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Student loans: Borrowers in default get a second chance

Yahoo Finance's Ronda Lee explains changes to the student loan fresh start program and how borrowers in default may have additional options.

Video Transcript

[AUDIO LOGO]

- Prior to the pandemic, seven and 1/2 million student loan borrowers were in default. In April, the Education Department announced an initiative to get default borrowers in good standing through its Fresh Start program. Yahoo Finance's Ronda Lee here with more details on this. Ronda, nice to see you. So how is the Fresh Start program different from what was previously available to borrowers?

RONDA LEE: So previously, borrowers had to have at least nine on-time payments before they could get out of default status. Due to the pandemic and the forbearance pause, those payments of zero will count towards that nine.

So it's useful for people who are, like, they've been struggling, they couldn't do it. So now, you can use those payments to do it. Also, the forbearance-- the Fresh Start program allows people to restore their eligibility for student aid, and it removes default from their credit history and also the credit alert system for mortgage lenders.