How the Federal Student Loan Fresh Start Program Works

The Federal Student Loan Fresh Start Program was a temporary initiative designed to assist federal student loan borrowers in default or delinquency. Launched by the U.S. Department of Education in April 2022, its purpose was to return accounts to good standing. The program aimed to alleviate the consequences of default, offering an opportunity for financial recovery. While the Fresh Start program offered significant relief, its enrollment period concluded on October 2, 2024.

Determining Eligibility

The Fresh Start program extended eligibility to federal student loans in default or delinquency. Specifically, defaulted loans under the William D. Ford Federal Direct Loan Program were eligible. Federal Family Education Loan (FFEL) Program loans, whether held by the Department of Education or commercial lenders, also qualified if defaulted before March 13, 2020. Additionally, Perkins Loans held by the Department of Education were included in the program.

Certain loan types were not eligible for the Fresh Start initiative. These included Perkins loans held by schools, Health Education Assistance Loan (HEAL) Program loans, and Direct Loans or FFEL Loans that entered default after the COVID-19 payment pause concluded. Loans undergoing litigation with the U.S. Department of Justice were also excluded from the program. To qualify, a loan generally needed to be in default, which typically occurs after 270 days of non-payment for most federal student loans.

Before the program’s conclusion, borrowers with eligible defaulted federal student loans could access the benefits. The program aimed to address the negative impacts of default, such as wage garnishment, seized tax refunds, and negative credit reporting. The initiative sought to provide a clean slate for those struggling with federal student loan obligations, allowing them to re-engage with repayment options.

Benefits of Participation

Participation in the Fresh Start program offered several advantages to eligible federal student loan borrowers. One benefit was the removal of the default status from the borrower’s credit report. This action changed the loan’s status from “in collections” or “defaulted” to “current,” which could lead to an immediate improvement in credit scores. The removal of negative reporting was a relief, as defaulted loans typically remain on credit reports for up to seven years.

Another advantage was the restoration of eligibility for federal student aid. Borrowers who had been in default were previously unable to receive federal grants, loans, or work-study funds. Fresh Start enabled them to apply for federal student aid, facilitating completion of their education or further training. This access to financial aid was beneficial for borrowers at higher risk of future default if they did not complete their academic programs.

The program also restored access to repayment options, including Income-Driven Repayment (IDR) plans. Defaulted loans are normally ineligible for IDR plans, which can lower monthly payments based on a borrower’s income and family size. Many Fresh Start participants opted for IDR plans, with a percentage having monthly payments as low as zero dollars. This affordability helped prevent future defaults and provided a sustainable path to repayment.

The Fresh Start program protected borrowers from involuntary collection activities. This included the suspension of wage garnishment, offset of federal tax refunds, and the withholding of Social Security benefits. These collection actions typically resume for defaulted loans, but Fresh Start provided a temporary reprieve. The program also restored eligibility for federal loan forgiveness programs, as defaulted loans generally do not qualify for such relief.

A unique aspect of Fresh Start was that it did not count as a borrower’s one-time loan rehabilitation attempt. This provision preserved the option for future rehabilitation if a borrower were to default again after utilizing Fresh Start. The benefits aimed to provide a true “fresh start,” offering a pathway to financial stability and renewed access to federal educational resources.

Steps to Enroll and Resume Repayment

The Federal Student Loan Fresh Start Program’s enrollment period officially closed on October 2, 2024. Borrowers wishing to take advantage of the program’s benefits needed to initiate enrollment by this deadline. The process involved contacting the Department of Education’s Default Resolution Group or their loan holder.

Borrowers could enroll by phone, calling a toll-free number provided by the Department of Education. An online portal was also available, allowing them to log into their accounts and request Fresh Start. For individuals preferring written communication, enrollment could be initiated by sending a letter to a mailing address, including identifying information and a statement requesting to use Fresh Start.

Upon successful enrollment, a borrower’s eligible defaulted loans were transferred to a new federal student loan servicer. This transfer facilitated the removal of the default status from credit reports and enabled the loans to be managed under standard repayment terms. After the default status was removed, borrowers were required to select a new repayment plan to maintain their good standing.

While borrowers were automatically placed on a Standard Repayment Plan initially, most Fresh Start participants chose to apply for an Income-Driven Repayment (IDR) plan. IDR plans adjust monthly payments based on a borrower’s income and family size, potentially resulting in lower payments or even a $0 monthly obligation. The application for an IDR plan typically required providing income and family size information to the new loan servicer.

For those who did not enroll by the deadline, the temporary protections from collections have ended, and they may face consequences associated with defaulted federal student loans. These borrowers must now explore other avenues for resolving their default status, such as loan rehabilitation or consolidation, which have different eligibility criteria and benefits. The program’s conclusion means the streamlined path to default resolution and the specific benefits offered by Fresh Start are no longer available for new enrollments.