Is Fresh Start Legit for Student Loans?

The Fresh Start program for federal student loans was a temporary federal initiative designed to help borrowers with defaulted loans regain good standing. It provided a clear pathway out of default, offering significant benefits to participants. The enrollment period for Fresh Start concluded on October 2, 2024. This initiative aimed to alleviate the severe consequences associated with student loan default.

Understanding the Fresh Start Program

The Fresh Start program was launched by the U.S. Department of Education (ED) on April 6, 2022, to address the widespread issue of defaulted federal student loans. This temporary program provided a streamlined approach for borrowers to exit default, offering advantages not typically available through standard rehabilitation or consolidation processes. Its primary goal was to remove the default status from eligible federal student loans, allowing borrowers to return to good standing.

The program encompassed several types of federal student loans. Eligible loans included those under the William D. Ford Federal Direct Loan Program, Federal Family Education Loan (FFEL) Program loans held by the Department of Education, and Perkins Loans held by the Department of Education. Some commercially held FFEL Program loans were also included in this initiative.

However, not all student loans qualified for the Fresh Start program. Private student loans, Perkins Loans held by schools, Health Education Assistance Loan (HEAL) Program loans, and loans under the purview of the U.S. Department of Justice were not eligible. Direct or FFELP loans that defaulted after October 2023 were also excluded.

Specific Program Eligibility and Outcomes

For a federal student loan to be eligible for the Fresh Start program, it must have been in default prior to March 13, 2020, which marked the beginning of the COVID-19 student loan payment pause. Borrowers whose loans met this default date criterion could access the program’s benefits. Even if a borrower had previously rehabilitated their loans, they could still qualify for Fresh Start benefits.

Participating in the Fresh Start program offered several significant outcomes. A primary benefit was the removal of the default status from credit reports, which could help improve credit scores. This also restored eligibility for federal student aid, allowing borrowers to access Pell Grants, other federal loans, and work-study funds. The program provided access to various repayment plans, including Income-Driven Repayment (IDR) plans, which customize monthly payments based on income and family size. Many borrowers who enrolled in Fresh Start opted for an IDR plan, with a significant percentage paying $0 or very low monthly amounts.

Another outcome was the cessation of involuntary collection activities. This included the suspension of wage garnishments, withholding of tax refunds, and offset of Social Security payments. Collection calls also stopped for participating borrowers. The program restored eligibility for future loan rehabilitation, which is typically a one-time option for borrowers. Additionally, it removed borrowers from the federal Credit Alert Verification Reporting System (CAIVRS), making it easier to qualify for other government loans, such as mortgages.

Once a borrower engaged with the Fresh Start program, their defaulted federal student loan returned to a current status. This meant the loan was no longer considered to be in default, providing a clean slate without requiring an immediate payoff of the entire balance. The loan was then transferred to a non-default loan servicer, and borrowers could choose a suitable repayment plan.

Enrolling in the Program

The opportunity to enroll in the Fresh Start program has passed. The deadline for borrowers to take advantage of this initiative was October 2, 2024. Therefore, new enrollments are no longer possible.

For those who did enroll, the process involved contacting the U.S. Department of Education’s Default Resolution Group (DRG) or their loan holder. Borrowers could initiate the process by phone, online, or through postal mail.

After contacting the relevant entity, borrowers selected a new repayment plan. Many chose an Income-Driven Repayment plan to manage their payments based on their income. Once enrollment was confirmed, the defaulted loan transferred to a new, non-default servicer. The benefits of the program, such as default removal from credit reports and cessation of collection activities, then took effect. This process provided a pathway for millions of Americans to bring their federal student loans back into good standing.