When the Biden administration announced a further extension of the suspension of federal student loan payments and interest relief in April, it mentioned a “fresh start” program to provide delinquent and defaulting borrowers with a table shave.
Financial relief for federal student loan borrowers
The payment pause and interest waiver, also known as the student loan moratorium, suspended repayment of federal education loans held by or on behalf of the U.S. Department of Education beginning in March. 2020.
The interest rate has also been temporarily set at zero, so no new interest accrues on these loans.
Collection activity for defaulted federal student loans has also been suspended. This includes administrative wage garnishment, offsetting income tax refunds, and offsetting Social Security disability and retirement benefit payments from delinquent loans.
The payment pause and interest waiver have been extended a total of eight times, twice under the Trump administration and six times under the Biden administration. The most recent extension will be expires in 2023.
What is the Fresh Start Program?
Under the Fresh Start program, borrowers whose federal student loans were past due or in default before the pandemic will return to “Current” status at the end of the payment pause. Arrears and defaults will be removed from their credit history.
The Fresh Start program will also end wage garnishment, set-off of income tax refunds, and set-off of Social Security benefit payments on qualifying loans.
Removing student loan delinquency and default from a borrower’s credit history will give a major boost to the borrower’s credit scores. This will help these borrowers qualify for new credit and lower the interest rates they pay on other debts, such as credit cards, car loans, and mortgages.
Eligible borrowers include all borrowers whose loans were eligible for suspension of payment and relief from interest. This includes defaulted Federal William D. Ford Direct Lending Program (Direct Loan) loans, Federal Family Education Loan (FFEL) Program loans (both held by ED and held by businesses ) and Perkins loans held by the ED. FFEL program loans held by businesses that defaulted after March 13, 2020 will be restored to their current state, meaning they will not be eligible for Fresh Start benefits. Review this fact sheet from the U.S. Department of Education to learn more about how eligibility is determined.
Approximately 10 million borrowers will benefit from the Fresh Start program, including more than 7 million borrowers whose loans were in default and approximately 3 million borrowers whose loans were in default.
Borrowers must switch to a repayment plan and begin repaying their loans within one year or their loans will revert to default status. A calculated payment of zero on an income-based repayment plan will count as one payment.
About a month after repayment restarts, get a free copy of your credit reports from annualcreditreport.com to confirm that arrears and defaults have been removed from your credit history.
Beware of misinformation
Scammers may try to take advantage of desperate borrowers. Do not share your FSA ID with anyone. Don’t pay a fee to anyone who claims to be able to help you with the Fresh Start program. The Fresh Start program is a free program, so you won’t have to pay a fee to participate.
You can get more information from the StudentAid.gov website, through your student loan officer, or by calling the U.S. Department of Education’s toll-free hotline at 1-800-4-FED-AID (1-800-433-3243). To confirm if your loans qualify, contact the Default Resolution Group at 1-800-621-3115.
The U.S. Department of Education will notify eligible borrowers directly, so make sure your contact information is up-to-date with the loan service and on StudentAid.gov. They will also communicate program benefits to qualified borrowers via email, regular mail and social media.
How to Avoid Defaulting on Your Federal Student Loans Again
But borrowers should take steps to avoid defaulting on their federal student loans again.
- Register for Automatic payment, which automatically transfers the monthly loan payment from your bank account to the loan servicer. Not only will this reduce the chances of being late with a payment, but the lender will lower your interest rate by a quarter of a percentage point (0.25%), saving you money.
- If you’re having trouble repaying your student loan, consider using the deferment for economic hardship, deferment of unemployment or general abstention to pursue a payment pause. Interest may accrue during a deferral or forbearance, increasing the amount of debt, but it’s better than not paying off your student loans. If you have already exhausted your deferments and forbearances, consider consolidating your loans into a federal direct consolidation loan. The consolidation loan is a new loan and therefore eligible for a new round of deferrals and forbearances.
- Switch to a income-based repayment plan, such as IBR, PAYE and REPAYE. These repayment plans base loan repayments on a percentage of discretionary income instead of the amount of debt. If your income is below 150% of the poverty line, the monthly loan payment will be zero.
Options if you are not eligible for a fresh start
Private student loans are not eligible for the Fresh Start program. Borrowers who are offender on FFEL loans that were issued in 2007-08 and earlier are not eligible unless they consolidate them into the direct lending program before the end of the payment pause and interest relief. Borrowers who default on FFEL loans that were issued in 2007-08 and earlier will be turned over to a guarantor agency, which will then pay the default claim on behalf of the US Department of Education.
If you are still having trouble making payments, contact your service agent immediately to discuss your financial situation and your potential options.