How to Apply for the Fresh Start Program for Student Loans

The Fresh Start Program, a temporary initiative by the U.S. Department of Education, offered federal student loan borrowers in default a pathway to regain good standing. The program aimed to provide relief and restore access to various benefits. The application period for the Fresh Start Program concluded on October 2, 2024. This article details the program’s past eligibility and benefits, and outlines current options for managing defaulted federal student loans.

Understanding the Fresh Start Program: Past Eligibility and Benefits

The Fresh Start Program was designed for federal student loan borrowers whose loans were in default prior to the COVID-19 pandemic payment pause, specifically before March 13, 2020. Eligible loan types included defaulted William D. Ford Federal Direct Loans, Federal Family Education Loan (FFEL) Program loans (both ED-held and commercially held), and defaulted ED-held Perkins Loans. Even borrowers who had previously used loan rehabilitation or consolidation were eligible to participate in Fresh Start.

Participating in the Fresh Start Program offered advantages. Borrowers had their defaulted loans returned to an “in repayment” status, and the record of default was removed from their credit reports. This did not erase the history of late payments that led to default. The program also restored eligibility for federal student aid, reinstated access to income-driven repayment (IDR) plans, and provided short-term relief options like deferment and forbearance. It also protected borrowers from involuntary collection actions such as wage garnishment and tax refund offsets.

Current Pathways to Address Defaulted Federal Student Loans

With the Fresh Start Program concluded, borrowers with defaulted federal student loans now rely on other established methods to bring their accounts back into good standing. Loan rehabilitation and loan consolidation are the primary options. These processes have distinct requirements and implications for a borrower’s financial standing.

Loan rehabilitation is a formal agreement where a borrower makes nine voluntary, on-time monthly payments over a 10-month period. The payment amount is determined based on the borrower’s income and expenses, and can be as low as $5 per month. After successfully completing the nine payments, the loan is removed from default, and the default record is erased from credit reports, though the history of late payments remains. This option is a one-time opportunity; if a loan defaults again after rehabilitation, this pathway may not be available.

Loan consolidation allows borrowers to combine one or more defaulted federal student loans into a new Direct Consolidation Loan. This process can be a faster way to exit default compared to rehabilitation, as it takes less time to implement. To consolidate a defaulted loan, borrowers must agree to repay the new consolidated loan under an income-driven repayment plan or make three consecutive, voluntary, on-time monthly payments on the defaulted loan before consolidation. While consolidation can simplify payments and quickly remove default status, it is important to note that it resets the clock on any progress towards income-driven repayment forgiveness programs. For certain older federal loans, such as commercially held FFEL Program loans or Perkins Loans, consolidation into a Direct Loan is often necessary to access federal benefits like Public Service Loan Forgiveness or most IDR plans.

Navigating Post-Default Status and Future Repayment

When federal student loans are brought out of default through rehabilitation or consolidation, borrowers regain access to the full suite of federal student loan benefits and protections. Consequences of default, such as wage garnishment, tax refund offsets, and the inability to receive further federal aid, are lifted. This restoration of good standing is a step towards financial stability and opens up more flexible repayment options.

After exiting default, borrowers transition to a standard repayment plan, but they can apply for an income-driven repayment (IDR) plan. IDR plans adjust monthly payments based on a borrower’s income and family size, often resulting in more affordable payments, potentially even $0. It is important for borrowers to proactively select a suitable repayment plan to avoid re-defaulting, as ongoing payments are required to maintain good standing. Monitoring loan status through StudentAid.gov and staying in communication with their loan servicer is important for managing repayments and exploring available relief options like deferment or forbearance if needed.