Taking Advantage of the Default Fresh Start

In April 2022, the Department of Education announced the Fresh Start program for federal student loans in default: a limited-time opportunity for borrowers in default to get their loans back into good standing before payments resume. As of August, we have some additional details of how this program will work and its benefits to borrowers. Let’s dive into the details!

Why should you get out of default?

There couldn’t be a better time to get out of default. Many borrowers in default will receive partial or complete forgiveness, and their remaining balances will continue to have payments, interest, and collections and garnishments paused through the end of December 2022. They also now have the opportunity to get their loans back into good standing before payments resume in January.

There are so many benefits to getting out of default — credit scores will improve (and access to additional loans for cars and mortgages, for example), you’ll be able to access additional federal aid, you can make lower monthly payments based on your income, and you’ll also once again be eligible for other federal forgiveness programs like Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR).

What you need to do

Unfortunately, the Fresh Start benefits will not be automatic — you’ll need to take action to access them. Right now, the Department of Education has said that it will contact affected borrowers with next steps, which will most likely require contacting the Default Resolution Group and requesting the default fresh start. They can be reached at myeddebt.ed.gov or by calling 1-800-621-3115 (TTY for the deaf or hard of hearing 1-877-825-9923.) Once we know exactly what next steps are required, we’ll update this post with more details.

You should not have to consolidate or rehabilitate to access the program, but it is a limited time opportunity. It will end one year after payments resume, putting the expiration at the end of 2023. But the best time to get set up is before payments are due again in January 2023.

To make sure you hear about next steps and official announcements, it would be helpful to make sure your loan holder has your updated contact information. If you’re unsure who your loan holder is, the Default Resolution Group can help — their contact information is just above.

What else is new about fresh start?

Here’s what we know about how this will work: once you request the Fresh Start program, your loans will transfer from the Default Resolution Group or collections to a loan servicer. Your loan will then return to “in repayment” status, the default will be removed from your credit report.

There are a few groups who won’t qualify for these benefits, including people who go into default after the payment pause ends, and Perkins loans that are held by individual schools. Borrowers with FFEL loans who defaulted during the payment pause should also have their loans automatically returned to good standing without taking action.

As many borrowers know too well, defaulting on federal student loans can cause a ripple effect of negative impacts on your financial situation.

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