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

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

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:

• 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.

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.

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.

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.

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:

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, seeStudentAid.gov/FreshStart.

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 StudentAid.gov/coronavirus 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.