Defaulting on federal student loans can be a frightening experience. Persistent collection calls, wage garnishments, and tax withholding, can have serious consequences.
Although the COVID-19 payment pause provided relief for borrowers with defaulted student loans that reprieve has come to an end.
However, there is good news: the Fresh Start program offers a long-term solution. This program helps borrowers pull their loans out of default and provides affordable payments. According to the Department of Education, half of Fresh Start participants qualify for monthly payments as low as $0.
What is Fresh Start?
Fresh Start is a one-time, temporary program from the U.S. Department of Education (ED) that provides support to borrowers with defaulted federal student loans. By using Fresh Start, you can take advantage of various benefits to restore your financial well-being.
Automatic Benefits of Fresh Start
Eligible borrowers automatically receive many of the benefits of Fresh Start without enrollment.
These benefits include:
- Restored Access to Federal Student Aid: Borrowers regain eligibility for federal student aid, including loans and grants. This opens up opportunities to pursue further education and potentially enhance your ability to repay your loans.
- Halted Collections: The collections relief you received during the COVID-19 payment pause continues under Fresh Start. This means that the government will not withhold or garnish your tax refunds, wages, and Social Security payments. Additionally, you will no longer receive collection calls.
- Eligibility for Other Government Loans: Fresh Start removes your default status from the government credit reporting system (CAIVRS). This improves your eligibility chances for certain types of government-backed loans, such as mortgages.
- Ability to Rehabilitate Loans Multiple Times: Unlike the usual limitation of rehabilitating loans only once, Fresh Start provides a new remedy. Fresh Start doesn’t count as your one chance at rehabilitation. Even if you’ve already rehabilitated your loans before, Fresh Start provides you with another chance to get your loans back on track.
- Improved Credit Reporting: Beginning in December 2022, the Department of Education reported the defaulted loans held by them as “current” rather than “in collections” to credit reporting agencies. Guaranty agency-held loans also received this benefit starting in February 2023.
Unfortunately, the automatic benefits for all defaulted borrowers end September 30, 2024. Borrowers who enroll in the Fresh Start program to get out of default by October 1, 2024 can lock in these benefits long-term.
Benefits of Enrolling in Fresh Start
In addition to securing the automatic benefits indefinitely, the borrowers who enroll in Fresh Start receive additional perks.
These additional benefits include:
- Access to Income-Driven Repayment (IDR) Plans: Fresh Start participants can enroll in an income-driven repayment plan. In IDR plans, monthly payments are based on income and family size. This ensures that your payments are affordable, with some borrowers paying as little as $0 per month.
- Eligibility for Student Loan Forgiveness Programs: Defaulted loans are not eligible for loan forgiveness programs. However, by utilizing Fresh Start and exiting default, you regain eligibility for forgiveness programs like Public Service Loan Forgiveness.
- Access to Short-term Relief (Forbearance and Deferment): Once you’re out of default, Fresh Start allows you to request short-term relief options such as forbearance and deferment. These can provide temporary financial relief during challenging times.
How to Enroll in Fresh Start
To take advantage of Fresh Start and get out of default, borrowers need to contact their loan holder, whether it’s the Department of Education or a guaranty agency. If you’re unsure who holds your loans, call the Department of Education at 1-800-621-3115 (TTY 1-877-825-9923) for assistance.
Borrowers with loans held by the Department of Education have three ways to enroll in Fresh Start. Note: To enroll in Fresh Start, you must use one of these methods before October 1, 2024.
- Online: Log in to your account at myeddebt.ed.gov and initiate the Fresh Start process. According to the Department of Education, the online option is the easiest enrollment method.
- Phone: Call 1-800-621-3115 (TTY 1-877-825-9923) to speak with a representative and request Fresh Start. The Department of Education estimates that this call will take about 10 minutes.
- Mail: Write to P.O. Box 5609, Greenville, TX 75403. In your letter, the Department of Education asks that you include your name, social security number, date of birth, and the following: “I would like to use Fresh Start to bring my loans back into good standing.” If you’re using this method, you must postmark your letter before October 1, 2024.
What Happens After Enrollment?
Borrowers that sign up for Fresh Start will see the following happen:
- Your loans get transferred from the Default Resolution Group or a guaranty agency to a new loan servicer.
- The defaulted loans get changed to “in repayment” status.
- The record of your default is removed from your credit report.
- Once your loans have been transferred, you will receive communications from your new loan servicer. Within about a week after that, you’ll be able to apply for an IDR plan.
The Department of Education automatically enrolls Fresh Start borrowers in the Standard Repayment Plan. However, the Department estimates that around 80% of those borrowers elect to apply for an IDR plan. Borrowers electing this route may want to verify that they are signing up for the best Income-Driven Repayment Plan for their circumstances.
It’s important to note that you can’t apply for an IDR plan until the Department finishes processing your Fresh Start enrollment. This can take a couple of weeks. The Department also estimates that it takes 4-6 weeks for most borrowers’ loans to transfer to their new non-default loan servicer.
Student Loans Eligible for Fresh Start
Unfortunately, not all student loans are eligible for the Fresh Start program.
Notably, private loans cannot benefit from Fresh Start. The program is only available to borrowers with federal student loans.
The following federal student loans are eligible for Fresh Start:
- Defaulted William D. Ford Federal Direct Loan (Direct Loan) Program loans
- Defaulted Federal Family Education Loan (FFEL) Program loans
- Defaulted Perkins Loans held by the Department of Education
The following loans are not eligible for Fresh Start:
- Defaulted Perkins Loans held by schools
- Defaulted Health Education Assistance Loan Program loans
- Student loans remaining with the U.S. Department of Justice for ongoing litigation
- Direct Loans that default after the end of the COVID-19 student loan payment pause
- FFEL Program loans that default after the end of the COVID-19 student loan payment pause
Additionally, FFEL loans that defaulted during the COVID-19 payment pause are not eligible for Fresh Start. However, they will be taken out of default as part of the expanded COVID-19 relief.
Confused about Eligibility? If you are not sure whether or not your loans are eligible for Fresh Start, the easiest way to verify eligibility is to call the Department of Education Default Resolution Group at 1-800-621-3115 (TTY 1-877-825-9923).
Final Thoughts
Defaulted federal student loans can feel overwhelming, but Fresh Start offers a lifeline for borrowers seeking a way out.
By taking advantage of this program, you can restore access to federal student aid, improve your credit standing, and establish an affordable repayment plan.
The window to apply for Fresh Start ends September 30th, 2024. Missing this deadline would be a devastating mistake.
