Over 6 million borrowers are in default on their federal student loans. Before the pandemic, these borrowers faced forced seizures of their wages and antipoverty benefits, including through wage garnishment, Social Security benefits offset, and seizure of their federal tax refunds–including the Child Tax Credit and Earned Income Tax Credit. Additionally, default damaged their credit scores, rendered them ineligible for student aid to return to school and finish their degrees, and ultimately limited their economic mobility. For many, getting out of default was overly complicated or had become impossible because they had already exhausted their limited options for removing their loans from default.
However, the Fresh Start program has temporarily protected borrowers from the harsh consequences of default and provided a streamlined path for borrowers to have their loans removed from default. The opportunity to get out of default through Fresh Start and the protections from collection and other consequences of default the program offers will end on September 30, 2024. As the program winds down, borrowers should be aware of the changes ahead and the actions they can take to remove their loans from default before the program expires.
Key Benefits of the Fresh Start Program
Borrowers have until September 30, 2024, to access these important benefits of the Fresh Start program:
- Removal of Loans from Default: Borrowers who have eligible loans in default can get their loans out of default quickly and easily before the Fresh Start deadline and so avoid the negative consequences of default that may otherwise resume as soon as October. Upon removal from default, the borrower will be eligible for access to affordable repayment plans that could reduce their monthly payments to as low as $0, based on their income, as well as other relief options such as forbearances.
- Access to Financial Aid: Before the Fresh Start program, borrowers in default were not able to access financial aid to continue their education. Under the Fresh Start program, these borrowers can apply for financial aid, and their loans are automatically removed from default upon receiving new financial aid. This option will no longer be available after September 30.
- Pause on Collection: Defaulted borrowers are protected from collection until the program expires on September 30. This protection will expire, and collection will resume if the borrower does not request removal of loans from default on or before that date.
- Negative Credit Reporting: Until September 30, Fresh Start-eligible borrowers will be protected from negative credit reporting. However, negative credit reporting will resume if the defaulted loan is not removed from default at the end of the Fresh Start period.
How to Request a Fresh Start
Enrollment in Fresh Start is easy and can be done over the phone by contacting the Department’s Default Resolution Group at 1-800-621-3115, online at myeddebt.ed.gov, or by mail at P.O. Boz 5609, Greenville, TX 75403.
Borrowers with eligible loans held by a Guaranty Agency can also contact their GA (GA contact information is available here).
After September 30, borrowers will no longer be able to use Fresh Start to get out of default. Please visit our Fresh Start page for more information about Fresh Start enrollment.
Loans That Are Eligible for Fresh Start
Most defaulted federal student loans are eligible for Fresh Start benefits, including defaulted:
- Direct Loans,
- Perkins loans held by the Department of Education, and
- most Federal Family Education Loan (FFEL) loans (held by the Department of Education and commercial lenders) that defaulted before the pandemic.
Please visit our Fresh Start page for a list of loans that are not covered under the Fresh Start program.
Will collection start after Fresh Start ends?
Loans that are not removed from default by September 30 may be subject to default collection. The Department is yet to announce its plans for default collection after the Fresh Start period expires, but in the past, default collection has included negative credit reporting, collection notices, wage and Social Security benefit garnishment, seizure of tax refunds, and sometimes collection lawsuits.
Will negative credit reporting resume after September 30th?
Due to the Fair Credit Reporting Act, loans that have been delinquent for more than seven years should not appear on a borrower’s credit report. The Department instructed the credit reporting agencies and guaranty agencies to delete the tradelines of these loans. Therefore, loans in delinquency for greater than seven years should not appear on a borrower’s credit report and should not be reported after the Fresh Start period ends on September 30.
However, negative credit reporting will resume on loans that have been delinquent for less than seven years if the loans are not removed from default by the end of the Fresh Start period. The defaulted loan will be reported as in collection with the original date of delinquency.
If I use Fresh Start to get out of default, can I apply for rehabilitation in the future?
Normally, you can rehabilitate a loan only one time. But Fresh Start will not count as your one chance at rehabilitating your loan(s). So, if you use Fresh Start to get out of default, you will still have the option to rehabilitate if you redefault in the future – provided you have not done so in the past.
Can I apply for Income-Driven Repayment (IDR) when I request a Fresh Start?
If you request Fresh Start to get out of default by September 30, you will be eligible to apply for an IDR plan, which reduces your monthly payment based on your income. Unfortunately, online IDR applications have been temporarily paused, but you may still apply for IDR using a PDF or paper application. Borrowers have been told to expect delays in IDR application processing, but you should be placed in a forbearance (meaning you do not have to make payments) until your IDR application is processed –contact your servicer to request a “processing forbearance” if they do not put you in one.
If your loan is removed from default and you do not enroll in IDR, your loan will be placed on the standard repayment plan, which may not be affordable to you; if it is not affordable, you can request to switch to IDR.
Borrowers who do not use Fresh Start to get out of default by September 30 will remain in default and will not be eligible for IDR. They will have to rehabilitate or consolidate to get out of default and apply for IDR, which is a more complicated process than enrolling in Fresh Start. This is why borrowers should consider getting out of default with Fresh Start while the program is still available.
By acting now—whether through enrolling in Fresh Start or applying for IDR after enrollment into Fresh Start, borrowers can enter repayment, avoid the harsh consequences of default, and set themselves on a more stable financial path.