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| Topics and Issues | Student loans (5) |
In August 2022, the U.S. Department of Education and its Office of Federal Student Aid announced a Fresh Start program where “[b]orrowers with federal student loans in default will be able to reenter current repayment status and have other federal student aid benefits and protections restored that will increase their long-term repayment success.”
The announcement came with a fact sheet and a dear colleague letter. There are several changes in the credit reporting of student loans contained in the Fresh Start program.
The Department issued details following its April 6, 2022 announcement that
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.
In August, the Department issued a fact sheet offering more details on its initiative, “Fresh Start,” which “will increase the long-term repayment success of borrowers with defaulted federal student loans, provide substantial benefits to borrowers over the coming months, and last for a period of one year from the end of the payment pause, as described [in the fact sheet].”
FSA also issued a dear colleague’s letter which “provides guidance to schools on awarding federal student aid under Title IV of the Higher Education Act of 1965 (HEA) to students with defaulted loans.”
There are several changes to the credit reporting of student loans contained in the Fresh Start program. Under the FCRA, “loans that have been delinquent for more than seven years generally do not appear on credit reports produced by credit reporting agencies. To ensure the maximum opportunity for borrowers with eligible defaulted federal student loans to get a fresh start, [The Department of Education] will:
- Delete reporting about loans that have been delinquent for more than seven years, even if the borrower enrolls in a repayment plan through the Fresh Start initiative;
- Report all other defaulted loans to credit reporting agencies as “current” and not in a collection status; and
- Use a loan’s original date of delinquency if borrowers become delinquent or go into default again after this Fresh Start opportunity, which will not reset the seven-year timeline for a borrower’s credit report
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