It’s been a good time for student loan borrowers lately. Not only did the Biden administration just announce a partial loan forgiveness policy, but the Department of Education’s (ED) Fresh Start initiative is giving some borrowers who defaulted on their federal loans before or after the pandemic payment pause another chance for Title IV aid eligibility.
In August, ED shared a Dear Colleague Letter to provide guidance on awarding federal student aid to students with defaulted Title IV loans who qualify to have their eligibility for aid restored through Fresh Start. Perhaps the biggest takeaway for institutions is the information that if they receive an Institutional Student Information Record (ISIR) for a borrower in default, the institutions must process Title IV aid for the student — previously, this point was unclear.
Read on for a summary of the letter and key points to Fresh Start. We recommend institutions fully review and understand the initiative, as students are beginning to inquire about it and soon will be informed if they are eligible.
Eligibility
Fresh Start will be available to eligible borrowers for one year after the end of the COVID-19 pandemic payment pause, which currently runs through December 31, 2022.
Upon receiving an ISIR or student request for aid, institutions must take two items into consideration:
- Is the defaulted loan Fresh Start-eligible? There are three such loans: Federal Direct Student Loans, Federal Family Education Loans (FFEL), including Federal Insured Student Loans, and Federal Perkins Loans that are serviced by ED’s Debt Management and Collections System.
- When was the borrower’s default date for the eligible loan? The required documentation will differ, depending if it was before or on or after March 13, 2020.
Documentation requirements
- Defaults before March 13, 2020: The Title IV aid may be awarded in accordance with all normal student and program eligibility requirements, with two further stipulations:
- Institutions must maintain a screenshot of the National Student Loan Data System (NSLDS) loan detail information showing the default date. This must be retained in the student’s file for three years after the end of the award year in which the student last attended the institution.
- Institutions must retain a signed and dated acknowledgement from the student or parent (only if applying for a Direct PLUS loan) of participation in Fresh Start, using the following language:
“I, [full name], understand that I am eligible for Title IV aid as a result of the Fresh Start initiative. As a Fresh Start-eligible borrower, I understand that, by accepting Title IV HEA federal student aid during the Fresh Start period, I am agreeing to have my defaulted loans transferred to a new loan servicer – the company that will manage my loan – which will result in continued Title IV, HEA federal student aid eligibility beyond the Fresh Start period. I understand that this transfer may not occur immediately and that I can contact the holder(s) of my defaulted loan(s) to request transfer sooner.”
This acknowledgement also must be retained in the student’s file for three years after the end of the award year in which the student last attended the institution.
- Defaults on or after March 13, 2020: These students are primarily FFEL borrowers, who are automatically eligible for Title IV aid, provided their defaulted loans are held by guaranty agencies that are not subject to an active bankruptcy filing. This is “Population 2,” described in DCL GEN 21-03. Institutions that receive an ISIR for a student whose loan is in this population must retain a screenshot of the NSLDS loan detail information showing the default date and retain the information in the student’s file for three years after the end of the award year in which the student last attended the institution.
Additionally, in a recent update, NASFAA highlighted that if a financial aid administrator is considering denying Direct Loan eligibility to a Fresh Start-eligible borrower, they must use their professional judgement authority on a case-by-case basis and document the decision in the student’s file.
The weeks to come
We expect financial aid departments will receive a heavy amount of interest in the Fresh Start initiative, so they must be informed about the eligibility and documentation requirements. We’re here to help. Schedule a call with our team today with any questions and how we can help your financial aid department.
