A Fresh Start for Borrowers with Federal Student Loans in Default

On April 6, 2022, the U.S. Department of Education (ED) announced it would eliminate the negative effects of default for borrowers with defaulted federal student loans. This will enable approximately 7.5 million borrowers with defaulted federal student loans to return to repayment without any past due balance, just like every other borrower. These borrowers are disproportionately likely to be first-generation college students, have received a Federal Pell Grant, and qualify for low monthly payments under affordable income-driven repayment (IDR) plans. Simply put, these borrowers will have at least one year to make payment arrangements before defaulting on their debts and/or being subject to further collections efforts like most other borrowers eligible for the payment pause.

Loans Eligible for Fresh Start:

  • Defaulted William D. Ford Federal Direct Loan (Direct Loan) Program loans
  • Defaulted Federal Family Education Loan (FFEL) Program loans (both ED-held and commercialheld)
  • Defaulted ED-held Perkins Loans

Loans Not Eligible for Fresh Start:

  • Defaulted school-held Perkins Loans
  • Defaulted Health Education Assistance Loan Program loans
  • Student loans remaining with the U.S. Department of Justice (DOJ)
  • Direct Loans and commercial-held FFEL Program loans that default after the end of the pause on student loan payments and collections

Steps Borrowers Must Take to Make Payment Arrangements

Under Fresh Start, all borrowers with eligible defaulted federal student loans will receive important benefits available to borrowers in good standing for the initiative's duration. Most borrowers with Fresh Start-eligible loans must make long-term payment arrangements with ED or their guaranty agency. Similar to all borrowers when payments resume, borrowers who do not make payment arrangements during the Fresh Start initiative will again be subject to default collections one year after the payment pause ends.

Any borrower with eligible defaulted federal student loans can make payment arrangements during the initiative by visiting myeddebt.ed.gov, contacting their loan holder by phone or in writing, or calling the Default Resolution Group at 1-800-621-3115.

Borrowers who make payment arrangements will be transferred to a non-default loan servicer. When borrowers’ eligible defaulted federal student loans are transferred to a non-default servicer, ED will remove the default status of the loans from borrowers’ credit reports.Borrowers will have one year from the end of the student loan payment pause to make payment arrangements or notify their loan holder that they would like to transfer to a non-default servicer. Similar to all borrowers, when payments resume, borrowers who do not take advantage  of this option or pay off their federal student loans during the Fresh Start initiative period will again be subject to default collections one year after the pause ends. In addition, borrowers will lose eligibility for federal student aid, and ED and guaranty agencies will resume reporting their loans as being in collections to credit reporting agencies. ED will closely monitor borrowers' repayment performance with previously defaulted loans, including enrollment rates into IDR plans that can best support their long-term success.

Borrowers Who Defaulted On or After March 13, 2020

The guidance provided above applies when awarding aid to students who defaulted on loans prior to the start of the student loan repayment pause (March 13, 2020) and who qualify for Title IV aid under the Fresh Start initiative. When awarding aid to students who defaulted on or after the start of the payment pause (and prior to the payment pause end date), which are primarily FFEL loan borrowers, different guidance applies.

  • Defaulted FFEL Program loans held by guaranty agencies that are not subject to an active bankruptcy filing are in "Population 2" as described in DCL GEN 21-03. As explained in that DCL, loans in Population 2 will be assigned to the Department and are immediately eligible for Title IV aid. However, many of these loans have not yet been assigned to the Department and will continue to show a default status in NSLDS while they remain with the guaranty agency.

Fresh Start Initiative Fact Sheet

https://fsapartners.ed.gov/sites/default/files/2022-08/FreshStartFactSheet.pdf