A student loan forgiveness option closed early Wednesday and federal loan borrowers will no longer be able to sign up for the Fresh Start program.
Fresh Start allowed borrowers to get out of default, but the deadline to enroll was October 2 at 3 a.m. ET. Borrowers who got their loans out of default would be able to shield the impact of their debt on their credit report. And they’d also be able to apply to an income-driven repayment plan, which can potentially lead to lower payments if not full forgiveness.
“This is the last chance to use it to get back on track and potentially set up an affordable repayment plan. It’s time to get creative. Always look into all your options, like employer-sponsored programs, to help lighten the load and stay on course for a good financial future,” Tess Michaels, founder and CEO of recruitment platform Clasp, told Newsweek.
One of the income-driven repayment programs, SAVE, is facing legal challenges but has the ability to reduce monthly payments significantly or even lower them to $0.
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Originally, the Fresh Start program was scheduled to end on September 30, but the Education Department extended the deadline by two days because of website issues that could have prevented borrowers from taking advantage of the program.
Under Fresh Start, borrowers’ missed payments are not held against them by putting them in default or affecting their credit report. They are also able to avoid wage garnishment and Social Security payments withheld under the program.
The on-ramp period also came to an end this week.
While the federal government originally paused student loan payments during the COVID-19 pandemic, the on-ramp period allowed borrowers to ease back into paying their debt without missing or late payments causing them to go into default.
“Instead of moving forward with negative credit reporting, wage garnishment and other collection tactics, the on-ramp program prevented servicers from moving forward with these tactics,” Michael Lux, an attorney and founder of the Student Loan Sherpa, previously told Newsweek. “This protected borrowers who were confused by their repayment options or unable to track down their student loan servicer.”
That period ended, however, on Monday, meaning all missed payments in October will still count on your credit report and default status.
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, said the end of the Fresh Start and off-ramp period mean student loan borrowers will have to take more accountability for their monthly payments without assistance from the government.
“As with any financial product, there should be a level of responsibility in monitoring and paying for the loans you’ve taken out, but Fresh Start allows these student borrowers, often younger and not always aware of just what type of debt they’ve signed up for, to miss a payment without it tanking their credit score,” Beene told Newsweek.
“It allowed more opportunities for mistakes without the penalties that normally followed them. With Fresh Start ending, students will have to be on top of their monthly payments for student debt and make sure they’re meeting any deadlines put in place.”
Those who refuse to make payments on their loan starting this month will find their loan amount increased through interest. They’ll also lose the ability to qualify for other federal loan relief options like SAVE and financial aid in the future.
“Once a delinquency becomes a default, things get harder to fix and the consequences become more severe,” Lux said. “In most cases, the longer you wait, the worse things become. The on ramp made ignoring federal student loans nearly consequence free, but now that it is over, borrowers will need to take action.”
