A crucial deadline is coming up for borrowers with commercially held federal loans and those who were in delinquent status before the pandemic payment pause.
Borrowers with commercially held federal loans have until Dec. 31 to consolidate their loans to qualify for the one-time payment adjustment, which can help them get closer to or achieve a discharge through their income-driven repayment (IDR) plan.
For borrowers in default, Dec. 31 is also the deadline to enroll in the Fresh Start program to get in good standing to be eligible for the one-time payment adjustment and to qualify for an income-driven repayment plan that could lower their monthly payment.
These borrowers must take the following steps by the end of the year.
Read more: How to apply for IDR forgiveness
Borrowers with commercially held federal loans
The majority of loans through the Federal Family Education Loan (FFEL) program are commercially held because the program and Education Department worked with private lenders to provide student loans guaranteed by the federal government.
But these loans don’t qualify for some federal student loan relief programs, like the one-time payment adjustment, which counts certain months that were previously ineligible for student loan forgiveness such as time in forbearance, deferment, or payments before consolidation.
Similarly, Health Education Assistance Loans, or HEAL loans, are treated the same as commercially held FFEL loans for the one-time payment adjustment.
The only way for borrowers with these loans to qualify is to consolidate into a Direct Consolidation Loan.
To do so, first find out if your FFEL loan is commercially held or held by the Education Department. Log in to your StudentAid.gov account and view the “My Loan Servicers” section of your dashboard.
If the servicer name starts with “ED,” your loan is held by the Education Department and you do not need to do anything as the one-time payment will be automatically processed for loans held by ED. If not, then the loan is commercially held and you need to consolidate to qualify for the one-time payment adjustment.
Read more: Student loan issues? Here’s how to file a complaint with the Department of Education
To consolidate, you can only file for direct loan consolidation on the Federal Student Aid website at https://studentaid.gov/loan-consolidation/. There is no fee to apply and the application takes about 30 minutes to complete.
Due to the restart of payments, loan consolidation can take several weeks to process. After you complete your application, a loan servicer processes it. The loan servicer processing your consolidation application may be different from your current loan servicer.
You should continue your monthly payments with your current loan servicer until you are notified that your consolidation application is complete.
After your loan is consolidated, you may have a new loan servicer.
Read more: Should you refinance your student loans?
Borrowers in default
Borrowers in default also are up against the clock. That’s where the Fresh Start program comes in.
Announced last year, the one-time, free temporary program is an initiative to get default borrowers back into good standing and qualify for other relief programs that could help them meet their debt obligations.
For instance, borrowers in Fresh Start can move from their default loan servicer to a regular loan servicer, making them eligible for forbearance, deferment, and income-driven repayment (IDR) plans, where a monthly payment of $0 counts as payment.
Getting their loans in current status can also remove default from their credit reports and stop collections, collection fees, and wage garnishments.
Borrowers with William D. Ford Federal Direct Loan, Perkins Loan, and Federal Family Education Loan (FFEL) loans that are owned by ED or commercially held are eligible for Fresh Start, according to the Federal Student Aid (FSA) Fresh Start Fact Sheet.
“Before the pandemic, 7.5 million borrowers were in default and normally the rehabilitation of default loans requires at least nine on-time payments,” Mark Kantrowitz, author and student loan expert, previously told Yahoo Finance. “The pandemic forbearance payment pause applies towards the required on-time payments, helping to get default borrowers in good standing.”
Borrowers have two options to get into the Fresh Start program.
The first path is for borrowers to return to school before Fresh Start ends on Dec. 31. The school will then process the Fresh Start paperwork for the borrower.
The second way is for borrowers to contact the Education Department or your loan servicer to register for the program by Dec. 31. If you have been in default for more than 360 days, you may have a default loan servicer or had your loan sent to a guaranty agency.
If your loans are held by ED you can start the process three ways:
Online at https://myeddebt.ed.gov/, or
Phone at 1-800-621-3115 or if you are deaf or hard of hearing, the TTY number is 1-877-825-9923), or
Mail at P.O. Box 5609, Greenville, TX 75403 with your name, social security number, date of birth, and stating that you want to use Fresh Start to bring your loans back into good standing.
If you’ve been in default for more than 360 days, Maximus Services Inc. processes these federal loans. If Maximus isn’t your federal default loan processor, it may have been sent to a guaranty agency.
A list of guaranty agencies that ED uses can be found on the default website and below.
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government.