Fresh Start Initiative Guidance to Guaranty Agencies

Dear Colleague:

On April 6, 2022, the U.S. Department of Education (Department) announced the “Fresh Start” initiative that would eliminate negative effects for federal student loan borrowers who are in default. In August, the Department began implementing the initiative. A general fact sheet about the initiative is linked below.

Guarantor obligations provided herein to implement the Fresh Start initiative will be in place for one year following the pandemic payment pause.

FFEL Program borrowers who defaulted prior to March 13, 2020, are eligible to participate in the Fresh Start initiative and will have one year following the pandemic payment pause to contact the GA to request transfer to Nelnet or request Title IV aid from an eligible school. Borrowers eligible for Fresh Start who contact the GA to have their loans transferred to Nelnet must be assigned to DMCS and will be referred to herein as Fresh Start (FS) borrowers. Borrowers eligible for Fresh Start can also request Title IV aid at an eligible school without contacting the GA to be considered a FS borrower. Those FS borrowers who received Title IV aid will be identified in a COD/NSLDS match by the Department beginning in the Spring of 2023 and, upon notification to the holding GA, must subsequently be assigned to DMCS for transfer to Nelnet. Borrowers eligible for Fresh Start who do not take the action needed to become a FS borrower during the one-year period following the pandemic payment pause will subsequently be subject to collection activity from the holding GA, as their defaulted loans will no longer be in abeyance.

Borrowers who defaulted on or after March 13, 2020, and before the cessation of the pandemic payment pause, are still subject to special mandatory assignment in accordance with GEN 21-03. Borrowers who default after the pandemic payment pause will not be eligible for the Fresh Start initiative and will be subject to collections in accordance with 34 CFR 682.410(b)(6) and (b)(9).

GAs must notify borrowers eligible for Fresh Start (those who defaulted on their FFEL loans prior to March 13, 2020) of their right to request the transfer of their defaulted loans to Nelnet. Communications with the borrower should also include a request for information, while awaiting assignment to DMCS, that will assist with the transfer to Nelnet. The following is a high-level description of data elements the GA must attempt to gather and provide to DMCS upon assignment:

In addition, in a reasonable time after the Department announces that the Fresh Start period will end (and before it does end), GAs must notify affected borrowers whose loans are still with the GA that the opportunity to have their otherwise defaulted loans transferred to Nelnet will be ending and explain how they can prepare for repayment or collections to resume should they not request a transfer. The Department will later inform GAs about how to notify borrowers about the end of the Fresh Start period.

Detailed operational guidance will be provided in a separate communication.

In accordance with GEN 21-03, GAs will continue to maintain a reduced interest rate of 0% during the pandemic payment pause. Upon cessation of the pandemic payment pause, interest rates will resume and be charged in accordance with the law, the borrower’s promissory note, and any modifications to the loan agreement that were agreed upon by the GA.

For borrowers eligible for Fresh Start, all collections on loans made through involuntary collection methods (including administrative wage garnishment, Treasury offset, and state offset methods) will cease through the end of the Fresh Start period (one year following the end of the pandemic payment pause).

For borrowers who default after the pandemic payment pause, TOP will be suspended for 6 months following the end of the pandemic payment pause, whereas AWG can be initiated immediately following the pandemic payment pause.

Please note that the Department has instructed the U.S. Department of Treasury (Treasury) to suspend offset against all borrowers whose loans are managed by the GAs, regardless of when the GA certified the borrower for the Treasury Offset Program.

All collection attempts and other actions otherwise required by 34 CFR 682.410(b)(6) and (b)(9) on defaulted loans owed by borrowers who are eligible for Fresh Start will not occur through the end of the pandemic payment pause and of the Fresh Start period.

This prohibition does not prevent a GA from counseling borrowers about the terms of their loans, such as repayment plans that may be available if their loan is removed from default or the processing of voluntary payments. Indeed, we encourage such actions. However, it does prohibit a GA from requesting payment, demanding payment, or billing a borrower who is eligible for Fresh Start for one year following the pandemic payment pause.

