Department of Education offers student loan borrowers in second default chance

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The U.S. Department of Education is giving their federal student loans who are already in debt a chance to get where they are now.

Be part of it”A new start” Under the initiative, student loans of 7.5 million students who are in default will be able to return to repay their loans with no overdue balances. The agency announced the program in April, and on Wednesday released more information on how borrowers can benefit.

Borrowers who are currently in default will have the opportunity to improve their credit profile, protecting themselves from any collection action the government may take against them – including pay cuts – and restore eligibility for federal student aid.

Scott Buchanan, executive director of Student Loan Servicing Alliance, a trade group for federal student loan service providers, said:

“There will be borrower contact information and the Department of Education website will be updated,” said Buchanan, as to when borrowers can begin the process.

The Department of Education did not immediately respond to a request for comment.

Here’s what borrowers need to know about the new program.

Some loans qualify and others don’t

First step: Choose a new repayment plan

Look for changes in your credit report

Collection efforts are temporarily suspended

The U.S. government has extraordinary collection powers on federal debt, and it can seize borrowers’ tax refunds, wages, and Social Security checks.

Thanks to this initiative, collection of federally insolvent student loans will be suspended for one year after student loan payments resume. Be aware that if you start over but then fall back to the default state after that time period, you may be subject to collection again.

Eligible borrowers can apply for new federal assistance

Borrowers with federal student loan defaults qualify may apply for federal student grants, loans or work-study funds through the Free Application for Federal Student Aid, or FAFSA. According to the Department of Education, they will be able to receive aid even before the Fresh Start program is fully implemented later this year.

“This guide emphasizes providing borrowers with a pathway to completing their degree,” says Kantrowitz. “This will give them a pathway to a better income so they can pay off their student loans.”

Buchanan said any defaulted borrower looking to access federal funding to return to school can contact their school’s federal student aid office now.

Payment pause may affect progress

The payment pause on federal student loans is currently scheduled to expire this month, although the White House is considering extending it again.

“If the payment pause is continued, default borrowers will not make any payments, just like borrowers who are not in default,” Kantrowitz said.

And the one-year period in which default borrowers will be switched to a new service provider only begins when the payment pause ends, he added.

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