More than 7.5 million borrowers enrolled in the Fresh Start program to get caught up on their defaulted student loans. If you're one of them, you may have wondered how the program will affect your credit report, but don't worry we'll explain it below.
Fresh Start enrollment ended this past October 3. Millions of student loan borrowers enrolled in the program in hopes of finally being able to pay off loans that, in some cases, have been delinquent for years.
Fresh Start has multiple benefits, including the possibility of entering into an income-driven repayment (IDR) plan, lowering your payments to $0 in some cases, and accessing student loan forgiveness programs. What hasn't been talked about much is how this affects your credit report.
What will happen to your credit report now that you are in Fresh Start?
You can now breathe easily. Enrolling in Fresh Start will improve your credit rate, with all the benefits this entails, rather than hurting your credit report.
If you entered the program, the Department of Education will return the status of your loans from "in default" to "in repayment" or from "in collection" to "current." This change will erase the negative marks from your credit report.
In some cases, this allows debtors to obtain a better credit rating, allowing them to access lower interest rates and more favorable terms on other loans.
What other benefits does Fresh Start offer?
By entering the program, you will prevent the government from garnishing part of your salary to pay the debt. You will also prevent them from withholding your tax returns, child tax credits, and Social Security payments, including disability benefits.
However, remember that to continue receiving these benefits you must remain current on your payments. Keeping your finances healthy isn't just a matter of luck it takes effort and discipline, but the rewards are just as great.