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

If you defaulted on federal student loans before the pandemic, sign up for the Fresh Start program to get them back into good standing.
Eliza Haverstock
Anna Helhoski
By Anna Helhoski and  Eliza Haverstock 
Edited by Des Toups

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With federal student loan bills restarting in October 2023, borrowers with loans previously in default have an opportunity to re-enter repayment in good standing through the "Fresh Start" initiative.

The Fresh Start program is for borrowers who defaulted on their federal student loans before the pandemic. Benefits include:

  • 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.

  • At least three years of credit towards income-driven repayment (IDR) loan forgiveness for time spent in default during the pandemic payment freeze, under the one-time IDR account adjustment.

Some benefits, such as access to federal student aid, are available automatically, but you'll have to enroll in the Fresh Start program and agree to enter a repayment plan for others. You must enroll by September 2024 to get the full benefits.

Fresh Start is accessible now, and it can set you up for success once payments resume. It doesn't require a lump sum of cash to catch up, or loan consolidation.

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Here’s what we know about Fresh Start so far.

Who qualifies for the Fresh Start program

Approximately 7.5 million borrowers have federal student loans in default, according to federal data, and could qualify. This borrower tally 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.

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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. You can act now to sign up for the Fresh Start, so don't wait until student loan payments resume in October.

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 government said it will reach out to eligible borrowers to inform them of the program, but 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. 

To get started, you must first make payment arrangements with the Department of Education's Default Resolution Group, or, if you have FFELP loans, with the guaranty agency that holds them. (If you don’t know who holds your loans, call 1-800-621-3115 and ask.) After a long-term payment plan is agreed upon, loans will be transferred to a new loan servicer, and default marks will be removed from your credit report. 

The Education Department holds most defaulted loans. If that includes your loans, there are three ways you can submit a Fresh Start request:

  • Online. Log into your account on myeddebt.ed.gov and sign up on the website.

  • By phone. Call the Default Resolution Group at 1-800-621-3115. The process should take no more than 10 minutes. If possible, look up your income on your most recent federal tax return and have the information ready before calling.

  • By mail. Write a letter that includes your name, social security number, date of birth, and the following sentence: “I would like to use Fresh Start to bring my loans back into good standing.” Address your letter to: P.O. Box 5609, Greenville, TX 75403.

If borrowers don’t enroll in Fresh Start, they will lose all benefits once the program ends. More information about the program is available on the Federal Student Aid office's website.

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 if your income is low enough or you lost your job.

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.

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. Bills will start being due in October 2023, so new defaults could start occurring as early as June 2024.

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.

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:

Student loan help resource

Best for

Advice on repayment plans, forgiveness programs and dispute resolution.

Comprehensive information on options for student loan borrowers.

Advocacy on behalf of all borrowers to influence policy.

Complete financial review for struggling borrowers, which can include advice on student loan options and plans for dealing with other debt.

Advice on repayment plans, help with paperwork and budget counseling.

Information for student loan borrowers and an attorney directory.

Many of these organizations offer advice for free. However, you may need to pay a fee to work with a  certified nonprofit credit counseling agency or hire an attorney.

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