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- The New York Fed found that $34 billion in delinquent student loans were marked current in the last quarter of 2022.
- That's thanks to Biden's "Fresh Start" plan, which aimed to restore defaulted borrowers to good standing.
- The plan will remain in place for a year after student-loan payments resume.
President Joe Biden's broad student-loan forgiveness may be paused, but another relief plan is working.
On Thursday, the New York Federal Reserve released its quarterly report on household debt and credit, which analyzes how consumers are faring with various forms of debt. While it found that total debt balances grew by $394 billion in the fourth quarter of 2022, with mortgage and credit card debt driving the increases, student loans were not a significant contributor to the increase.
In fact, student-loan borrowers who were previously behind on their payments — or delinquent — saw their conditions improve in the last quarter thank to President Joe Biden's "Fresh Start" plan. The plan, first announced in April 2022, would return the approximately 7.5 million borrowers in delinquency or default to good standing before they would have to reenter repayment, allowing them to access targeted forgiveness and repayment plans like Public Service Loan Forgiveness and income-driven repayment.
The New York Fed report found that less than 1% of the total student-debt load was delinquent or in default for more than 90 days in the fourth quarter. "The sharp drop in the student debt delinquency reflects the beginning of the Fresh Start program, which marked over $34 billion defaulted loans as current, amid the continued repayment pause on student loans," the report said.
Defaulting on debt can have severe consequences, like wage garnishment and seizure of federal benefits, and Under Secretary of Education James Kvaal previously said that "defaulting on your student loan is about the farthest thing from a get-rich-quick scheme. It's more like a stay-in-debt-forever scheme."
"By and large, borrowers who default on their loans are people who have been failed by the policies and lagging investments in college affordability," Kvaal said. "They provide the most compelling evidence that the student-loan system needs fundamental change."
In December, the Federal Student Aid office released guidance for the for the private agencies that hold defaulted borrowers' debt, instructing them to hold off on their collection efforts for a year after the student-loan payment pause ends to to allow borrowers to take advantage of the Fresh Start program.
As Insider previously reported, though, this relief is not automatic. Borrowers will need to take action to make use of the program, either by visiting myeddebt.ed.gov, contacting their student-loan company, or calling the Default Resolution Group at 800-621-3115.
Student-loan payments are currently set to resume 60 days after June 30, or 60 days after the lawsuits blocking Biden's broad debt relief are resolved, whichever happens first. The Supreme Court will be hearing oral arguments concerning the two conservative-backed lawsuits on February 28, and while some advocates have expressed concern that payments will resume without relief, the White House has maintained confidence in its legal authority and said it is not considering a backup plan at this time.