Oct 20, 2024 Current Resources

Student Loans And The Fresh Start Program: What It Means To You

(TheDailyCurrents.com) – If you have federal student loans that you’ve been unable to pay back, the Department of Education (DE) has announced a new program to help you bring those loans back into satisfactory status—Fresh Start. This new initiative not only takes loans out of default status; it restores a borrower’s eligibility for new student aid.

The Department of Education introduced the program during the pandemic for the over 7.5 million borrowers who were in default on their loan payments. While the Biden administration has paused repayment on debt through August 2023, Fresh Start remains in place for one year after that payment pause ends.

The reason for Fresh Start is simple economics. If you can complete your degree, you stand a better chance of being able to repay your loans.

These are the loans that are eligible for Fresh Start forgiveness:

William D. Ford Federal Direct Loan (Direct Loan) Program loans
Federal Family Education Loan (FFEL) Program loans
Perkins Loans held by the DE

Private loans, and Perkins loans held by your school do not qualify for Fresh Start, and neither do these loan types.

Health Education Assistance Loan Program loans.
Loans under the purview of the U.S. Department of Justice
Direct loans

If you defaulted on a Federal Family Education Loan Program (FFELP) Loan, those loan are not eligible for Fresh Start because they were privately funded. The government bought most of these loans during the 2008-2009 financial crisis, and FFELP was discontinued in 2010 in favor of the Direct Loan program.

Benefits of Fresh Start

It’s a toss-up which is the biggest benefit of Fresh Start—renewed loan eligibility or updating your loan status on your credit report to “current” status. This means that all the negative marks disappear, and collection activity is suspended. Once you enter the program, your loans transfer from the Default Resolution Group back to a loan servicer, and your loans show up on your credit report as in repayment status.

These are some the other advantages of the program.

Access to income-driven repayment (IDR) program
Access to other federal loan programs, like FHA mortgages
Short-term debt relief, like forbearance or deferment
Tax refunds and child tax credits will not be withheld
Your pay will not be garnished
You will not lose Social Security payments

What If I Go Into Default Again Later?

Typically, a borrower can only rehabilitate their loans once, but Fresh Start does not count towards that limit. Should you default after a Fresh Start, you can rehab the loans again. Here’s how that works.

If you repeat the default, the ED gives your original delinquency date to the three credit reporting agencies (Equifax, Experian, and TransUnion). They won’t reset how long you have been in non-payment status. Believe it or not, this really works to your benefit. If your original delinquency date was more than seven years ago, nothing will show up on your credit report. So if you sign up for Fresh Start, a second default won’t count against you for more than the first seven years.

However, any new loans you take out after entering the Fresh Start program will not fall under that protection umbrella, and will be reported as in default to the credit bureaus.

Managing a Second Default

A student loan goes into default status after you’ve missed payments for 270 days—roughly nine months. If you agree to Fresh Start and wind up back in default, the rehabilitation process is simple and straightforward, You simply enter into an arrangement where you agree on a certain repayment amount, and make those payments nine times within a 10-month period.