Rescuing Student Loans with the Fresh Start Program

For a while now, we’ve been reporting on new opportunities for student loan borrowers under the Biden administration. Since many of the largest reforms in the student loan industry were opposed by legislators and by the courts, the White House wasn’t able to get those done, but the administration has come up with a variety of other solutions. Some of them aren’t as prominent or as familiar to most Americans, but they are still there.

 What is the Fresh Start Program?

Today, we’re going to talk about one, a program called Fresh Start, that helps borrowers who are already in default. Statisticians point out that there are some 7 million student loan defaults around the country, and that defaults have doubled in the last decade.

The Fresh Start program is a way for borrowers to handle their defaulted student loans. It’s a one-time temporary program that can restore access to federal student aid. It also helps to reroute loans that are being aggressively collected in default.

Recent news stories talk about how Fresh Start is helping individuals and families who have had a hard time since the repayment process started this past October. It’s giving hope to many who were so under pressure to repay that they couldn’t keep up anymore, and presumably, it will give people more faith in the system, that help is on the way.

The Need for Alternatives in Student Loan Management

First of all, it’s important to understand that the administration created a one-year hiatus for collections after the start of repayments in October.

What that means is that borrowers are able to defer payment without getting those amounts collected or garnished from their paychecks. What it doesn’t mean has to do with traditional thinking on deferment. In other words, the interest keeps accruing during the on-ramp, if it’s not being paid. There’s been some amount of confusion about that, but in some key ways, the on-ramp does provide some protections until near the end of 2024.

Fresh Start Program Application Process

First of all, there’s an easy application process for the Fresh Start program. It may take about 10 minutes according to some estimates. And that may end up being time well spent!

In addition to applying, applicants can join income-driven plans, with loans transferred to specialized servicers as per program guidelines. Defaulted loans can be returned to repayment status, and some negative credit information may be cleared from a credit report. Some of this is case-specific, but it really does open up a lot of positive avenues for many borrowers.

The criteria for the IDR plans encompass factors such as family size, the count of dependents, previous tax filings, and combined income for married individuals. You can find more information on the federal office’s website.

Addressing Systemic Issues with Loan Defaults

This is a virtually unheard-of opportunity to take a loan that’s in default and get it active again. It’s a second chance for borrowers overwhelmed by post-COVID information, offering relief to those who lost track.

And that’s not all, either. Some of these loans were defaulted because of shady behavior by lenders and loan servicers. We’ve documented a lot of this on the blog. So Fresh Start is another tool in the tool kit to help right these wrongs and get things back on track for lenders and borrowers.

There’s a lot more in terms of resources on the federal student aid page, as well as information on access to student loan forgiveness programs and access to short-term relief. Meanwhile, the application process may take four to six weeks.

Federal Commitment to Alleviate Borrower Hardships

Basically speaking, this is another pledge by the federal government to help mitigate the worst impact on borrowers. An NPR story covering the program shows how poor families and minority students are disproportionately affected. Defaults can occur universally.

Take a look at the rest of the blosg – we have a lot of helpful resources for borrowers there.

Make sure you don’t get taken advantage of in repaying your student loans!