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Student Loan Default and Fresh Start From the US Department of Education
Student loan default can be scary, but if it’s something you are currently in or concerned about, you should not ignore it! Let’s talk about the Department of Education’s new Fresh Start program to help borrowers get out of default and back on track with their loans.
What is loan default?
Default is when a person with loans does not make payment for 270 days, or nine months. If for some reason you go nine months without making payments, you will enter into default. Defaulting on your loans can have serious consequences to your credit score, which means it’s not something to take lightly.
Fresh Start program
Because of the COVID-19 pandemic, student loans have hit a lot of uncharted territory in the past few years. Many borrowers thought that was a good thing because payments were paused and interest was not incurring. For those who were in default before the pandemic, things got a little better as well.
Fresh Start is a new program that allows individuals who entered default before the pandemic to return to good standing with their loans. Your loan amount won’t necessarily change, but you will likely be able to enter into a new payment plan with lower monthly payments. This means you’ll have a better chance to pay your loan payment each month. You’ll also be able to pick your credit score back up and get back to good standing with your loans. Read on to see what other benefits are included in this plan and how to enroll!
How do you sign up for Fresh Start?
Signing up for Fresh Start is simple. The following information comes directly from the Student Aid website:
- Online – Go to myeddebt.ed.gov and log in to your account. This is the easiest option if you know your login.
- By phone – Call 1-800-621-3115 (If you are deaf or hard of hearing, the TTY number is 1-877-825-9923)
- By mail – You’ll need to write a letter stating the following: “I would like to use Fresh Start to bring my loans back into good standing.” You’ll need to include your social security number, name and date of birth as well and mail it to P.O. Box 5609, Greenville, TX 75403
After you enroll
After you enroll, you’ll need to choose a payment plan. Most individuals choose an income driven repayment plan (IDR) which bases their monthly payment on how much they make each month. Depending on your job, you may also be eligible for the Public Service Loan Forgiveness program. The PSLF program allows you to make 120 qualifying payments towards your loan and then apply to have the remainder of your loan forgiven.
Automatic benefits and enrolled benefits
While some of the benefits to the Fresh Start program are automatic, you will still need to enroll in order to claim all the benefits and continue to claim even the automatic credits once this initiative ends. So, let’s look at automatic benefits first!
Access to federal student aid, as well as other government loans
Individuals who have defaulted on their loans are typically unable to take out any more loans or take advantage of things like federal grants or work study. However, with the Fresh Start program, individuals will be eligible for these things again.
No collections until Fresh Start expires
With Fresh Start, defaulted loans will not need to be repaid until the program has ended. This means that until September of 2024 you will not need to worry about wage garnishment, seized tax refunds, seized tax credits, or withheld social security payments.
A second chance for those who have already defaulted or gone through rehabilitation
Typically, those who default on their loans have one shot to rehabilitate their loans. Rehabilitating your loans means that you agree to make nine out of ten on time monthly payments in a row. Usually you are only allowed to do this one time, however, the Fresh Start program is a second chance to get out of default.
Fresh start will show up on credit reports
Perhaps one of the biggest benefits to the Fresh Start program is that your defaulted loans will be removed from your credit reports. Usually a defaulted loan affects your credit for as long as seven years and potentially even longer.
Access to repayment options and forgiveness
Those who default on their loans have fewer options when it comes to paying them off. However, with this program, you’ll once again have access to things like income driven repayment plans and public service loan forgiveness plans. Borrowers who use these options are more likely to make payments on time.
If you default again, your original date of delinquency will be used
If you do end up defaulting again, this program will not restart the seven year delinquency timeline. So, if your original date of delinquency was January of 2019 and you end up missing a payment again in January of 2025 after you enrolled in Fresh Start, your 2019 date will be used instead of the 2025 date. This is important because loans that are delinquent for seven years usually don’t appear on credit reports.
What if you go into default again?
Defaulting again will look different depending on what course of action you previously took when you defaulted. If the Fresh Start program is the first step you’ve taken to get out of default, you’ll still be able to rehabilitate your loans if you default again.
If you’ve previously rehabilitated your loan and then took advantage of the Fresh Start program, you will not be eligible to rehabilitate your loan again.
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Frequently asked questions about Fresh Start
Will Fresh Start affect my ability to enroll in other programs?
How long does it take to enroll in Fresh Start?
Is Fresh Start legit?