Getting out of Default through Fresh Start
On April 26, 2022, the Department announced a new, temporary program, Fresh Start, to help borrowers get out of default and enter repayment in good standing when the payment pause expires. Fresh Start will remove the harmful consequences of default for borrowers who defaulted on their federal student loans before the start of the payment pause. The program (1) restores access to financial aid for eligible borrowers; (2) stops collection activities for one year after the payment pause expires; (3) restores eligibility for government back loans such as mortgages; and (4) restores eligibility for rehabilitation for borrowers who rehabilitated their loans during the payment pause. These benefits are automatically available to fresh start borrowers, and they do not need to apply to receive them.
Later this year, Fresh Start borrowers will be given an opportunity to get out of default. If they choose to remove their loans from default, they will be able to apply for Income-Driven Repayment Plans (IDR) – which could offer monthly payments as low as $0. Once removed from default, borrowers should act quickly to apply for IDR as soon as they are able to. Fresh Start borrowers will also regain the ability to apply for loan forgiveness programs and short-term payment relief programs such as forbearance and deferment. The Department plans to reach out to borrowers with more information on what they need to do to get out of default and apply for IDR and other benefits available to Fresh Start borrowers.
Which loans are eligible?
Note: FFEL Program loans that default during the COVID-19 payment pause will be taken out of default as a result of the expansion of COVID-19 relief. These loans aren’t eligible for Fresh Start.
The Department will end the Fresh Start program one year after the payment pause expires. As of October 28, 2022, the Fresh Start program is scheduled to end on December 31, 2023. For more information on Fresh Start, please see the Fact Sheet: “A Fresh Start for Borrowers with Federal Student Loans in Default, and visit https://studentaid.gov/announcements-events/default-fresh-start.
Getting out of Default Through Rehabilitating or Consolidating.
Before the Fresh Start program, consolidation and rehabilitation were the two main post-default repayment programs for federal student loan borrowers. These programs are still available for borrowers who do not qualify for Fresh Start and will be available for borrowers who fall into default after the Fresh Start program ends. Before considering these options, you should evaluate whether you are eligible to cancel your loan through available discharge and relief programs. You may also want to consider whether you have enough money to settle your student loan debt.
As you think about rehabilitation and consolidation, try to be realistic about whether you can afford to make payments under an income-driven repayment plan, or other plans, each month. You want to avoid rehabilitating or consolidating your defaulted loans and then defaulting again because you are unable to meet your new obligations.
The Department of Education has online information about how to get out of default. Beware that the Department generally favors rehabilitation over consolidation, and so its collectors or default servicers may try to steer you into that option. Rehabilitation is a good program for many borrowers, but not for everyone. You should do your best to avoid pressure to select a particular option and ask questions about all of the available programs. You should also ask more about what collection fees, if any, the government will charge you for each option.
You are entitled to get out of default through rehabilitation only once per loan. There are also limits on how many times you can consolidate. Typically, borrowers who rehabilitate a defaulted federal student loan cannot rehabilitate a second time. However, borrowers with Fresh Start eligible loans who rehabilitated their defaulted loan during the payment pause can rehabilitate again if they default.
Download and print out this worksheet to help you review your options and determine whether consolidation or rehabilitation is right for you.