Student Loan Reset Program: Helping Borrowers Get Out of Bad Debt (2023)

Student Loan Reset Program: Helping Borrowers Get Out of Bad Debt (1)

The "fresh start" program announced earlier this year promised to give borrowers who default on their student loans a "fresh start" once the loan payment break is over. This program did not have many details at the time, but it promised to be one of the most beneficial aspects of theBiden's Student Loan Reforms.

On August 17, 2022, the US Department of Education notified colleges that it was restoring financial aid eligibility to 7.5 million federal student loan borrowers under the Fresh Start program. This guide provides more details about the Fresh Start program.

Here's what you need to know about the Fresh Start program to get your student loans out of default.


The original New Beginning ad and background

New 'reboot' announcement with details

schedule and qualification

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The original New Beginning ad and background

The Fresh Start initiative was first mentioned in a US Department of Education document.Press releaseon April 6, 2022 for the sixth extension of the federal student loan payment suspension and interest waiver.

That press release states that all borrowers with paused loans would be entitled to "receive a 'fresh start' in payment, removing the effects of defaults and defaults and allowing them to resume on-time payments". However, the press release did not provide further details.

Student loan default occurs after 270 days of late payment and makes the borrower ineligible for federal student aid.

A borrower canrefining a bad loanmaking 9 out of 10 consecutive full, voluntary, reasonable, and affordable payments, restoring assistance eligibility after six payments, and removing bad debt from your credit history after nine payments.

But even with that option, more than 7.5 million borrowers were in default at the start of the pandemic.

New 'reboot' announcement with details

The US Department of Education shared new details in a letter to dear colleaguesGEN-22-13it is adata sheet.

The Fresh Start initiative offers the following benefits to borrowers with delinquent government student loans. We highlight some of the most important aspects:

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  • your eligibility forFederal grants for Title IV students are reinstated, which re-qualifies them for the Federal Pell Grant, Federal Work-Study and Federal Student Loan programs.
  • You can sign up for an income-based payment plan or other payment plans.
  • They will be eligible to redeem a delinquent loan in the future if they redeem the delinquent loan during the payment break and interest waiver.
  • Bad debt is removed from credit reports at the credit bureaus and loans are reported as current.
  • Arrears are removed from your credit report after seven years.
  • ANDBad debt is removed from the Federal Credit Alert Verification Reporting System (CAIVRS)., which affects your eligibility for other credits, such asMortgages.
  • Involuntary collection efforts will be suspended.

schedule and qualification

Eligible loans include certain loans due before the start of the March 13, 2020 payment break and interest waiver. This includes overdue loansFederal Direct Lending Program by William D. Fordand delinquent loans under the Federal Family Education Loan (FFEL) program. These loans were held by the US Department of Education or on behalf of the US Department of Education.

Federal Perkins loans held by a college or university are not eligible, howeverFederal Perkins Loanadministered by the US Department of Education's Debt Collection and Management System (DMCS) are eligible.

HEAL loans delinquent, loans remaining with the US Department of Justice (DOJ) due to litigation, and loans delinquent after the end of the payment break and interest waiver are also ineligible.

Eligible overdue loans

  • direct loans
  • FEL loan
  • Perkins Loan from the US Department of Education

Ineligible non-performing loans

  • Perkins loans held directly by a college or university
  • HEAL loans remaining with the DOJ
  • private loans

Note that a borrower who is not eligible for government student aid, for example, B. Because he is not maintaining satisfactory academic progress (SAP) or owes a refund for overpaying a federal grant, he remains ineligible unless that resolve these issues.

if a borrowerPrograma de Empréstimos FFELEffective March 13, 2020, the borrower will again be eligible for federal student aid once the loans are assigned to the US Department of Education. If the loans have not yet been assigned to the US Department of Education, the borrower will again be eligible for Federal Scholarship starting March 12, 2021, the date of publication of Dear Colleagues.GEN-21-03.

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What happens after a fresh start?

have borrowersone year after payment resetMake payments on your previous bad loans. (A payout calculated from zero on an income-based pay plan counts as a payout.)

If borrowers fail to make repayment agreements by the end of the one-year reset period, their borrowing will be suspended.Standardand subject to a fee and your renewed entitlement to BAföG ends.

