Fresh Start Program Effects on FICO® Scores
If you are one of the thousands of borrowers who've had challenges with repayment of your federal student loans on time, a recently announced Fresh Start program by the U.S.
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Fresh Start is designed to provide payment aid programs for federal education loans. If you are one of the thousands of borrowers who've had challenges with repayment of your federal student loans on time, a recently announced Fresh Start program by the U.S. Department of Education may be of interest. The program is designed to provide certain borrowers in default on their federal student loans with a clean slate as payment relief programs for federal education loans offered during the covid pandemic are coming to an end.
Based on our current understanding, under Fresh Start, borrowers whose federal student loans were in default prior to the pandemic were reported as a “current” status in December 2022. For those who agree to a repayment plan, defaults of federal student loans (and the delinquencies leading up to such defaults) will be removed from consumers’ Equifax, TransUnion, and Experian credit reports.
Eligible borrowers include those whose loans were eligible for the payment pause and interest waiver – including loans in the Direct Loan program, Federal Family Education Loan (FFEL) loans made under the Ensuring Continued Access to Student Loans Act in 2008-09 and 2009-10, and defaulted FFEL loans held by a guarantee agency on behalf of the federal government.
What impact will Fresh Start have on FICO® Scores?
The impact to a FICO® Score will depend on a variety of factors, including the borrower's overall credit profile as well as how the borrower subsequently performs on the student loan(s) included in Fresh Start. Based on our current understanding of how the U.S. Department of Education intends for these accounts to be reported to the CRAs, we believe that many borrowers who enroll in Fresh Start are likely to experience score increases over time, resulting from the past delinquency and default information being removed from their credit files. Those consumers with little to no delinquency information in their credit file aside from the student loans in question likely stand to gain the most from enrolling in the Fresh Start program.
This may help these borrowers qualify for new credit and reduce the interest rates they pay on other debt, such as credit cards, auto loans and mortgages.
The U.S. Department of Education is still working on finalizing all the details. Enrollment into the Fresh Start program is free. After being enrolled, you may want to get a free copy of your credit reports from www.annualcreditreport.com to confirm that the delinquencies and defaults have been removed from your credit history. To get more information, visit the StudentAid.gov website, contact your student loan servicer, or call the U.S. Department of Education's toll-free hotline at 1-800-4-FED-AID (1-800-433-3243).
The U.S. Department of Education will notify eligible borrowers directly, so make sure your contact information is up to date with the loan servicer and on StudentAid.gov.
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Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.