- The Education Department released details of a plan to help defaulted student-loan borrowers.
- Per the plan, borrowers will have one year once the payment pause expires to use the benefits.
- Here's how to know if your loans qualify, and what you would need to do next.
Millions of student-loan borrowers behind on payments just got new details on how they might be able to get relief.
After extending the student-loan payment pause for the fourth time, President Joe Biden's Education Department in April also announced what it calls a "fresh start" plan to restore 7.5 million borrowers in default to good standing before they would have to reenter repayment. Defaulting can have a range of severe consequences on a borrower, like wage garnishment and the seizure of federal benefits like Social Security.
On Wednesday, the Federal Student Aid office released additional details of the plan, including terms for qualifying and how to access the benefits. It comes after James Kvaal, the Under Secretary of Education, expressed the need to implement further aid for defaulted borrowers.
"Defaulting on your student loan is about the farthest thing from a get-rich-quick scheme. It's more like a stay-in-debt-forever scheme," Kvaal said.
"By and large, borrowers who default on their loans are people who have been failed by the policies and lagging investments in college affordability," Kvaal added. "They provide the most compelling evidence that the student-loan system needs fundamental change."
The benefits from the plan are set to last one year after the student-loan-payment pause expires, which is currently set for Aug. 31. While there's speculation the pause will be extended again, borrowers do not yet have an update from Biden with less than two weeks until the expected payment resumption, meaning the plan will begin on Sept. 1 based on current timelines.
Do my student loans qualify?
First, to determine if you qualify for the plan you must be in default on one of these types of loans:
- William D. Ford Federal Direct Loan Program loans
- Federal Family Education Loan (FFEL) Program loans that are owned by either the department or are privately held
- Perkins Loans held by the department
If you hold one of these types of defaulted loans, you will not be eligible for the plan:
- School-held Perkins Loans
- Health Education Assistance Loan Program loans
- FFEL loans that defaulted after March 2020 and were included in the department's expanded COVID-19 relief flexibilities, during which the payment pause expanded its scope to include those loans and stop collections, returning them to good standing
My loans qualify. What do I need to do next?
Once student-loan payment resumption begins, you will have one year to start making payment arrangements through one of the following routes:
- Visit myeddebt.ed.gov
- Contact your student-loan company by phone or in writing
- Call the Default Resolution Group at 800-621-3115
Once you determine a plan for entering repayment, the department will transfer your loans to a non-default student-loan company and remove your default status from your credit reports. As the fact sheet noted, if you do not make payment arrangements within the one-year timeframe, your debt will be subject to the consequences of default once the year ends, which could include wage garnishment, seizure of federal benefits, and credit reporting.
What benefits will I receive through this plan?
If your defaulted loans qualify for the plan, you should be able to benefit from the following:
- Access to repayment plans like income-driven repayment, and targeted loan forgiveness through programs like Public-Service Loan Forgiveness
- Access to federal student aid to continue or complete college, which requires an application
- No collection efforts during the one-year timeframe, including wage garnishment and seizure of federal benefits
- Reporting of all defaulted loans as "current" and not in collection status and deleting reporting on loans that have been delinquent for more than seven years