On April 6, 2022, the U.S. Department of Education under the Biden Administration announced that the current pause on federal student loan repayment is extended until August 31, 2022.
The extension also addresses student loans in default by automatically restoring these loans to good standing.
The move to erase the impact of default and delinquency is part of a policy known as “Operation Fresh Start.” Let’s take a look at Operation Fresh Start and what it means for those struggling with federal student loan debt.
1. What is Operation Fresh Start? 2. Benefits of Operation Fresh Start 3. How to take advantage of Operation Fresh Start 4. What about other student loan relief?
What is Operation Fresh Start?
Operation Fresh Start was first reported on by Politico in October 2021. Politico reported that internal discussions around addressing default and delinquency were in the works and being referred to as Operation Fresh Start.
However, even though the Department of Education extended the loan payment pause back in December 2021, defaulted and delinquent federal loans weren’t addressed. That changed with this latest student loan payment pause extension announcement. Now, Operation Fresh Start is in effect, getting rid of the negative impact of federal student loan default.
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In absolving loans in default or delinquency and placing them in good standing, borrowers can take advantage of federal benefits, like income-driven repayment and Public Service Loan Forgiveness (PSLF) — programs that were inaccessible to those borrowers in default.
Additionally, this change effectively eliminates adverse impacts of default, like wage garnishment.
What loans are included in Operation Fresh Start?
Operation Fresh Start (along with the payment pause) is expected to impact close to 8 million student loan borrowers. It applies to federal student loans, like Direct Loans. Additionally, some FFEL Loans — which weren’t previously included in the payment pause — will also now be included in Operation Fresh Start.
There are some questions about how to approach FFEL loans in default, since some of these loans are still held commercially, rather than being held by the Department of Education. It’s one thing to rehabilitate Direct and FFEL Loans held by the Education Department, but automatically rehabilitating those held by other entities might face challenges.
For the most part, though, borrowers that have had their payments on pause under the CARES Act and the extension of these policies can expect to have their defaults essentially erased.
Benefits of Operation Fresh Start
Having defaulted federal student loans automatically rehabilitated offers the kind of student loan relief that voters, advocates, and Congress members have wanted. Some of the benefits of Operation Fresh Start include:
- Credit boost for borrowers. Student loan default impacts credit reporting. Operation Fresh Start is designed to remove the negative credit impact of federal loan default. Those whose loans are rehabilitated should also see an update to their credit reports — and their credit scores.
- Access to federal student loan relief programs. Borrowers with federal loans in default were ineligible to apply for PSLF or take advantage of income-driven repayment programs. With loans automatically moved out of default, affected borrowers can request income-driven plans that can help them remain in good standing whenever the pause ends. Additionally, they can apply for PSLF and have their loans forgiven if they qualify.
- End to garnishment. The Education Department can garnish wages, Social Security benefits and tax refunds as a result of federal loan default. When these loans are rehabilitated under Operation Fresh Start, wage garnishment will end on these loans. This helps affected borrowers improve their cash flow.
- PSLF waiver. Concerns about inequality regarding the expanded PSLF waiver are likely to be addressed with Operation Fresh Start. Since many disadvantaged populations have a higher rate of default, there were concerns that they might not be eligible for the expanded PSLF program. But, thanks to automatic rehabilitation, these borrowers might gain access.
Borrowers in default don’t need to take any action to benefit from Operation Fresh Start. Defaulted loans will be automatically rehabilitated.
Check the status of your loans by visiting the National Student Loan Data System. When reviewing your information, you should see your servicers, as well as whether your loans are in good standing or in default. Stay on top of your loan status to know when you’re eligible to apply for PSLF or income-driven repayment.
Don’t forget to double-check your credit report to ensure that a federal student loan default or delinquency has been removed from your file. If it hasn’t been removed, even though you’re no longer in default, contact the credit reporting agency to dispute the item.
What about other student loan relief?
The payment pause might be extended again, beyond the August 31, 2022, deadline. There’s speculation that the most recent payment pause is designed to provide more time for the Biden administration to explore further student loan relief and determine how they can implement other policies.
Talk of another income-driven repayment plan has been circulating, and many borrowers haven’t given up on some type of student loan cancelation, even if it amounts to $10,000 per borrower instead of blanket forgiveness.
The limited PSLF waiver is still in effect until October 2022, and there has been relief offered to borrowers with permanent disabilities.
We’ll continue to watch developments surrounding student loan relief. In the meantime, consult with a Student Loan Planner expert to help you figure out how to best manage your student loans.
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