Loan rehabilitations that occurred during the pandemic payment pause will not be counted as a borrower’s single opportunity to rehabilitate their loans. SMA borrowers who are in an unfulfilled rehabilitation agreement should be mandatorily assigned to the Department in accordance with
GEN 21-03. Borrowers eligible for Fresh Start who have entered into a rehabilitation agreement that will not be fulfilled prior to January 1, 2023, will be subject to Fresh Start provisions, including the provision that they are transferred to the Department upon request.

More detailed operational guidance will be provided in a separate communication.

Effective February 1, 2023, GAs will report all defaulted borrowers as current unless their first date of delinquency (FDD) – which is not the same as their default date – is more than seven years ago. If the FDD is more than seven years ago, GAs must delete the borrower’s tradeline. If a borrower elects to have their loans transferred to Nelnet, the GA will delete the tradeline upon assignment to DMCS and a new tradeline will be established by Nelnet. If a borrower does not request a transfer to Nelnet during the Fresh Start period, after it ends the GA will report delinquent/defaulted with the original FDD (so that the debt does not restart the seven-year clock).

GAs will not be expected to perform retroactive tradeline updates.

Borrowers are allowed to consolidate during the Fresh Start period. GAs can no longer assess a 2.8% borrower fee effective January 1, 2023. However, GAs can reimburse themselves from the Federal Fund for up to 10% for a consolidation. This is an increase from the reimbursement of 7.2% as per
GEN 21-03.

The GA should resolve any borrower dispute issues before assigning a FS borrower to DMCS. GAs should not transfer loans that are pending discharges (such as discharges because of death, disability, False Cert, Borrower Defense Discharge, or Closed School). The GA can assign both loans that are subject to special mandatory assignment in accordance with GEN 21-03 and FS borrowers to DMCS in the same assignment files. GAs can begin scheduling the assignment of FS loans when contacted by the borrower for transfer to Nelnet; priority should be given to FS borrowers who have elected transfer and SMA transfers should continue. More detailed operational guidance on transfers will be forthcoming in a separate communication.

The Department will exercise its discretion in 34 CFR 682.409(c)(6) to permit GAs to assign loans to the Department without the documentation that is typically required.  The Department will work with Guaranty Agencies to determine a schedule for collateral delivery. Loans that are currently subject to a bankruptcy filing would normally remain with Guaranty Agencies; however, for FS borrowers electing to transfer to Nelnet, all loans shall be transferred, including those in active bankruptcy.

Normal mandatory assignments will not resume until all FS borrowers electing transfer and all SMA loans have been assigned to and acknowledged by DMCS as having been successfully loaded and have been successfully transferred to and acknowledged as loaded by Nelnet for non-default servicing.

GAs can expect the reimbursement of lost revenue model, as defined in GEN 21-03, to continue through the end of the pandemic payment pause. After the end of the pandemic payment pause, GAs will be reimbursed based on the original principal outstanding as of the end of the payment pause multiplied by 0.7% for an annual amount that will be paid on a quarterly basis. This process is similar to the method used for Account Maintenance Fees, which is calculated and paid quarterly. This amount would be in addition to the Account Maintenance Fee of 0.06% already provided to GAs. Borrowers who default after the pandemic payment pause will be subject to collections in accordance with 34 CFR 682.410(b)(6) and (b)(9).

In addition to those waivers that will be necessary to facilitate the above actions, which will be in a forthcoming Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act Federal Register Notice, the Department will waive the following statutory and regulatory provisions for federal fiscal years that overlap at least partially with the national emergency:

We thank the Guaranty Agencies for their interest and cooperation in helping borrowers receive a Fresh Start to ensure greater financial security and their continued pursuit of a higher education. If a GA has questions about implementing the provisions in this letter, please contact Charee.Champ@ed.gov or Jerry.Wallace@ed.gov.

Sincerely,

Richard Cordray
Chief Operating Officer
Federal Student Aid

The Department of Education strives to make all content accessible to everyone. While this document does not currently meet the standards of Section 508 of the Rehabilitation Act of 1973, as amended, Federal Student Aid is working to create an accessible version. If you need access to this document before the accessible version is available, please contact the Information Technology Accessibility Program Help Desk at ITAPSupport@ed.gov to help facilitate.

Fact Sheet: “A Fresh Start for Borrowers with Federal Student Loans in Default” in PDF Format, 5 Pages, 168KB

Source:
DCL: (GEN-22-16) Fresh Start Initiative Guidance to Guaranty Agencies (GAs)