Understanding the Fresh Start Program: A Path to Financial Recovery

The federal student loan payment pause is coming to an end, with payments resuming in October 2023. If you defaulted on your federal loans before the moratorium began in March 2020, you’ve enjoyed no collection attempts for more than three years. Fortunately, the federal government has a temporary program in place—the Fresh Start program—to help you get out of default before collection efforts start up again. Here’s what you need to know about the Fresh Start program and how you can take advantage of its benefits.

What Is Fresh Start?

The Fresh Start program, announced in April 2022, is a one-time temporary program that offers federal borrowers with defaulted student loans a wide range of benefits. Some of the benefits are automatic for borrowers in default, but to take advantage of everything the program has to offer, including lasting restoration of certain benefits, you’ll need to apply for the program.

Automatic Benefits

All defaulted federal student loan borrowers already have certain benefits through the Fresh Start program, but unless you enroll in the program, you’ll no longer qualify for them after 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. If you have an unfinished degree or you’d like to enter a graduate program, the program allows you to apply for federal aid again.
• Stopped collections: Even after student loan payments resume, you won’t be subject to collection calls, and you won’t have to worry about the government garnishing or withholding your wages, tax refunds, or Social Security benefits.
• Eligibility for other government loans: The government’s credit reporting system no longer reports your loans as in default, meaning you can qualify for other government loan programs, such as government-backed mortgage loans and U.S. Small Business Administration (SBA) loans.
• Restored option to rehabilitate loans: Student loan rehabilitation allows you to get out of default without certain consequences, but you can only do it once. The good news is the Fresh Start program won’t count as your one rehabilitation attempt, and the same goes 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 (Experian, TransUnion, and Equifax), which could help your credit scores.

Added Benefits When You Enroll

When you enroll in Fresh Start, you’ll continue to enjoy the program’s automatic benefits after they expire for borrowers who don’t apply. Additionally, you’ll get access to the following benefits:

• Income-driven repayment plans: On an income-driven repayment plan, you can reduce your monthly payment to as little as 5% of your income. In some cases, your new monthly payment can be as low as $0.
• Student loan forgiveness: Defaulted student loans are ineligible for federal student loan forgiveness programs, but the Fresh Start program restores that option.
• Student loan deferment and forbearance: Federal student loans come with generous short-term relief options, but you normally lose those when you default. With the new program, your student loan deferment and forbearance options will be restored.

Who Qualifies for Fresh Start?

You qualify for the Fresh Start program if you have eligible federal student loans and you were in default when the student loan payment pause went into effect. 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

If you have any of the following loans in default, you aren’t eligible for the program:

• Perkins loans held by schools
• Health Education Assistance Loan Program loans
• Student loans remaining 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

Note that if you have FFELs that defaulted during the payment pause, they’ll be taken out of default due to other COVID-19 relief programs, but they aren’t eligible for Fresh Start.

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 in the program. Here are some steps you can take 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. If you have it, be sure to 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 opt to apply online or over the phone, expect the process to take about 10 minutes. It’ll 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, you’ll need to choose which repayment plan you want to use going forward. According to the Education Department, 80% of Fresh Start enrollees choose an income-driven repayment plan, where half of them have a $0 monthly payment and 60% expect to pay less than $50 per month.

3. Make On-Time Payments

It may take a while to get set up with your new loan servicer, but once you’re notified that your loans are ready, set up automatic payments as quickly as possible.

The Biden Administration has instituted an “on-ramp” to repayment through September 2024, so missing a payment during that time won’t result in a delinquency or default. But you may still be slapped with late payment charges, and it’s a good idea to develop the habit of making regular payments sooner rather than later.

If you default on your loans again after this initial period, the U.S. Department of Education will use your original delinquency date when it reports the default to the credit bureaus. Because delinquencies and defaults only remain on your credit reports for seven years from the original delinquency date, that could shorten the amount of 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, those benefits are temporary if you don’t enroll in Fresh Start, 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 for the program, you may be subject to collection attempts, restrictions on other government aid and loan programs, and further damage to your credit score once the temporary features expire. And because the application process only takes roughly 10 minutes, it’s better to start sooner rather than later.

Monitor Your Credit to Track Your Progress

If you haven’t already, check your credit score and credit report to see how your student loans are being reported to the credit bureaus. Then, 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 of your credit report where you can make improvements to increase your credit score over time.

At O1ne Mortgage, we understand the importance of maintaining a good credit score, especially when it comes to securing a mortgage. If you need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of mortgage services and find the best solutions for your financial situation.