The Department of Education (ED) in a Dear Colleague Letter released Wednesday announced updates to the “fresh start” initiative, which would enable defaulted borrowers to reenter repayment in good standing — but many outstanding questions continue to percolate concerning both the program’s framework and timing related to its implementation.
ED’s intent of the initiative is to restore a host of benefits to previously defaulted borrowers, including access to repayment options and federal student aid eligibility, as well as protect borrowers from involuntary collections, restore future rehabilitation eligibility, and remove borrowers’ default status from federal credit reporting features.
Per the announcement, eligible loans will include:
Defaulted William D. Ford Federal Direct Loan (Direct Loan) Program loans,
Defaulted Federal Family Education Loan (FFEL) Program loans (both ED-held and commercial-held), and
Defaulted ED-held Perkins Loans.
Eligible loans must have entered default status prior to the start of the repayment pause on March 13, 2020. Per ED, the initiative “will remain available to previously defaulted borrowers, as identified above, for one year after the end of the COVID-19 pandemic student loan payment pause. Simply put, these borrowers will have at least one year to make payment arrangements before defaulting on their debts and/or being subject to further collections efforts like most other borrowers eligible for the payment pause.”
According to ED’s announcement on Wednesday, commercial-held FFEL loans that defaulted after March 13, 2020, “through the duration of the payment pause, will be returned to current standing through ED’s action to expand COVID-19 flexibilities. Because these loans will be returned to current standing, they are not eligible for Fresh Start benefits.”
The White House and ED first announced the initiative as a part of a previous extension of the pause on payments and interest accrual for federally-held student loans, and committed to using the additional time to assist a broader population of borrowers and complete the rollout of “Fresh Start.”
The guidance released Wednesday outlines the steps that institutions are required to take if they receive an Institutional Student Information Record (ISIR) for a student who is eligible to take advantage of the Fresh Start initiative and defaulted before March 13, 2020. To award a previously defaulted student Title IV aid, an institution must capture a screenshot of the student’s file in NSLDS that shows the date the student’s loan went into default was prior to March 13, 2020 and retain that documentation for three years after the end of the student’s last award year that they attended the institution. Institutions are also required to collect a signed and dated acknowledgement from the student, which includes specific language addressed in the DCL, that confirms the student’s consent to have their defaulted loans transferred to a new non-default servicer and receive Title IV aid.
Once the newly awarded aid is disbursed to qualified borrowers, ED will automatically start the process of transferring the borrower’s defaulted loans to a non-default servicer and removing the borrower’s default status, which will allow them to continue to receive Title IV aid after the initiative’s expiration.
Different guidance applies for borrowers who defaulted during the repayment pause — March 13, 2020 and after — who would primarily be FFEL borrowers. Defaulted FFEL loans held by guaranty agencies and are not subject to an active bankruptcy filing will be assigned to ED and will be immediately eligible for Title IV aid. While these borrowers will be eligible, until they are transferred to ED they will continue to show a default status in NSLDS.
Institutions may award these students Title IV aid after retaining a screenshot of the student’s file in NSLDS showing the default date on or after March 13, 2020 and confirming that the student fulfills all the other eligibility requirements to receive Title IV aid. No acknowledgement documentation is necessary for this population, as their loans will automatically be reassigned to ED.
The DCL only addresses the restoration of Title IV eligibility for defaulted borrowers. Details on other features of the Fresh Start initiative and their associated timelines, including the ability to enroll in income-driven repayment plans, protection from involuntary collection efforts and costly collection fees, restoration of eligibility for future loan rehabilitation, and removal from the federal Credit Alert Verification Reporting System (CAIVRS), have not yet been released.
NASFAA has reached out to the department with follow-up questions related to DCL GEN-22-13. At the top of the list of questions is a request for more clarity on the process from the school perspective.
Stay tuned to Today’s News as more information becomes available on this initiative and its rollout, and be sure to reach out to NASFAA at [email protected] with any additional questions.
Publication Date: 8/17/2022