You just need to enroll and pay the agreed-upon monthly amount. You won’t have to consolidate, rehabilitate or come up with a lump sum of cash in order to get out of default under the initiative. To make payment arrangements under the Fresh Start initiative, borrowers can: It’s unclear how long that process will take or how quickly borrowers will be back in repayment after enrolling. Once borrowers make payment arrangements, their loans will be transferred to a new loan servicer that doesn’t manage defaulted loans. Department of Justice.ĭirect loans and commercially held FFEL loans that default after the end of both the student loan payment pause and the pause on collections.īorrowers with eligible student loans must contact the Education Department’s Default Resolution Group or their loan holders to enroll in the program and arrange to make long-term payments. Health Education Assistance Loan Program loans. Loans in default that won’t be eligible for Fresh Start include: The Fresh Start program will apply only to borrowers with federal student loans, which include direct loans, Perkins loans and Federal Family Education Loan debt that’s held by the government and owned privately.Īccording to data supplied in March by the Education Department, approximately 7.5 million federal student loan borrowers have loans in default. “Whereas, if you stay in default, there is no automatic forgiveness.”įor those borrowers who want to enroll in this limited-time-only program, here’s what we know and don’t know.Īlso on MarketWatch: ‘Savings are gonna run out’: Already battered by high inflation, Fed’s rate hike will hit lower-income and rural Americans hard Only federal student loan borrowers will get a fresh start “Federal student loans have no statute of limitations, so it makes sense to get yourself out of default and get on a payment plan that - even if you don’t pay it off in 20 or 25 years - has a forgiveness at the end of it,” Mayotte says. Payments under these plans could be as low as $0. Income-driven repayment, for example, lowers payments to a portion of your income and extends your repayment to 20 or 25 years, after which the remaining balance is discharged. “You’ll be able to potentially pursue forgiveness through existing forgiveness options.” “For those who say, ‘I can’t afford to pay it,’ you might be able to if it’s out of default because you’ll have access to lower payment options,” Mayotte says. The program won’t be automatic, but there’s no downside to it, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. The catch? You may have to make payments moving forward. The Fresh Start program addresses most of the consequences of default by removing the penalties and making the rehabilitation process cheap and easy. Federal loans are not easily discharged in bankruptcy courts, and there’s no statute of limitations on collections efforts.Īlso read: Department of Education canceling $3.9 billion in debt for 208,000 scammed students - here’s who qualifies Who should seek a Fresh Start? Damage to credit history is extensive: nine months of late payments, plus a default, make it more difficult for borrowers to qualify for credit cards, mortgages or auto loans. Once that happens, federal aid for school is cut off and collections efforts begin, including wage garnishment or seizure of tax refunds. Student loans are delinquent when they’re 30 days past due, and they default when the borrower hasn’t made a payment for 270 days. But it took four months for details to emerge. The program was announced April 17 as part of the sixth extension of the federal student loan payment pause that first began in March 2020. But if they don’t act before the one-year limit is up, their loans will remain in default. During that year they won’t face collection costs or other punitive consequences of default, such as wage garnishment. 31, but expected to be extended - to enroll in the “Fresh Start” program and arrange to make payments, according to the Department of Education. Borrowers have until one year after the current payment pause expires - currently scheduled for Aug.
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