As BLACK ENTERPRISE previously reported, the Fresh Start Program was scheduled to end on Sept. 30, but the program was extended until Oct. 2 at 3:00 a.m. EST, giving borrowers one last chance to return their accounts to good standing if they have defaulted.
According to CNET, the U.S. Under Secretary of Education James Kvaal announced that the program’s original deadline had been slightly extended.
Student loans are considered defaulted when a borrower has missed payments for at least 270 days. When your student loans are considered defaulted, you can no longer utilize loan forgiveness programs or other federal loan benefits.
In an amicus brief attached to a defense of President Joe Biden’s original student debt relief program, the Legal Defense Fund argued that post-pandemic defaults would be a disaster for Black and other historically disadvantaged groups.
“The foreseeable wave of delinquency and default would devastate individual lives and communities, with particularized harms for historically underserved groups: irrevocably damaging credit, garnishing wages that families badly need for basic necessities, and foreclosing additional educational opportunities and economic mobility,” the LDF wrote.
It continued, “[The Biden administration’s] plan will meaningfully ensure that millions of affected borrowers are not economically debilitated by the protracted and pernicious harms of COVID-19 that have thrown them into unprecedented levels of financial distress, including borrowers of color who bear a disproportionate share of the financial burdens arising from the pandemic.”
Once a loan has been placed in default status, a borrower usually has two choices to escape: student loan consolidation or rehabilitation, both of which could take several months to complete.
The Fresh Start program currently replaces rehabilitation and offers some additional assistance that rehabilitation doesn’t. Fresh Start moves your student loan from default to in-payment status and transfers the loan from the Default Resolution Group to a different loan servicer.
It also allows for an update to your credit history, removing the loan previously recorded as defaulted from your history. In addition, you also become eligible for loan forgiveness programs and have access to federal repayment plans like an income-driven repayment plan or the graduated plan.
According to Mark Kantrowitz, a financial expert, and CNET’s money expert reviewer, “The Fresh Start Initiative is the best opportunity for getting student loans out of default. [Borrowers] will receive credit for months in default … from March 2020 to the date they were no longer in default due to the Fresh Start initiative,” Kantrowitz told the outlet. “They also get credit for qualifying payments made prior to going into default.”
If you miss the deadline for Fresh Start, you can consolidate your federal loans or initiate the process of rehabilitation. Consolidating your loans may reset your payment count to zero, which means you could make payments for an additional 10-25 years before you are eligible for forgiveness.
Rehabilitation, like the Fresh Start program, will remove a loan placed in default from your credit report, but you must first make nine full payments in 10 months to receive its benefits.
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