The Fresh Start Program can help if you're behind on federal student loan payments

Are your federal student loans in default and holding you back? Feeling unsure of your student loan situation but stressed about finding out? Don’t stress. Instead, get a Fresh Start from the U.S. Department of Education before it’s too late! If you ever wanted a "do-over" for your federal student loans, now is the time to act.

What happens when you miss federal student loan payments?

Most people are late making federal student loan payments at least once. Life can get hectic! When your payments are overdue, a loan is considered delinquent. Generally, at 90 days of non-payment, delinquency is reported to the three major credit bureaus (also called credit reporting agencies). If arrangements for a temporary payment option such as loan deferment or loan forbearance aren’t made, then at 270 days (9 months of non-payment) your loan goes into default.

What happens when you default on a federal student loan?

When you default on federal student loans, there are a few potential consequences:

• the entire amount becomes due immediately
• you lose access to further federal aid (grants, work study, student loans)
• your credit score is negatively impacted
• wages and tax refunds might be withheld
• the debt can be referred to a collection agency
• legal action may be taken against the borrower

Experiencing any of these can feel overwhelming. You may want to put your head under the covers to hide. And sometimes it feels like there isn’t anything you can do. But what if you could have a do-over on your student loan default?

Thanks to Fresh Start—a temporary federal relief program—you could have a do-over that will erase your federal student loan default.

What is the Fresh Start program for student loans?

The Fresh Start program for federal student loans is a temporary program from the U.S. Department of Education (ED) that offers special benefits for borrowers with defaulted federal student loans. 

How does Fresh Start work and what are the benefits?

With Fresh Start, your defaulted loan is transferred to a new servicer and returned to "in repayment" status with a Standard Repayment Plan.

Once you're in the new repayment plan:

• Wage and tax refund withholdings stops.
• The loan is reported as "current" on your credit history, which can impact everything from lowering car loan rates to increasing housing access. 
• You can access loan deferment or loan forbearance again if needed, as well as student loan forgiveness programs if eligible.

Once your Fresh Start application is processed, you should also request an Income Driven Repayment (IDR) plan. IDR can significantly reduce your monthly payment amount if you’re an eligible borrower; sometimes to $0 a month!

Fresh Start also gives you immediate access to further federal student aid including federal student loans, work study, and grants if you’re income eligible. Having access to federal financial aid may allow you to complete your education or try new career training and obtain higher wages.

When does Fresh Start end?

The Fresh Start Program for federal student loan default ends September 30, 2024.

How Fresh Start is helping Vermonters

Ryan Dulude, Community College of Vermont Financial Aid Director shared CCV’s experiences with Fresh Start.

We’ve seen several students at CCV take advantage of Fresh Start. To a person, each student is thankful that they have the opportunity to get ‘unstuck’ and to imagine a future where they can think of their career in a different way or where they are able to support their families. Education is meant to open the doors of possibility for students, and Fresh Start is an excellent way for students to re-engage in their education and re-open doors they may have thought were closed to them forever.

How do I access the Fresh Start Program?

There are two ways to access Fresh Start. What you choose depends on whether you want to enroll in the 24-25 academic year, or if you don't plan to enroll in a program that uses federal aid.

1. If you want to enroll in further education and training in a program that uses federal aid, you must complete the Free Application for Federal Student Aid (FAFSA) for your school and request a Fresh Start through their financial aid office.

• You will complete your 24-25 FAFSA as soon as possible, but before September 30, 2024, when the Fresh Start Program ends.
• The school will have a form for you to sign indicating you understand your defaulted loans will be transferred to a new servicer.

If you're enrolled in school at least half time, your Fresh Start loan will have “in school” status and payments won't resume until 6 months after dropping below half-time. Ryan Dulude says students considering this should speak to their financial aid office and loan servicer early and often to make sure they are on track to get all the necessary documents in to receive financial aid.

2. Maybe you're not looking to enroll in education or training right away. Or maybe you're looking at an education program that doesn’t utilize federal aid but you still want to get out of loan default and access the other Fresh Start benefits. Here are some options:

• You can request Fresh Start through your loan guaranty agency or the U.S. Department of Education.
• If you don’t know who holds your loans, call the ED at 1-800-621-3115 (TTY 1-877-825-9923).
• You can log into your Student Aid account to see who your loan servicer is and find a link to their site. 

Goodbye federal student loan default, hello Fresh Start!

Remember that VSAC is also here to help you with your loans. Our Loan Department and Customer Service Representatives offer free expert counseling and information. First-generation, modest-income adult students looking to continue their education and training are encouraged to reach out to the VSAC Educational Opportunity Center (EOC) program for support from an Education Counselor in your region.

Watch this video to learn more about the Fresh Start Program for Defaulted Federal Student Loan Borrowers

Stacey King is an Education Counselor for the Educational Opportunity Center TRIO Grant held by Vermont Student Assistance Corporation. She assists first-generation and modest-income adults to pursue education beyond high school and is a self-professed financial aid nerd who loves helping students navigate the process.