‘Fresh Start’: What Student Loan Borrowers in Default Need to Know

When payments resume on federal student loans, borrowers with loans previously in default have an opportunity to re-enter repayment in good standing, thanks to a new program unveiled by the Education Department.

It’s called the “Fresh Start” initiative, and it will continue for one year after student loan repayment pause, known as forbearance, expires 60 days after June 30.

The impact could be profound. Among the benefits for borrowers:

• Loans returned to "current" status on borrowers' credit reports.

• Removal of negative default marks on credit reports.

• Access to federal student aid and other government loans, like mortgages.

• Access to flexible repayment plans, like income-driven repayment.

• Access to short-term relief, like deferment or forbearance.

• Suspension of collection efforts, even after the student loan payment pause ends.

While some of these provisions, such as access to federal student aid, are in effect now, others will require enrollment in the Fresh Start program and an agreement to enter a repayment plan. But Fresh Start doesn't require a lump sum of cash to catch up, or loan consolidation. Here’s what we know about Fresh Start so far.

How to get a Fresh Start

Some benefits are available now, but borrowers will need to opt into Fresh Start to keep them after the program expires. The Fresh Start program is expected to fully open up as soon as student loan payments resume. More Fresh Start benefits will roll out in the coming months, according to the studentaid.gov website.

To get started, borrowers must first make payment arrangements with the Department of Education's Default Resolution Group or their loan holders. After a long-term payment plan is agreed upon, loans will be transferred to a new loan servicer. 

Though borrowers will have one year to enroll in Fresh Start once forbearance ends, they should apply quickly after the system opens, advises Michele Shepard, senior director of college affordability at The Institute for College Access & Success.

The Education Department is “not clear on what exactly the steps are going to be … and it's not clear what their processing capacity is,” Shepard says. “Do whatever you can as soon as possible to get in the queue.”

Though the government said it will reach out to eligible borrowers to inform them of the program, don’t count on it. Roughly 25% of borrowers in default do not have an email address on record with the Education Department, according to a January 2022 report from the Government Accountability Office. If you’ve not updated the contact information on your loan account, you could miss the heads up. 

Take the following steps to make payment arrangements under the Fresh Start initiative:

• Visit myeddebt.ed.gov for more information about Fresh Start.

• Visit studentaid.gov to determine if your loans might be eligible for Fresh Start.

• Call the Default Resolution Group at 1-800-621-3115.

If borrowers don’t enroll in Fresh Start, they will lose all benefits once the program ends.

» MORE: How to get student loan help

7.5 million borrowers to get a fresh start

Approximately 7.5 million borrowers have federal student loans in default, according to federal data. This amount includes defaulted loans held by the Education Department and defaulted FFELP loans held by guaranty agencies.

Fresh Start is available only to borrowers with federal student loans including direct loans, government-held Perkins loans, government-held FFELP loans, and privately held FFELP loans. Borrowers must have also defaulted on the loans before forbearance began on March 13, 2020. The following loans are not eligible:

• Private student loans.

• School-held Perkins Loans.

• Health Education Assistance Loan Program loans.

• Loans under the purview of the U.S. Department of Justice.

• Direct loans and commercially held FFELP loans that default after the end of both the student loan payment pause and the pause on collections.

“There may be people who have some loans that are eligible and some loans that aren't,” adds Shepard.

Fresh Start benefits available now — without enrolling

Access federal student aid and other government loans

One aspect of Fresh Start that requires no enrollment: Schools are being advised to allow borrowers in default access to federal student aid, which includes federal loans, work-study and Pell Grants.

Borrowers in default are less likely to have a college degree. But defaulting on a loan means losing eligibility for federal aid, which can be crucial to college completion. Gaining access again to federal aid means borrowers could return to school and complete their degree programs.

Borrowers who go through Fresh Start will also be able to access other types of government-backed loans, like mortgages.

No collections until Fresh Start expires

All collections activities through the Treasury Offset Program on federal student loans in default are suspended until the Fresh Start initiative has ended. These include wage garnishment, seized tax refunds and child tax credits, withheld Social Security payments (including disability benefits) and collection calls.

Borrowers who do not take advantage of Fresh Start can expect collections activities and credit reporting to resume when the Fresh Start initiative is over.

A second shot for borrowers who rehabilitated and defaulted

Usually there are only three ways out of default: rehabilitation, consolidation or paying off the loan in full. But rehabilitation and consolidation are one-time-only deals; if you default again, your only option is to repay the entire debt.

The Fresh Start provides another path out of default if you’ve used these methods in the past and re-entered default. And as part of the initiative, any borrower who rehabilitated their loans during the payment pause will also have the option to rehabilitate again should they default once more.

Fresh Start benefits available later — after enrolling

In the coming months, the Education Department will begin reporting defaulted student loans as “current” rather than “in collections” to credit bureaus, according to the studentaid.gov website. 

You’ll be able to enroll in the Fresh Start then, lifting your loans from default and unlocking more benefits. If you do not enroll by the time the program ends, you will lose all automatic benefits and be blocked from accessing the following additional benefits. 

The fresh start will be reflected on credit reports

The negative mark of default on borrowers’ credit reports will be removed as part of Fresh Start, according to the Education Department.

The removal of the default on credit reports will happen only after borrowers make payment arrangements and have their loans transferred to a new servicer. It’s unclear how long it will take for your report to update.

The initiative will also:

• Remove the flag for "default" from the Credit Alert Interactive Voice Response System (CAIVRS), which is a federal database of delinquent federal debtors.

• Remove any loans that have been delinquent for more than seven years from borrowers' credit reports.

• Use a loan's original date of delinquency if a borrower defaults again after Fresh Start. That means a new default won't restart the seven-year timeline for appearing on a borrower's credit report (loans that are delinquent for longer than seven years typically do not appear on reports).

You can access your credit report for free through the government-authorized AnnualCreditReport.com. It is also available for free through NerdWallet.

Access to repayment options and forgiveness is restored

Re-entering good standing means borrowers who were in default can now access income-driven repayment plans and work toward Public Service Loan Forgiveness, or PSLF.

According to the April 2022 findings of a New York Federal Reserve survey, borrowers enrolled in an income-driven repayment plan are less likely to have difficulty repaying their debt. Payments under an income-driven plan can be as low as $0.

However, according to the Education Department, all months spent in default, including during the pause, do not count toward PSLF or income-driven repayment forgiveness under current federal regulations.

» MORE: Student loan forgiveness: What’s getting fixed?

Access to short-term relief

Borrowers with defaulted federal student loans are blocked from accessing short-term student loan relief, like temporary payment forbearance or deferment. You’ll be lifted out of default if you request a Fresh Start, allowing you to access these financial hardship relief measures once again. 

Don’t expect new defaults for awhile

It takes roughly nine months without a payment — 270 days — for a federal student loan account to default. If payments restart in 2023 as scheduled, then any new defaults won’t happen again until fall, at the earliest.

» MORE: Are you at risk of default?

If a borrower who consents to get out of default ends up re-defaulting, their quickest way out is through student loan rehabilitation. It’s a repayment process in which a borrower agrees to make an agreed-upon payment amount nine times within 10 consecutive months.

» MORE: How the student loan pause has played out for borrowers

How to find additional student loan help

Legit student loan help organizations won't call, text or email borrowers with offers of debt resolution. Avoid “debt relief” companies that promise immediate student loan forgiveness. If it sounds too good to be true, it usually is.

Here are some vetted student loan help resources to consider for information, advice or both; they are established organizations with verified histories: