With the resumption of student loan repayments scheduled for October, attention is focused on a new initiative aimed at addressing student loan default issues. The Biden Administration recently announced plans to cancel $39 billion in loans for 804,000 borrowers, and the Fresh Start Program by the U.S. Department of Education (ED) offers additional pathways out of default.
A report from the 2023 Education Data Initiative indicates that 7 million student loans are currently in default, with approximately 4 million more entering default annually. Traditionally, borrowers have two main options to resolve defaults: consolidation or rehabilitation. Consolidation involves refinancing and combining loans into a new direct loan, potentially leading to lower payments and eligibility for forgiveness programs. Rehabilitation requires making consecutive payments under an agreement.
The Fresh Start Program provides immediate restoration of payment options such as Income-Driven Repayment Plans and reinstates Title IV eligibility. This allows students previously barred from returning to school to receive aid again. It also protects borrowers from collection efforts and removes negative credit reporting.
Eligible loans for this program include William D. Ford Federal Direct Loans, certain Federal Family Education Loans (FFEL), ED-held Perkins Loans, and those in default before March 13, 2020. Ineligible loans encompass school-held Perkins Loans, HEAL Program Loans, loans with the Department of Justice, and any Direct or FFEL loans that default after October 2023.
To participate in Fresh Start and exit default status within one year after the payment pause ends in September 2024, borrowers must contact either the Default Resolution Group (DRG) or their guaranty agency through various means—online via myeddebt.ed.gov, by phone at 1-800-621-3115, or by mail to P.O. Box 5609 in Greenville, TX. Additionally, requesting Title IV aid at an eligible institution is required.
Failure to act within this timeframe results in automatic reversion to default using the original delinquency date.
For further details about the Fresh Start Program, resources are available on studentaid.gov.