Student Debt

7.5 Million Defaulted Borrowers Will Have A “Fresh Start” On Their Loans — Here's Who Qualifies

The new plan would help student loan borrowers who have defaulted on their loans return to a repayment plan in "good standing."

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The Biden Administration recently shared more details on its "Fresh Start" initiative, a plan first announced in April that will help 7.5 million student loan borrowers who have defaulted on their loans return to a repayment plan in "good standing." Here's what you need to know.

On Wednesday, the Education Department's Federal Student Aid office released more details on how the "Fresh Start" initiative will benefit borrowers, particularly those behind on payments. Currently, we're a week away from when President Joe Biden is reportedly supposed to announce his plan for student debt forgiveness — and whether or not student loan payments will resume.

Most federal student loan payment requirements have been on pause since March 2020, when borrower balances were frozen to help families make ends meet financially during the COVID-19 pandemic. According to data collected from the Education Data Initiative, last updated in December 2021, one out of every ten Americans has defaulted on a student loan, affecting 9 million borrowers and their families, to the tune of $124.4 billion in defaulted student loans.

Defaulting on student loans can have life-long consequences, trapping people in debt and leading to "wage garnishment and the seizure of federal benefits like Social Security," per Business Insider. The "Fresh Start" initiative would return those who have defaulted on their loans to "good standing" on credit reports, meaning their defaulted loans will be marked as "current" on their credit report.

Those who qualify for the new initiative will see several benefits, including:

  • access to repayment plans such as income-driven repayment and targeted loan forgiveness
  • no collection efforts for one year
  • reporting of all defaulted loans as "current" and not in defaulted status
  • access to federal student aid to continue or to complete college

Who qualifies for the "Fresh Start" initiative?

To qualify for the plan, you must be in default of one of three types of loans, per CNBC. These include:

  • Perkins Loans held by the department
  • William D. Ford Federal Direct Loan Program loans
  • Federal Family Education Loan (FFEL) Programs, privately held or held by the department

What doesn't qualify for the "Fresh Start" initiative?"

There are some loans that, if held, would not qualify for the "Fresh Start" initiative, per Business Insider. These include:

  • FFEL loans defaulted after March 2020
  • Health Education Assistance Loan Program loans
  • School-held Perkins Loans

How to take part in the new "Fresh Start" initiative?

Business Insider explains that once student loan payment returns, you will have one year to begin payment arrangements. The arrangements can be made by:

  • calling the Default Resolution Group
  • contacting your student loan company by phone or by writing
  • or visiting Debt Resolution Federal Student Aid's website

"Once you determine a plan for entering repayment, the department will transfer your loans to a non-default student-loan company and remove your default status from your credit reports," Business Insider states.

As of June 2022, student debt in the United States totaled $1.75 trillion. Polls have shown that when it comes to federally held student loans, most Millennials favor significant debt cancelation. But for now, they’re left waiting.

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