In April, the Education Dept. introduced its "Fresh Start" plan, which would help defaulted student-loan borrowers.
Last week, the department released updated guidance to the agencies that hold those borrowers' debt.
Borrowers will have one year after payments resume to make use of the program.
President Joe Biden's Education Department is preparing to help student-loan borrowers in default once payments resume.
On Friday, Federal Student Aid (FSA) Director Richard Cordray released guidance to the private companies that hold defaulted student loans — known as guaranty agencies — on how they should carry out the "Fresh Start" initiative the Education Department announced in April.
The initiative, which was detailed in a press release alongside an announcement of an prior extension of the student-loan payment pause through August, would allow borrowers behind on their payments, or in default, to reenter repayment in good standing. Approximately 7.5 million borrowers are currently in default, and the program would give those borrowers one year after payments resume to take necessary steps to return to good standing.
President Joe Biden recently extended the student-loan payment pause through June 30 or whenever the active lawsuits currently blocking the debt relief are resolved — whichever comes first.
"Today, more than seven and a half million borrowers have a loan in default," Under Secretary of Education James Kvaal said during a student aid conference last week. "That's about one in six student loan borrowers. Nothing good comes out of loan default. It drives borrowers already facing financial hardships into an even deeper hole."
According to Cordray's guidance, the agencies that hold defaulted student-loan borrowers' debt will be required to suspend collection attempts for borrowers in the Fresh Start program for a year following the end of the payment pause. They will also ensure those borrowers don't receive negative credit reporting, along with facilitating communications to borrowers eligible for the program informing them of the actions they need to take should they wish to return to good standing.
Along with guidance to the guaranty agencies, borrowers in default will also need to take action to return to good standing. They will need to request a transfer of their loans to Nelnet, a non-default student-loan company, which can be done by visiting myeddebt.ed.gov or calling the Default Resolution Group at 800-621-3115. Borrowers can find out more information on whether they are eligible for the program here.
This new guidance comes as Biden's broader plan to forgive up to $20,000 in student debt for federal borrowers making under $125,000 a year remains held up in court. So far, two federal judges have ruled that the implementation of the relief should be blocked, and the Supreme Court has already agreed to hear arguments in one of the cases early next year.
In the meantime, the administration maintains it will prevail in court — but millions of borrowers are waiting to see if the nation's highest court will end up granting them the relief they were promised.
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