The Fresh Start program is NOT automatic. You must act!

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How to apply for a fresh start

Borrowers can make payment arrangements through a visitmyeddebt.ed.govor by calling the Standard Resolution Group at 1-800-621-3115. When the borrower enters into repayment arrangements, his loans are transferred to a new loan officer and the bad debt status is removed from his credit reports.

If the student loan was past due prior to the start of the payment stop and interest waiver on March 13, 2020, the student must sign this confirmation prior to regaining financial aid entitlement:

“I, [Full Name], understand that I am eligible for Title IV assistance as a result of the Fresh Start Initiative. As an eligible fresh start borrower, I understand that by accepting Federal Title IV HEA student assistance during the fresh start period, I agree to have my delinquent loans transferred to a new loan officer, the entity that will be servicing my loan, resulting in continued eligibility for Title IV, HEA Federal Student Assistance beyond the Fresh Start period. I understand that this transfer may not be immediate and that I may contact the holder(s) of my delinquent loans to request the transfer sooner."

violationborrowed parentsThose seeking new Federal Direct PLUS loans must sign a similar endorsement.

Borrowers who have defaulted on their FFEL program loan by March 13, 2020 are not required to sign the acknowledgment.

For more information for borrowers,

letters to universities

College grant administrators began to receive letters like the following about the Fresh Start initiative.

To whom It May Concern:

The US Department of Education (ED) has determined that the above individual will not be denied additional Title IV assistance due to an unpaid student aid debt to the ED.

Individual loans maintained by ED are covered by the FreshStart initiative announced by ED on April 6, 2022.

The situation of default does not prevent that person from receiving care up to one year after the end of the COVID-19 emergency aid (pause in the payment of the student loan). Visit for more information on when emergency COVID-19 relief is due to end.

Note: This Reinstatement Letter only covers debts held by the ED. It does not cover student loan debt that may be owed by commercial lenders, escrow agencies, or schools. If there are other non-performing loans held by these other creditors, the person mentioned above may still not be able to obtain additional Title IV assistance. If you have questions, contact the Department's Noncompliance Resolution Group at 1-800-621-3115 (TTY 1-877-825-9923).

additional guidance

One of the main goals of the Fresh Start initiative is to enable delinquent borrowers to complete their education. Borrowers who drop out of college are at greater risk of default. If the Fresh Start initiative helps delinquent borrowers close, it will "increase the long-term payment success of these borrowers."

The US Department of Education encourages colleges to remove other barriers to academic success that prevent delinquent borrowers from re-enrolling, such as:Storage of official certificatesand diplomas for school debt.

The US Department of Education also encourages colleges to inform these borrowers of other federal programs that may be available to them, such as Examples include Child Tax Credit, the Supplemental Nutrition Assistance Program (SNAP), and Affordable Connectivity.

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How do I know if I qualify for student loan forgiveness? ›

How do I know if I am eligible for debt relief? To be eligible, your annual income must have fallen below $125,000 (for individuals) or $250,000 (for married couples or heads of households). If you received a Pell Grant in college and meet the income threshold, you will be eligible for up to $20,000 in debt relief.

How can I get my student loan completely forgiven? ›

If you work full-time for a government or not-for-profit organization, you may qualify for forgiveness of the entire remaining balance of your Direct Loans after you've made 120 qualifying payments—that is, 10 years of payments.

How do I know if I qualify for IDR loan forgiveness? ›

Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if you are not currently on an IDR plan.

What is your best solution for resolution of the student loan debt crisis? ›

Cut or lower interest rates

Making zero interest permanent or lowering interest on existing debt could help borrowers pay off their debt without growing the principal, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

What student loans are not eligible for forgiveness? ›

What student loans are not eligible for forgiveness? Private student loans, by definition, are private and are not eligible to be forgiven. These are loans the borrower owes to student loan providers and not the federal government.

Will student loans automatically be forgiven? ›

Will my student loans be forgiven? All federally owned student loans are eligible for forgiveness. If you have Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation Loans or FFEL Loans owned by the U.S. Department of Education, they're all included in the forgiveness plan.


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