07/10/2023
Student loan repayment will restart in October 2023. No further extensions will get approved.
Here are some changes that will happen…
—A Fresh Start for Student Loan Borrowers in Default
In August 2022, ED announced its Fresh Start initiative, which provides a valuable but time-limited pathway out of default. Fresh Start allows borrowers to request that their loans be removed from default and be put back into repayment status improving their credit, protecting them from wage garnishment and other involuntary collections, and restoring their eligibility for federal student aid and other federal loans as well as for improved repayment options. See NCLC’s Student Loan Law § 7.0 for a detailed discussion of the Fresh Start Program.
Most federal student loans currently in default are eligible for a Fresh Start, including Direct Loans, most FFEL loans (both ED-held and commercially held), and Perkins loans held by ED. Fresh Start only applies to loans that entered default before the payment pause (i.e., before March 2020). Commercially held FFEL loans that defaulted during the Covid-19 payment pause will be taken out of default automatically, and borrowers will not have to request a Fresh Start for such loans. Loans that go into default after September 1, 2023, are not eligible for Fresh Start.
The Fresh Start program is time limited: borrowers must sign up before August 31, 2024. Until then, collection activity will continue to be suspended for all Fresh Start eligible borrowers, but those who do not sign up by the deadline will face all the consequences of default, including potential wage garnishment, tax refund offset, or Social Security offset, beginning September 1, 2024. See NCLC’s Student Loan Law § 6.3 on the consequences of default.
Those signing up for a Fresh Start will be removed from default and upon request, placed in an Income-Driven Repayment (IDR) plan that limits monthly payments based on income. Enrollment in IDR could result in low or $0 monthly payments for many low-income borrowers. When signing up for an IDR plan, borrowers will have to provide income information, so it is helpful but not required to look up in advance AGI from their most recent federal tax return (line 11 of IRS Form 1040).
The process to sign up for Fresh Start is free, takes less than 10 minutes, and can be done over the phone, online, or by mail.
Borrowers with Direct Loans or other ED-held loans can sign up with ED’s Default Resolution Group (DRG):
Online: go to myeddebt.ed.gov and log in to your account or create an account.
Phone: Call 1-800-621-3115 (TTY 1-877-825-9923).
Mail: P.O. Box 5609, Greenville, TX 75403. Include a name, Social Security number, date of birth, and “I would like to use Fresh Start to bring my loans back into good standing.”
Borrowers with FFEL loans should contact their guaranty agency to have their loans transferred to the DRG, which will then remove their loans from default and assign the loans to a non-default servicer. Borrowers should call DRG at 1-800-621-3115 if they do not know which guaranty agency holds their loans.
For more on the Fresh Start Program, see this video of a discussion for legal aid attorneys with the Federal Student Loan Ombudsman describing the nuts and bolts of the program. NCLC also has a FAQ about the program here and Fresh Start is also examined at NCLC’s Student Loan Law § 7.0.
—Income-Driven Repayment (IDR) Account Adjustment
After ED discovered mass mismanagement had led millions of borrowers to be in repayment despite having their loans for more than 20 or 25 years (the points at which borrowers in IDR plans can have their loans canceled), it announced that it would engage in an automatic one-time adjustment of borrowers’ accounts to correct for prior errors in the management of IDR programs. This one-time adjustment will put millions of borrowers closer to IDR and Public Service Loan Forgiveness.
Under the account adjustment, the following time (since July 1, 1994) will now be automatically counted as IDR-qualifying months, even if the borrower was not enrolled in an IDR plan at the time:
Any months in a repayment status, regardless of the payments made, loan type, or repayment plan;
12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance;
Months spent in economic hardship or military deferments after 2013;
Months spent in any deferment (except in-school deferment) prior to 2013;
and
For consolidation loans, any time in repayment for the loans before they were consolidated.
The following periods still will not count as IDR-qualifying months:
Time in default if the borrower defaulted on their loans before March 13, 2020;
In-school deferments;
Shorter periods of forbearance and some deferments after 2013;
Months where the borrowers’ loans were subject to a court-judgment.
Generally, borrowers with 20 years (if they only borrowed loans for undergraduate study) or 25 years (if they borrowed loans for graduate school) in repayment will have their loans automatically canceled. Borrowers who have not yet reached the 20- or 25-year mark will still bank the newly credited time, meaning that when repayment restarts, they will be closer to IDR cancellation and can enroll in an IDR plan and continue accruing qualifying time towards cancellation.
All Direct Loans and FFEL or Perkins loans owned by ED are eligible for the account adjustment (including Parent PLUS loans!) and will be automatically adjusted. These loans have received the COVID-19 payment pause since March 2020.
However, the following loan types will be excluded from the IDR account adjustment unless the borrower consolidates them into a Direct Consolidation Loan before December 31, 2023:
Commercially held FFEL loans;
Perkins Loans that are held by a school;
Health Education Assistance Loan (HEAL) loans.
Borrowers who have loans with different periods of time in repayment should also consider consolidating those newer and older loans together so that the Direct Consolidation Loan is credited with the longest period of repayment that accrued on the older loans before consolidation. More information about the IDR account adjustment is available here.
Importantly, Parent PLUS loans can receive credit towards both IDR and PSLF if the borrower (i.e., the parent) worked for a qualifying public service employer during the time that now counts as IDR qualifying time. Parent PLUS borrowers were excluded from the PSLF waiver but can now act to receive those benefits. If their loans are not yet at cancellation, those borrowers can continue accruing qualifying repayment towards PSLF either by making payments in a standard repayment plan or by consolidating the Parent PLUS loan into a Direct Consolidation loan, which is eligible for the Income Contingent Repayment plan—the most expensive of the IDR plans. More information regarding Parent PLUS borrowers, the IDR account adjustment, and the PSLF is available here and here. Detailed information about IDR is available at NCLC’s Student Loan Law § 3.3.
