Details on ‘fresh start’ for defaulted borrowers released

The Department of Education released its first set of guidelines on the so-called Fresh Start program that will get 7.5 million defaulting borrowers back into good standing on their federal student loans.

For most federal loans, borrowers are in default if they have not made payment within 270 days. Defaulting on payment has many negative impacts on borrowers, including collection costs, possible wage garnishment, and damage to their credit ratings. It also makes borrowers ineligible for all types of federal Title IV student aid, which includes federal grants and student loans.

On Wednesday, the department issued guidelines 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 reports from The Washington Post.

All borrowers who have 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 have defaulted on federal direct loans, federal family education loan program loans, and Perkins loans held by the Department of Education.

Defaulting borrowers will not be automatically restored to good standing. According to Wednesday’s guidelines, borrowers will need to either contact their loan officer or their college’s financial aid office to start the process. Borrowers must enter the Fresh Start program within one year of lifting the pause on federal student loan payments that is set to expire Aug. 31.

These tips will allow defaulting borrowers to access Title IV federal student aid options before the start of the fall semester.

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