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Understanding the Fresh Start Program for Federal Student Loans

The federal student loan payment pause is ending, with payments resuming in October 2023. If you defaulted on your federal loans before the moratorium began in March 2020, you have enjoyed a break from collection attempts for over three years. Fortunately, the federal government has introduced the Fresh Start program to help you get out of default before collection efforts resume. Here’s what you need to know about the Fresh Start program and how you can benefit from it.

What Is Fresh Start?

Announced in April 2022, the Fresh Start program is a temporary initiative offering federal borrowers with defaulted student loans a variety of benefits. While some benefits are automatic, to fully take advantage of the program, including lasting restoration of certain benefits, you need to apply.

Automatic Benefits

All defaulted federal student loan borrowers receive certain benefits through the Fresh Start program. However, unless you enroll, these benefits will expire in September 2024, one year after the student loan payment pause ends. Automatic benefits include:

• Access to federal student aid: Borrowers in default are typically ineligible for federal student aid, including loans and grants. The program allows you to apply for federal aid again if you have an unfinished degree or wish to enter a graduate program.
• Stopped collections: Even after student loan payments resume, you won’t face collection calls or worry about wage garnishment, tax refund withholding, or Social Security benefit withholding.
• Eligibility for other government loans: The government’s credit reporting system no longer reports your loans as in default, making you eligible for other government loan programs, such as government-backed mortgage loans and U.S. Small Business Administration (SBA) loans.
• Restored option to rehabilitate loans: The Fresh Start program allows you to rehabilitate your loans without counting it as your one rehabilitation attempt, even if you previously rehabilitated your loans during the payment pause.
• Credit reporting: Starting February 2023, your loans are no longer reported as “in collections” with the credit bureaus, which could help improve your credit scores.

Added Benefits When You Enroll

By enrolling in Fresh Start, you’ll continue to enjoy the program’s automatic benefits after they expire for non-enrollees. Additionally, you’ll gain access to:

• Income-driven repayment plans: Reduce your monthly payment to as little as 5% of your income, with some payments as low as $0.
• Student loan forgiveness: The Fresh Start program restores eligibility for federal student loan forgiveness programs.
• Student loan deferment and forbearance: The program restores your eligibility for short-term relief options that are typically lost when you default.

Who Qualifies for Fresh Start?

You qualify for the Fresh Start program if you have eligible federal student loans and were in default when the student loan payment pause began. Even if you’ve rehabilitated your loans since then, you can still qualify for Fresh Start benefits.

Which Loans Qualify for Fresh Start?

You can apply for the Fresh Start program if you have defaulted loans in the following programs:

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

Loans that do not qualify include:

• Perkins loans held by schools
• Health Education Assistance Loan Program loans
• Student loans with the U.S. Department of Justice for ongoing litigation
• Direct loans and FFELs that default after the end of the student loan payment pause

How to Get out of Loan Default With Fresh Start

While you’re already enjoying certain benefits with the Fresh Start program, they’re only temporary unless you enroll. Here are the steps to make those features permanent and enjoy more benefits:

1. Apply for the Program

You can apply for the Fresh Start program in three ways:

• Online: Log in to your online account at myeddebt.ed.gov.
• Phone: Call the Education Department at 800-621-3115 (877-825-9923 TTY) or your guaranty agency if your FFEL loan isn’t held with the Education Department. Have your income from your most recent federal tax return handy.
• Mail: Write to P.O. Box 5609, Greenville, TX 75403, and include your name, Social Security number, date of birth, and the following words: “I would like to use Fresh Start to bring my loans back into good standing.”

If you apply online or over the phone, the process takes about 10 minutes. It will then take roughly four to six weeks to transfer your loans from the Default Resolution Group to a new federal loan servicer.

2. Enroll in a Repayment Plan

Once you get out of default, choose a repayment plan for your loans. According to the Education Department, 80% of Fresh Start enrollees choose an income-driven repayment plan, with half having a $0 monthly payment and 60% expecting to pay less than $50 per month.

3. Make On-Time Payments

Set up automatic payments as soon as your new loan servicer notifies you that your loans are ready. The Biden Administration has instituted an “on-ramp” to repayment through September 2024, so missing a payment during that time won’t result in delinquency or default. However, you may still incur late payment charges, so it’s a good idea to develop the habit of making regular payments.

If you default on your loans again after this initial period, the U.S. Department of Education will use your original delinquency date when reporting the default to the credit bureaus. Delinquencies and defaults remain on your credit reports for seven years from the original delinquency date, potentially shortening the time the negative mark affects your credit.

Should You Apply for the Fresh Start Program?

If you defaulted on your federal student loans before the payment pause began in March 2020, you’re already enjoying certain benefits of the Fresh Start program. However, these benefits are temporary if you don’t enroll, so unless you plan to pay off your loans in full by September 2024, it’s a good idea to submit an application.

If you don’t apply, you may face collection attempts, restrictions on other government aid and loan programs, and further damage to your credit score once the temporary features expire. Since the application process only takes about 10 minutes, it’s better to start sooner rather than later.

Monitor Your Credit to Track Your Progress

Check your credit score and report to see how your student loans are being reported to the credit bureaus. Continue to monitor your credit as you take steps to get back on track with your student loans, especially once your monthly payments resume. Pay special attention to how your actions impact your credit and look for areas where you can make improvements to increase your credit score over time.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We are here to assist you with confidence and expertise.

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