Roughly 20% of the 43 million Americans holding federal student loans are in default. Prior to the pandemic, these borrowers faced harsh consequences, including wage garnishment, Social Security benefits offset, and seizure of their federal tax refunds–including the Child Tax Credit and Earned Income Tax Credit. Additionally, default damaged their credit scores, and limited their economic mobility. For many, getting out of default previously seemed overly complicated or had become impossible because they had already exhausted their limited options for removing their loans from default. However, right now there is good news for borrowers with defaulted loans who need a fresh start
In August 2022, the U.S. Department of Education announced its Fresh Start initiative, which provides a pathway out of default for borrowers who defaulted on their federal student loans prior to the pandemic. Through the Fresh Start program, eligible borrowers can sign up to have their loans removed from default and at the same time make their student loan bills more manageable by enrolling in an Income-Driven Repayment (IDR) plan. IDR plans limit monthly payments based on income, and many low-income borrowers have $0 or small monthly payments. The process to sign up for Fresh Start is free and simple–it takes less than 10 minutes. The Fresh Start program is time limited, so borrowers need to act quickly. The program will end one year after the payment pause expires.
Additionally, the Fresh Start program provides the following automatic benefits to borrowers with eligible defaulted student loans:
- restores access to financial aid for eligible borrowers;
- stops collection activities for one year after the payment pause expires;
- removes borrowers from the federal Credit Alert Verification Reporting System (CAIVRS), so that they can be eligible for government loans, including government backed mortgages;
- restores ability to rehabilitate a defaulted loan if the borrower rehabilitated their loan after March 13, 2020; and
- removes the record of default from borrowers’ credit report.
NCLC recently hosted a discussion for legal aid attorneys with the Federal Student Loan Ombudsman to discuss the nuts and bolts of the Fresh Start program. The video recording of this conversation is available here. Based on that conversation and other information the Department has made available on studentaid.gov, we have created this Fresh Start FAQ with answers to key questions about Fresh Start.