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The Education Department released its first set of guidance on the so-called Fresh Start program that will allow the 7.5 million borrowers in default to be placed back in good standing on their federal student loans.
For most federal loans, borrowers are placed in default if they have not made a payment in 270 days. Default has numerous negative impacts on borrowers, including collection fees, possible garnishment of wages and damages to their credit scores. It also makes borrowers ineligible for all types of Title IV federal student aid, which includes federal grants and student loans.
On Wednesday, the department released guidance on the process to enroll in Fresh Start to regain eligibility for federal student aid. Further guidance is expected on how borrowers can use Fresh Start to remove defaulted loans from their credit history, among other details, according to reporting from The Washington Post.
All borrowers who defaulted before the start of the pause on federal student loan payments (March 13, 2020) will be eligible to enroll in Fresh Start. The plan only applies to borrowers who defaulted on federal Direct Loans, Federal Family Education Loan program loans and Perkins Loans held by the Education Department.
Defaulted borrowers will not be placed back in good standing automatically. According to Wednesday’s guidance, borrowers will have to either reach out to their loan servicer or their college’s financial aid office to initiate the process. Borrowers must enter the Fresh Start program within one year of the lift on the pause on federal student loan payments set to expire on Aug. 31.
This guidance will allow defaulted borrowers to gain access to Title IV federal student aid options before the start of the fall semester.
