If you’re one of the 8.2 million borrowers whose federal student loans were in default prior to the COVID-19 payment pause, the Fresh Start program can get your loans back into good standing.
Fresh Start is a one-time offering from the Department of Education that helps you get your student loans out of default while gaining other benefits, such as restored access to federal financial aid. Some of Fresh Start’s benefits are automatic, while others require you to enroll in the program before it ends in September 2024. Here’s a closer look at the Fresh Start program and how it can help you get your student loans out of default.
What Is the Fresh Start Program?
Introduced in April 2022, the Fresh Start program is a temporary, one-time program for getting student loans out of default. Through September 2024, it will replace student loan rehabilitation as a way to restore defaulted loans.
Fresh Start comes with various benefits, including renewed access to federal financial aid and the removal of the default from your credit report. After you get your student loans out of default with Fresh Start, you can sign up for a new repayment plan, such as income-driven repayment.
Fresh Start won’t be around forever, though — you’ll need to enroll in this program by September 2024 to access its full benefits.
“I would recommend that most borrowers take advantage of Fresh Start ASAP,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.
Who Qualifies for the Fresh Start Program?
Federal student loan borrowers who defaulted on their loans prior to the COVID-19 payment pause, which began in March of 2020, are eligible for Fresh Start. Note that student loans typically go into default after 270 days of missed payments.
In particular, the following federal student loans are eligible for Fresh Start:
— Direct loans.
— Federal Family Education Loans.
— Perkins loans held by the Department of Education.
[Read: Best Private Student Loans.]
Some loans are not eligible for Fresh Start, though. Ineligible loans include:
— Perkins loans held by schools.
— Health Education Assistance loans.
— Student loans involved in litigation with the Department of Justice.
— Direct or FFEL loans that went into default after the payment pause, which ended in October 2023.
If you’re not sure whether your loans are eligible for Fresh Start, you can call the Default Resolution Group at 800-621-3115 for guidance. The TTY number is 877-825-9923.
Benefits of the Fresh Start Program
Some benefits of Fresh Start are automatically available, while others only come into play after you’ve signed up. Here are some benefits that are already active. Note that you’ll need to enroll in Fresh Start to keep these benefits after the program ends.
— Restored access to federal financial aid. When your loans are in default, you usually lose access to federal grants, student loans and other aid. If you’re eligible for Fresh Start, though, you’ll be able to qualify for financial aid again, which may be a lifesaver if you want to go back to school. You’ll also become eligible for other types of government loans again, such as mortgages.
— Pause on collections activities. The government paused collections on student loans during the emergency forbearance and will continue to do so during the Fresh Start program. This means you don’t have to worry about some of the worst consequences of student loan default, such as garnishment of your wages, tax refunds and Social Security benefits.
— Changes to credit reporting. The Department of Education will report your loans as current rather than in collections to the credit bureaus.
— Another chance to rehabilitate loans. Using Fresh Start won’t count toward your “one-time” chance at rehabilitating student loans. If your loans go into default again in the future, you’ll have the option to get them out through loan rehabilitation or consolidation.
After you enroll in Fresh Start, you’ll also get these benefits:
— Return to active repayment status. After you sign up for Fresh Start, the Department of Education will transfer your defaulted loans to a new loan servicer and return them to “in repayment” status.
— Removal of default from your credit report. With the record of default gone from your credit report, you may see your credit score improve.
— Access to student loan repayment plans. You can sign up for a new repayment plan to pay back your loans. According to Federal Student Aid, 80% of Fresh Start borrowers go on income-driven repayment. You’ll also be allowed to use deferment and forbearance again, which let you postpone payments if you lose your job, go back to school or have another qualifying reason.
— Eligibility for forgiveness programs. By getting your loans out of default through Fresh Start, you can also pursue federal forgiveness programs, such as Teacher Loan Forgiveness or Public Service Loan Forgiveness.
[Read: Best Student Loan Refinance Lenders.]
How to Get a Fresh Start
You have three options for enrolling in Fresh Start:
— Online. Sign up for Fresh Start by logging into your account at myeddebt.ed.gov.
— Over the phone. Call the Default Resolution Group at 800-621-3115, or the TTY number is 877-825-9923. If available, look up your income on your most recent federal tax return before you call.
— By mail. You can also send a letter that contains your name, Social Security number, date of birth and request to enroll in Fresh Start. Mail your request to P.O. Box 5609, Greenville, TX 75403.
It typically takes four to six weeks for your loans to transfer to a new loan servicer.
Should You Apply to the Fresh Start Program?
Federal student loans have no statute of limitations, so the consequences of default can follow you for life. Signing up for Fresh Start can help you avoid wage garnishment, damaged credit and other financial repercussions.
“Take steps to get out of default as soon as possible, as collections efforts will resume against borrowers after September 2024,” says Adam Minsky, a student loan lawyer.
After getting out of default, sign up for a repayment plan that works for your budget. An income-driven repayment plan may offer the most affordable monthly payments. Financial aid expert Mark Kantrowitz also recommends using automatic payments to avoid missing bills.
“If the payment is automatic, borrowers are less likely to run into trouble,” says Kantrowitz.
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What Is the Fresh Start Program? originally appeared on usnews.com
