Is Fresh Start for Student Loans Legit?

The “Fresh Start” initiative, introduced by the U.S. Department of Education, was a temporary program designed to assist federal student loan borrowers in default. This program aimed to provide a pathway for individuals to bring their defaulted federal student loans back into good standing. It offered an opportunity for borrowers to resolve their default status and regain access to federal student aid benefits and repayment options.

Understanding Fresh Start Eligibility

The Fresh Start initiative targeted specific federal student loans that were in default when the COVID-19 pandemic-related payment pause commenced. To qualify, a borrower’s federal student loan had to be in default status as of March 13, 2020. This included loans from the William D. Ford Federal Direct Loan Program, Federal Family Education Loan (FFEL) Program loans, and Perkins Loans held by the Department of Education. Both Department of Education-held and commercially held FFEL Program loans were generally eligible.

However, certain loan types and situations were excluded from Fresh Start eligibility. These included Perkins Loans held by individual schools, Health Education Assistance Loan (HEAL) Program loans, and any student loans involved in active litigation with the U.S. Department of Justice. Additionally, Direct Loans or FFEL Program loans that entered default after the end of the payment pause were not covered. The program was a temporary measure, concluding its enrollment period around October 2, 2024.

Key Provisions of Fresh Start

For eligible borrowers who participated in the Fresh Start initiative, several significant changes occurred regarding their defaulted loans. A primary benefit was the removal of the default status from credit reports, with defaulted loans being returned to a “current” status. This action could lead to an improvement in a borrower’s credit score, potentially making it easier to qualify for other financial products like mortgages or car loans with more favorable interest rates.

Participation also restored eligibility for federal student aid, including federal loans, grants like the Pell Grant, and work-study funds. This allowed individuals to resume or continue their education. Borrowers regained access to flexible repayment plans, such as Income-Driven Repayment (IDR) plans, which adjust monthly payments based on income and family size, sometimes resulting in payments as low as $0. Approximately 80% of Fresh Start enrollees opted for an IDR plan, with a substantial portion having minimal or zero monthly payments.

The initiative also provided access to federal student loan forgiveness programs, like Public Service Loan Forgiveness (PSLF), which are typically unavailable to loans in default. Borrowers regained access to short-term relief options such as deferment and forbearance, which allow for temporary pauses in payments. The program also protected borrowers from involuntary collection efforts, including wage garnishment, tax refund offsets, and Social Security benefit offsets.

Taking Action with Fresh Start

To benefit from the Fresh Start initiative, eligible borrowers needed to take action to engage with the program before its enrollment deadline. The primary action involved contacting the relevant loan holder. If loans were held by the Department of Education, borrowers could reach out to the Default Resolution Group. For loans held by a guaranty agency, direct contact with that specific agency was necessary.

Communication methods included online platforms, phone calls, or mail. Borrowers could log into their account at myeddebt.ed.gov for online engagement or call the Default Resolution Group at 1-800-621-3115. For those preferring mail, a letter could be sent to P.O. Box 5609, Greenville, TX 75403, including personal details and a request to use Fresh Start. Upon requesting Fresh Start, the defaulted loans would be transferred to a new servicer and placed on a standard repayment plan, though borrowers were encouraged to then apply for an income-driven repayment plan.

Implications of Inaction

For eligible borrowers who did not take advantage of the Fresh Start initiative before its conclusion, the consequences associated with federal student loan default continued or resumed. Without proactive engagement, the negative reporting of defaulted loans to credit bureaus persisted, potentially harming credit scores and limiting access to future credit. This could affect a borrower’s ability to obtain loans for housing, vehicles, or other financial needs.

Furthermore, collection efforts that were paused during the initiative could resume. This includes administrative wage garnishment, where up to 15% of a borrower’s disposable income can be withheld from their wages without a court order. Federal tax refunds could also be subject to offset through the Treasury Offset Program, where the U.S. Department of the Treasury diverts refunds to cover the defaulted loan balance. Additionally, up to 15% of Social Security benefits could be garnished. Continued inaction meant foregoing the opportunity to regain eligibility for federal student aid and access to affordable repayment plans.