Fresh Start Program Explained: A Complete Guide for Defaulted Student Loan Borrowers

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Defaulted federal student loans can feel like a heavy load, but don’t lose hope just yet. The U.S. Department of Education’s Fresh Start Program is here to give you the opportunity to get out of default.

Our guide aims to clarify the Fresh Start Program by providing a step-by-step explanation of the process. We will also outline the advantages and assist you in determining the eligibility of your loans.

So, let’s get started and explore this path to bring your defaulted student loans back to good standing.

Understand the Fresh Start Program

The Fresh Start Program is a temporary initiative from the U.S. Department of Education (ED) designed to assist borrowers with defaulted federal student loans. 

The program restores access to federal student aid and offers additional benefits for those who actively participate.

Contact Your Loan Holder

To claim the full benefits of the Fresh Start Program, you must contact your loan holder. If your loans are held by ED, there are three methods to contact them:

1. Online: Visit myeddebt.ed.gov and log into your account.

2. Phone: Dial 1-800-621-3115 (TTY for the deaf or hard of hearing 1-877-825-9923).

3. Mail: Write to P.O. Box 5609, Greenville, TX 75403. Include your name, social security number, date of birth, and state your intention to use the Fresh Start Program.

If you don’t know who holds your loans, call 1-800-621-3115 (TTY 1-877-825-9923).

Understand the Benefits

Automatic Benefits: When you’re in default on your federal student loans, the Fresh Start Program provides the following automatic benefits:

1. Access to Federal Student Aid: You’re allowed to apply for and receive federal student loans and grants again. This can help you if you decide to return to school or need more financial aid.

2. Stopped Collections: The U.S. Department of Education (ED) or your guaranty agency will stop attempts to collect on your defaulted loan. This can include actions like wage garnishments, tax refund offsets, and benefit offsets.

3. Eligibility for Other Government Loans: Defaulting on a student loan can affect your eligibility for other types of government loans, such as FHA or VA home loans. With the Fresh Start program, you regain this eligibility.

4. Restored Ability to Rehabilitate Loans: If you’ve previously rehabilitated your student loans, you’re generally not allowed to do so again. But under the Fresh Start program, this ability is restored, allowing you another chance to get your loans back in good standing.

5. Credit Reporting Changes: The record of the default on your credit report is removed, which can improve your credit score and make it easier for you to qualify for credit cards, loans, and other forms of credit. However, any late payments reported before the default will remain.

Added Benefits

If you take action to use the Fresh Start Program to get out of default, you’ll have access to additional benefits:

1. Access to Income-Driven Repayment (IDR) Plans: IDR plans adjust your monthly payment based on your income and family size. Your payment could be as low as $0 per month, and any remaining balance will be forgiven after 20-25 years of qualifying payments.

2. Access to Student Loan Forgiveness Programs: Once your loans are out of default, you may be eligible for various student loan forgiveness programs. These can include Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and others, depending on your career and circumstances.

3. Access to Short-term Relief (Forbearance and Deferment): These options temporarily pause your loan payments or reduce them, which can be helpful during times of financial hardship. Deferment or forbearance can give you some breathing room to get back on your feet financially.

Enroll in an Affordable Repayment Plan

After exiting default, you must select a repayment plan. Most borrowers opt for an income-driven repayment (IDR) plan, which customizes your monthly payment based on your income, not exceeding 10–20% of your income.

Check Your Loan Eligibility

Check if your loans are eligible for the Fresh Start program. If you’re unsure, contact the Default Resolution Group at 1-800-621-3115 (TTY 1-877-825-9923).

