As expected, the Department of Education introduced a new program, “Fresh Start,” designed to aid borrowers who have defaulted on their student loans.
VantageScore previously released information regarding score impact of allowing all borrowers with paused loans to receive a “fresh start” on repayment by eliminating repercussions of delinquency and default and allowing them to re-enter repayment in good standing.
More details are now known about the specifics of the program. To help borrowers and lenders understand these changes, VantageScore has developed a helpful FAQ document that explains how scores may potentially be impacted by the program.
MOST SCORES WILL IMPROVE: With the VantageScore 3.0 model, most borrowers impacted by the launch of the Fresh Start program will experience a score increase, averaging more than 30 points. However, some borrowers are expected to experience an initial decline in their VantageScore credit score, averaging about 15 points. With the VantageScore 4.0 model, a larger percentage of borrowers may see a negative change averaging less than 30 points.
REPAYMENT: If student loan borrowers opt-in to take advantage of repayment plans accessible through the Fresh Start program, such as income driven repayment (IDR) plans, their scores may increase by an average of 30 to 50 points, depending on whether VantageScore 3.0 or VantageScore 4.0 is used.
STAYING CURRENT: Borrowers able to make payments should see continued and increasing positive impacts on their VantageScore credit scores over time, likely averaging 60 to 70 points, depending on the model version, at the end of 12 months. However, the positive effects will be more muted when the program’s repayment plans, such as Income-Driven Repayment, do not require payments to be made or do not lead to reductions in outstanding balances.
