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Of the 43 million Americans who hold federal student loans, about 20% are in default. Before the pandemic, these borrowers faced harsh consequences, including wage garnishment, offset Social Security benefits, and forfeiture of their federal tax refunds — including the Child Tax Credit and the Earned Income Tax Credit. Additionally, the default damaged their credit scores and limited their economic mobility. For many people, getting out of default previously seemed overly complicated or became impossible because they were already in default. Limited options to remove your loans in default. However, there is good news for borrowers with defaulted loans who need a fresh start
In August 2022, the US Department of Education announced its Fresh Start initiative, which provides a path into default for borrowers who defaulted on their federal student loans before the pandemic. Through the Fresh Start program, eligible borrowers can sign up to remove their loans from default as well as make their student loan bills more manageable by enrolling in one. Income-Driven Repayment (IDR) Plan, IDR plans cap monthly payments based on income, and many low-income borrowers have $0 or smaller monthly payments. The process to sign up for Fresh Start is free and simple – it takes less than 10 minutes. Fresh Start Program time is limited, so borrowers need to act quickly. The program will end one year after the payment moratorium ends.
In addition, the Fresh Start program provides the following automatic benefits to eligible defaulted student loan borrowers:
- restoring access to financial assistance for eligible borrowers;
- ceases collection activities for one year after the payment moratorium ends;
- removes borrowers from the federal Credit Alert Verification Reporting System (CAIVRS) so they can be eligible for government loans, including government-backed mortgages;
- Restores the ability to rehabilitate a defaulted loan if the borrower has rehabilitated his loan after March 13, 2020; And
- Removes the record of default from the borrower’s credit report.
NCLC recently hosted a discussion for legal aid lawyers federal student loan ombudsman To discuss the nuts and bolts of the Fresh Start program. Video recording of this conversation is available Here. Based on that conversation the department has provided other information StudentEd.govWe created this Fresh Start FAQ With answers to important questions about Fresh Start.
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