Eligible Loans

  1. Defaulted William D. Ford Federal Direct Loan (Direct Loan) Program loans: These are federal loans made directly by the U.S. Department of Education. There are four types of Direct Loans available: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. If you’ve defaulted on any of these, they’re eligible for the Fresh Start Program.
  2. Defaulted Federal Family Education Loan (FFEL) Program loans: These are federally-backed loans that were given by private lenders, such as a bank or credit union. FFEL Program loans include FFEL PLUS Loans, FFEL Consolidation Loans, Stafford Loans, and FFEL Supplemental Loans for Students (SLS). The FFEL program was discontinued in 2010, but if you have defaulted loans from this program, they’re still eligible for Fresh Start.
  3. Defaulted Perkins Loans held by ED: Perkins Loans were low-interest federal student loans for undergraduate and graduate students with exceptional financial need. The program ended in 2017, but if the U.S. Department of Education holds your defaulted Perkins Loan, it’s eligible for Fresh Start.
  4. Defaulted Health Education Assistance Loan Program loans: The Health Education Assistance Loan (HEAL) Program provided loans to eligible graduate students in health profession fields. If you’ve defaulted on a HEAL loan, it’s eligible for the Fresh Start Program.

Not Eligible Loans

  1. Defaulted Perkins Loans held by schools: If your defaulted Perkins Loan is held by the school you attended, it’s not eligible for the Fresh Start Program. However, you may still have options for repayment or loan discharge directly through your school.
  2. Student loans remaining with the U.S. Department of Justice for ongoing litigation: Any student loans that are currently involved in ongoing litigation with the Department of Justice are not eligible for the Fresh Start Program.
  3. Direct Loans that default after the end of the COVID-19 student loan payment pause: If your Direct Loan goes into default after the federally mandated COVID-19 student loan payment pause ends, it won’t be eligible for the Fresh Start Program.
  4. FFEL Program loans that default after the end of the COVID-19 student loan payment pause: Similarly, if your FFEL Program loan goes into default after the COVID-19 student loan payment pause ends, it also won’t be eligible for Fresh Start.

What if You go into default again later?

If you end up in default again after successfully using the Fresh Start Program to get out of default, it’s important to know that the consequences can be quite serious. 

These can include wage garnishment, offset of federal and/or state income tax refunds, or even legal action.

However, the U.S. Department of Education offers options to help you get your loans back in good standing. These options generally include loan rehabilitation and loan consolidation.

  1. Loan Rehabilitation: To rehabilitate a defaulted Direct Loan or FFEL Program loan, you must agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date, and make all nine payments during a period of 10 consecutive months.
  2. Loan Consolidation: A Direct Consolidation Loan allows you to combine one or more federal education loans into a single loan. As part of the process, your defaulted loan is paid off by the new consolidation loan, which can help get you out of default.

Don’t Go It Alone: Speak to a Student Loan Advisor

Dealing with defaulted student loans can feel like trying to solve a Rubik’s Cube blindfolded. But here’s the thing: you don’t have to solve it alone.

A student loan advisor can be your guide, helping you navigate the complex world of student loans and programs like Fresh Start.

They’re experts in this stuff and can give you personalized advice and support every step of the way. So, why not give one a call? It could be the game-changer you need to get your student loans—and your financial future—back on track.

FAQS

What exactly is the Fresh Start Program?

The Fresh Start Program is a temporary program from the U.S. Department of Education that offers special benefits for borrowers with defaulted federal student loans. It aims to help these borrowers bring their loans back into good standing.

How can I contact my loan holder about the Fresh Start Program?

You can contact your loan holder online, by phone, or by mail. The exact contact information will depend on who currently holds your loan.

What happens after I use Fresh Start to get out of default?

Your defaulted loans will be transferred to a loan servicer, returned to “in repayment” status, and the record of your default will be removed from your credit report.

What are the benefits of using the Fresh Start Program?

The Fresh Start Program offers a range of benefits, including access to federal student aid, stopped collections, eligibility for other government loans, restored ability to rehabilitate loans, and changes in credit reporting. Additional benefits become available when you take action to get out of default, including access to income-driven repayment plans, student loan forgiveness programs, and short-term relief.

What if my loan defaults after the end of the COVID-19 student loan payment pause?

Unfortunately, if your loan goes into default after the end of the COVID-19 student loan payment pause, it won’t be eligible for the Fresh Start Program.

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