Hundreds of thousands of students and graduates in the United States are having trouble keeping up with their student loan payments. To the rescue of these folks comes the Fresh Start Program, a temporary relief initiative designed to aid individuals grappling with defaulted student loans in their journey towards financial recovery.
The Fresh Start Program offers several key benefits, including the removal of negative default marks from credit reports, access to federal student aid and government loan programs, the reinstatement of flexible repayment plans, availability of short-term relief options like forbearance and deferment, and the suspension of collection efforts by loan servicers. If you’re a student, and want to make the most out of your resources, here’s all you need to know.
Student Loan Repayment Resumes October 1, 2023: How’s Affected?
Not all federal student loan borrowers will be required to resume their loan payments as the long-standing relief they enjoyed is coming to an end. A critical provision within the debt ceiling agreement, reached in June 2023, prevents the U.S. Department of Education from extending the suspension of student loan repayments, which commenced back in March 2020.
For most borrowers, this means that loan repayments will restart on October 1, though it’s important to note that not everyone has the same due date. There are, however, three notable exceptions to this rule.
Firstly, if you are currently enrolled in school at least half-time or have recently left school, you won’t have to make payments on your federal student loan until you leave school or your grace period expires. The grace period typically spans six months from your departure from school, but for Perkins Loans, it extends to nine months.
Secondly, if you have previously received deferment or forbearance for your federal student loan, delaying payments beyond October 2023, you won’t have to resume repayments.
Lastly, under the Biden administration’s SAVE Plan, borrowers whose adjusted gross income is no more than 225% of the poverty level set by the U.S. Department of Health and Human Services may see their repayment amount reduced to zero, offering financial relief to many.
If you have federal student loans and don’t meet any of the exception criteria, it’s advisable to sign up for automatic payments through your loan service provider. This convenient option can lead to a 0.25% reduction in your interest rate. Nevertheless, if you were previously enrolled in auto-pay prior to the federal student loan repayment pause, don’t take it for granted that you’ll remain enrolled come October.
What Is the Fresh Start Program for Student Loans?
The Fresh Start program was announced by the U.S. Department of Education in April 2022 to help borrowers bring their federal student loans out of collections. The program is especially beneficial for borrowers who are in good standing with their other debts. Here are the key features of the Fresh Start program:
- Loans in Good Standing: Loans will be moved out of default, even if the borrower has already used their one-time loan rehabilitation option.
- Stop Debt Collections: The program halts attempts to collect the debt, including withholding of tax and federal benefits, wage garnishment, and collection calls.
- Payment Relief Options: Borrowers become eligible for payment assistance again, including income-driven repayment as low as $0 per month, loan forbearance, deferment, and student loan forgiveness.
- Money for School: Borrowers regain the chance to apply for federal student aid, including grants, loans, and federal work study, to help them return to school, if desired.
- Clean Up Credit: The record of missed student loan payments will be removed from the credit reports, and the student loan status will be changed from “in collections” to “current”
What Types of Payment Relief Options Are Available through the Fresh Start Program?
The Fresh Start Program is an initiative designed to help taxpayers with outstanding tax debts by providing flexible tax relief options for settling their tax obligations. The program offers four main types of payment relief options:
- Payment Plans: The IRS offers short- and long-term payment plans, also referred to as installment agreements, to eligible taxpayers. Short-term plans must be paid in full within 180 days, while long-term plans may allow you up to 84 months to repay tax debt, depending on how much you owe. There are three main types of payment plans under Fresh Start, based on the balance of taxes owed.
- Offer in Compromise (OIC): An offer in compromise allows you to repay tax debt for less than what you owe. You must be able to prove a financial hardship that prevents you from paying what you owe in full
Who’s Eligible for the Fresh Start Program for Students?
By participating in the Fresh Start Program, eligible borrowers can attain a clean slate, enabling them to resume their student loan repayment plans with renewed hope and financial stability. Acting swiftly is the secret sauce to successfully wading through the default maze. The golden ticket here? Reach out to the entity holding your loan. Now, this might differ from one borrower to another.
If your loans rest with the Department of Education (ED), you have a buffet of choices. Go digital and connect online, pick up the phone, or stick to good ol’ snail mail. A word to the wise: pinpointing who holds your loan is mission critical, but if you’re feeling lost, there’s always a helpline to guide your way.
How the Department of Education Can Wipe Your Credit Slate Clean
If you’re feeling jittery about what lies ahead, the Department of Education is here to hold your hand. They vouch that the whole shebang can be wrapped up faster than you can boil an egg, often under 10 minutes. When you chat with their team, you’ll share some basics to find your file and make your intention clear – to use Fresh Start to clear your name. And here’s a cherry on top: during this chat, you might get the chance to hop onto a payment plan that’s tuned to your earnings, which can sweetly slice your monthly dues.
Once you’ve played your Fresh Start card right, it’s all sunshine and rainbows. Those pesky defaulted loans? They move over to a loan manager, changing their tag from “in limbo” to “actively being paid off.” The big win? That gloomy default mark gets wiped off your credit slate, pushing you miles ahead on your credit comeback trail.
Mapping Out Your Repayment
Getting out of the woods (a.k.a default) is just part one. Next, you’ll want to pick a payment path that doesn’t burn a hole in your pocket. A lion’s share of folks using Fresh Start gravitate towards plans that sync payments with their paychecks. It’s been a financial breather for many, with a good chunk enjoying tiny (sometimes zero) monthly payments.
Wondering about the golden goose (your credit score)? Absolutely, the Fresh Start program is like that magic eraser for your credit blunders. Once you ace the program, that default stain is wiped clean, giving you a shiny new slate and a golden shot at rebuilding your credit castle.