Borrowers who were not in default before the pandemic, including those who were severely delinquent on their loans, will exit the pause and be current on their loans. And they will regain access to income-driven repayment ( IDR) plans, Public Service Loan Forgiveness ( PSLF), and federal financial aid if they want or need to return to school.įresh start will also put all borrowers affected by the pause on equal footing once repayment resumes. Presumably, through fresh start, borrowers’ wages, tax refunds, and federal benefits will no longer be at risk of being garnished. Providing borrowers with a quick, manageable pathway to bring their loans back into good standing during the pandemic will bolster the financial security of the approximately eight million families with loans in default. And the consequences of default-including collection fees wage garnishment withholding federal benefits and tax refunds, including the Earned Income Tax Credit and Child Tax Credit and credit score damage-are overly punitive and felt more acutely by vulnerable communities. The current default system is like quicksand: It charges a host of confusing fees and offers limited pathways to exit, some of which can only be used once, meaning that borrowers can easily get stuck or cycle in and out. Moving borrowers out of default will boost the financial security of close to eight million families And even before COVID-19, many borrowers reported that financial insecurity was a major barrier to repayment. At the same time, these groups are more likely to have struggled during the pandemic. Recent research indicates that borrowers of color, those with low incomes, those who don’t complete a degree, student parents, and first-generation students, among others, have particularly high rates of default. In the year before the pandemic, more than one million Direct Loan borrowers defaulted. The administration plans to allow “all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.” Rumors of this fresh start trickled out last fall, but policymakers and advocates had long been thinking about and pushing the Department to bring borrowers out of default during the pandemic.Īt the end of 2022, approximately one in six borrowers with federally managed student debt was in default. Although the Biden administration had previously hinted that an extension was coming, there was also a larger announcement buried in the press release. On April 6, the Department of Education (ED) announced a four-month extension of the current student loan payment pause-which also includes pauses on interest and collections-through August 31, 2022.
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