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What You Need to Know About the Federal Student Loan “Fresh Start” Program

When the Biden Administration announced in April that the federal student loan payment pause and interest waiver would be extended for another year, they also talked about a “fresh start” program that would help people who were behind on their payments or had already stopped paying.

Federal student loan borrowers get financial help

The payment pause and interest waiver, also called the student loan moratorium, stopped repayment on federal education loans held by or on behalf of the U.S. Department of Education starting in March 2020.

The interest rate was also set temporarily to zero, so these loans are not getting any new interest.

Collections on federal student loans that had been missed payments on were also put on hold. This includes administrative wage garnishment, offset of income tax refunds, and offset of Social Security disability and retirement benefits on defaulted loans.

The payment pause and interest waiver have been extended a total of eight times, twice by President Trump and six times by President Biden. The latest extension runs out in 2023.

What does the Fresh Start Program do?

Under the Fresh Start Program, borrowers whose federal student loans were late or in default before the pandemic will be put back on track when the payment pause is over. The late payments and missed payments will be taken off of their credit report.

The Fresh Start Program will also stop garnishing wages, taking money out of tax refunds, and taking money out of Social Security benefits for loans that qualify.

If a borrower gets rid of student loan delinquency and default from their credit history, their credit scores will go up by a lot. This will make it easier for these people to get new loans and lower the interest rates they pay on their credit cards, auto loans, and mortgages.

All borrowers whose loans were eligible for the payment pause and interest waiver are on the list of eligible borrowers. This includes loans from the William D. Ford Federal Direct Loan Program (Direct Loan), the Federal Family Education Loan Program (FFEL) (both ED-held and commercially-held loans), and the Perkins Loan Program (held by ED). Commercially held FFEL Program loans that went into default after March 13, 2020, will be brought back to their original status. This means they won’t be able to get the Fresh Start benefits. Learn more about who is eligible by reading this fact sheet from the U.S. Department of Education.

The Fresh Start Program will help about 10 million borrowers, including more than 7 million people whose loans were in default and about 3 million people whose loans were late.

Within a year, borrowers must switch to a repayment plan and start making payments on their loans, or their loans will go back to a default status. On an income-based plan, making a payment of $0 will still count as making a payment.

Get a free copy of your credit report from annualcreditreport.com about a month after you start paying again to make sure that the late payments and missed payments have been removed from your credit history.

Watch out for false information

Scammers might try to take advantage of borrowers who need money badly. Don’t let anyone else use your FSA ID. Do not pay anyone who says they can help you with the fresh start program. Since the Fresh Start program is free, you won’t have to pay anything to take part.

You can get more information at StudentAid.gov, from your student loan servicer, or by calling the U.S. Department of Education’s toll-free hotline at 1-800-4-FED-AID (1-800-433-3243). Call the Default Resolution Group at 1-800-621-3115 to find out if your loans are eligible.

The U.S. Department of Education will contact eligible borrowers directly, so make sure your contact information is up to date with your loan servicer and on StudentAid.gov. They will also let qualified borrowers know about the benefits of the program through email, snail mail, and social media.

How to keep from going back into default on your federal student loans again

But borrowers should take steps to make sure they don’t go back into default on their federal student loans.

Sign up for AutoPay, and the loan servicer will get your monthly payment straight from your bank account. Not only will this make it less likely that you’ll be late with a payment, but the lender will also lower your interest rate by 0.25%, which will save you money.

If you’re having trouble making your student loan payments, you might be able to keep putting them off by using an economic hardship deferment, an unemployment deferment, or a general forbearance. During a deferment or forbearance, interest may be added to your debt, making it bigger, but it’s better than not paying back your student loans. If you’ve already used all of your deferments and forbearances, you might want to think about getting a Federal Direct Consolidation Loan to pay off all of your loans at once. The consolidation loan is a new loan, so a new set of deferments and forbearances can be applied to it.

Change to a plan that is based on your income, like IBR, PAYE, or REPAYE. Instead of the amount of debt, the loan payments in these plans are based on a percentage of the borrower’s extra income. If your income is less than 150% of the poverty line, you won’t have to pay anything on your loan each month.

Options If You Don’t Meet the Requirements for Fresh Start

The Fresh Start Program does not help people with private student loans. Borrowers who are behind on FFEL loans made in 2007-08 or before are not eligible unless they consolidate them into the Direct Loan program before the end of the payment pause and interest waiver. FFEL loans made before 2007-08 will be turned over to a Guaranty Agency if the borrower doesn’t pay back the loan. The Guaranty Agency will then pay the default claim on behalf of the U.S. Department of Education.

If you are still having trouble making payments, you should contact your servicer right away to talk about your finances and your options.

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