks to this program.
Schedule a session with me for personalized advice on managing your student loans. Together, we’ll assess your loans and situation to create a strategy that fast-tracks your debt relief.
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