Banking

Education Department offers a second chance to 7.5 million borrowers who defaulted on student loans — here’s who is eligible – News Opener

Drazen Zigic | Istock | Getty Images

The U.S. Department of Education is giving federal student loan borrowers who’ve fallen behind on their debt a chance to get into current standing.

As part of its “Fresh Start” initiative, the 7.5 million student loan borrowers who are in default will be able to return to repayment without a past-due balance. The agency announced the program in April, and on Wednesday released more information on how borrowers may benefit.

Borrowers currently in default will have the opportunity to improve their credit records, shield themselves from any collection activity the government may be able to take against them — including wage garnishment — and restore their eligibility for federal student aid.

It’s not clear from the latest guidance exactly when borrowers can start taking steps for their fresh start, says Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

“There will be borrower communications and the Education Department’s website will be updated,” Buchanan said, as to when borrowers can begin the process.

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

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

Certain loans qualify, and others don’t

The first step: Choosing a new repayment plan

Look for credit report changes

Collection efforts to be temporarily suspended

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

Thanks to the initiative, collection activity on defaulted federal student loans will be suspended for a year after student loan payments resume. Be aware that if you take a fresh start but then fall back into default after that period, you could be subject again to collections.

Eligible borrowers can apply for new federal aid

Borrowers with eligible defaulted federal student loans can apply for federal student grants, loans or work-study funds through the Free Application for Federal Student Aid, or FAFSA. They should be able to receive the aid even before the Fresh Start program is fully implemented later this year, according to the Education Department.

“The guidance emphasizes providing borrowers with a path to finishing their degrees,” Kantrowitz said. “This will provide them with a route to a better income, which will enable them to repay their student loans.”

Buchanan said any defaulted borrower who wants to access federal funding to return to school can reach out their school’s federal student aid office now.

Payment pause may affect timeline

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

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

And the one-year window that defaulted borrowers will get to transfer to a new servicer only begins when the payment pause ends, he added.

 Source link

Back to top button
SoundCloud To Mp3