The Fresh Start Program After Student-Loan Default

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The COVID-era payment pause on student loans ended in October, but borrowers who’ve defaulted on their loans can still find relief under a temporary program from the U.S. Department of Education – and even have the default removed from their credit reports.

The Fresh Start Program After Student-Loan Default

Introducing the Fresh Start program. Unveiled last year, this initiative allows borrowers to transfer defaulted loans to a loan servicer and resume repayments. Furthermore, borrowers who’ve defaulted can regain access to federal student aid.

Perhaps the most significant benefit for those aiming to boost their credit scores: The Education Department now reports defaulted student loans as “current” rather than “in collections” to credit agencies. This alteration can tremendously aid borrowers in default seeking to enhance their credit scores, thereby improving their prospects for financing homes, cars, or other significant purchases.

All student-loan borrowers who’ve defaulted will automatically reap the benefits of the Fresh Start program, at least through September 2024. However, to retain these benefits long-term, borrowers must formally enroll in the program.

Defaulted student loans eligible for the Fresh Start benefits encompass:

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

Loans not covered by the Fresh Start Program comprise:

  • Perkins Loans held by institutions
  • Health Education Assistance Loan Program loans
  • Student loans currently under litigation with the U.S. Department of Justice
  • Direct Loans that default after the payment pause
  • FFEL Program loans that default post the payment pause

During the pandemic, borrowers were granted relief from certain collection activities. Payments on eligible student loans were automatically paused from March 2020 (when the pandemic surfaced) until September 2023. Simultaneously, interest rates on student loans were reset to 0%.

Some pandemic benefits continue for borrowers in default: They’ll be spared from wage garnishments, tax refunds and child tax credits will not be withheld, and they’ll be exempt from collection calls.

To join the Fresh Start program, borrowers should reach out to their student loan servicer. If the Department of Education holds your loan, there are several contact options available.

As a crucial step in the enrollment process, borrowers must select a payment plan to settle their dues. The Income-Drive Repayment Plan, a popular choice, calibrates your monthly payment based on your income, ensuring it doesn’t exceed 20%.