The Department of Education (ED) has quietly begun implementing the so-called “Fresh Start” initiative, which was originally touted as a way for delinquent and defaulted borrowers to reenter repayment in good standing. But many questions remain over the rollout and implications for borrowers.
Communications sent to institutions by ED (and shared with NASFAA by institutions) indicate that individual loans held by ED are covered by the Fresh Start initiative and would allow borrowers with those loans to receive Title IV aid “until one year after the COVID-19 emergency relief (student loan payment pause) ends.” The department noted that this reinstatement only applies to debts held by ED and would not cover student loan debt “held by commercial lenders, guaranty agencies, or schools.”
ED’s initial announcement in April, which coincided with the announcement of extending the student loan payment pause through August 31, said all borrowers with paused loans would “receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing."
Under the April announcement, ED estimated roughly 7 million borrowers who entered the pandemic in default would be in good standing on their student loans when payments eventually resume.
At the time, NASFAA Vice President of Public Policy and Federal Relations Karen McCarthy applauded the move, but urged that ED must do more to help struggling borrowers from falling back into delinquency and default.
“We applaud the Biden-Harris administration for giving borrowers who were struggling even before the pandemic the chance to course correct and get back on track with their loan payments,” McCarthy said in an April statement. “This action will provide targeted relief to millions of borrowers who desperately need assistance. However, these borrowers remain at high risk of falling back into delinquency and default, and the Office of Federal Student Aid must plan future efforts to keep them on track.”
But this rollout appears to fall short of what the administration had originally promised. At this time, the initiative appears to be targeted to borrowers who are in default and enrolled in a postsecondary institution, which would represent a small subset of student loan borrowers, and it is unclear when or whether the benefit will be expanded to other delinquent or defaulted borrowers.
NASFAA has reached out to the department with more specific questions around the rollout of the initiative. At the top of the list of questions is why schools were not notified that the initiative had begun, or why schools haven’t received any instructions on how to proceed and process aid for newly eligible Title IV applicants.
Other questions include:
Does this change impact borrowers’ credit histories?
Does this temporary waiver only apply to borrowers with Direct Loans, or does it also apply to those with FFELP Loans if they are held by ED?
How are borrowers with delinquent loans impacted?
When will NSLDS be updated with new loan statuses?
For Parent PLUS loan borrowers, will this program change or impact credit checks?
Will any of this relief result in changes in credit reporting standards?
How will the one-year time frame work?
Have all eligible borrowers been notified by FSA? If not, when will they?
Can defaulted borrowers not currently enrolled but who wish to reenroll and have their Title IV eligibility restored qualify for the fresh start?
What plans will FSA pursue to ensure that defaulted borrowers don’t redefault on their loans?
How does Operation Fresh Start interact with other loan-specific reforms ED has begun (e.g., the temporary waiver on PSLF) or plans to begin (e.g., loan forgiveness).
FSA Chief Operating Officer Richard Cordray in June said the department was working to put borrowers who had previously defaulted into good standing, and that it was entirely possible that the moratorium may be extended again, past the current August 31 deadline, which could offer more time to assist a broader population of borrowers and complete the rollout of the Fresh Start initiative.
Stay tuned to Today’s News as more information becomes available on operation “fresh start” and its rollout, and be sure to reach out to NASFAA at [email protected] with any additional questions.
Publication Date: 8/10/2022