Biden-Harris Administration introduces new option for incarcerated borrowers to resolve default status

The U.S. Department of Education (Department) has introduced a new opportunity for incarcerated borrowers to emerge from default through consolidation, offering them avenues to enhance their credit profiles and access better repayment options than ever before. Individuals who held student loans prior to incarceration can now consolidate their loans to exit default, enabling them to access certain types of loans—such as Perkins Loans and commercially held Federal Family Education Loan Program (FFEL) loans—and qualify for income-driven repayment (IDR) plans like the Saving on a Valuable Education (SAVE) Plan. Incarcerated borrowers have the opportunity to enroll in Fresh Start until Sept. 30, 2024, as an additional avenue to exit default, a new option that allows for loan consolidation instead of the previously required loan rehabilitation process.

The Department has implemented various initiatives to assist incarcerated students and borrowers in starting anew, including the adoption of new Prison Education Program (PEP) regulations in July 2023. Building upon the success of the Second Chance Pell program that provided Pell grants to over 40,000 students, the expanded availability of federal financial aid will now give even more students access to Pell grants. PEPs enable students to pursue education, access Pell grants, and obtain federal student loans while incarcerated, building upon the foundation laid by the Second Chance Pell Experimental Sites Initiative established during the previous administration. Through PEPs’ expanded access to Pell grants, the Department aims to reach over 760,000 incarcerated individuals and anticipates approving a minimum of 50 PEPs by 2025. Collaborating with various entities including the U.S. Department of Justice’s Bureau of Justice Assistance, the Federal Bureau of Prisons, and the Vera Institute of Justice, 47 states, the Bureau of Prisons, and Puerto Rico are now accepting applications for PEP programs.

In recognition of Second Chance Month, U.S. Secretary of Education Miguel Cardona visited the Second Chance Pell program at Cheshire Correctional Institution in Cheshire, Connecticut, as part of today’s announcement. This visit highlighted the Department’s commitment to providing incarcerated individuals with educational opportunities and a fresh start.

“Every individual deserves the chance to unlock their full potential, yet many incarcerated individuals are deprived of this opportunity,” stated U.S. Secretary of Education Miguel Cardona. “By expanding repayment options for student loan borrowers who are incarcerated, the Department of Education is taking a critical step towards helping them reclaim their lives and reshape their futures.”

If an individual had student loans before incarceration, they can consolidate their loans by contacting their student loan servicer, unless they are currently enrolled in a program like PEP or SCP. The Department advises borrowers in default to consider enrolling in Fresh Start, an initiative that facilitates exiting default and reinstating current repayment status automatically. The enrollment deadline for Fresh Start is Sept. 30, 2024. Remaining in default could prevent borrowers from accessing relief measures and could lead to serious and prolonged financial consequences.

Prior to this announcement, incarcerated borrowers with non-Direct Loans faced limited options to exit default. With this new policy, such borrowers now have a more straightforward pathway out of default, preventing adverse credit reporting and paving the way for improved financial prospects in the future. The Biden-Harris Administration remains committed to providing individuals in incarceration with a fresh start and enhancing the affordability of federal student loans for all.

To learn more about loan consolidation, borrowers can visit StudentAid.gov. Information about Fresh Start is available at StudentAid.gov/freshstart, and details about the SAVE Plan can be found at StudentAid.gov/SAVE.

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