Biden's plan to give millions of student-loan borrowers who fell behind on payments a fresh shot at debt relief is working

• Biden announced a "Fresh Start" plan to return borrowers behind on payments to good standing before reentering repayment.
• Data from the New York Fed found less than 1% of borrowers are in default due to the plan.

We just got another sign that President Joe Biden's plan to restore student-loan borrowers behind on payments to good standing is working.

The New York Federal Reserve recently released its report on household debt and credit for the first quarter of 2023 — and it reported some promising signs for Biden's latest reforms to the student-loan industry. Specifically, it took a look at the impacts of Biden's "Fresh Start" plan, first announced in April 2022, that aimed to return about 7.5 million borrowers in delinquency or default on their student loans into good standing before they would have to reenter repayment. This would allow them to take advantage of federal relief programs, like income-driven repayment plans and Public Service Loan Forgiveness.

Borrowers who have federal loans held by the government qualify for this program. They can contact their student-loan company to access the program, and once they determine a plan for entering repayment, their loans will be transferred to a non-default student-loan company and the default status will be removed from their credit reports.

In the first quarter of 2022, the New York Fed found that 1.05% of balances were in serious delinquency, defined as 90 days or more delinquent, but in the first quarter of 2023, that percentage declined to 0.94%.

This progress is important given that student-loan payments are expected to resume this year after what will be an over three year pause. Currently, those payments are set to resume 60 days after June 30 or 60 days after the Supreme Court issues a final decision on the legality of Biden's broad plan to cancel up to $20,000 in student debt for federal borrowers, whichever happens first. At that time, many of those who were previously in default will have been returned to good standing in time to restart those payments.

"We're confident, Senator, that the Supreme Court will rule in favor of the targeted debt relief, providing relief for millions of borrowers, and we want to make sure that the information that borrowers get is accurate. We do plan on making sure it's a smooth reentry to repayment." Education Secretary Miguel Cardona said last week.

"The emergency period is over, and we're preparing our borrowers to restart," he added.

The Education Department is also in the process of implementing a new income-driven repayment plan, which it says would be "the most affordable repayment plan ever." But as Insider recently reported, the range of reforms the department is seeking to implement could be jeopardized by a lack of increased funding from Congress.

"As we're gearing up for this return to repayment, we're seeing servicer call-center hours cut back, staffing cut back, and also borrower accounts being transferred to new servicers who will have to be in contact with those borrowers to let them know at some point, hey, this system is turning back on, we expect you to start making payments on your student loans," Jared Bass, the senior director of higher-education policy at the think-tank Center for American Progress, previously told Insider.

A group of Democratic lawmakers also warned in an April letter that ending the payment pause without additional relief could result in "a devastating spike in delinquencies and defaults" — and consequences would build without increased funding.

"Without additional funding, it is also unclear if FSA has the resources to restore the seven million federal student loan borrowers from default to good standing through the Fresh Start program or process borrower defense applications from students who attended schools that misled them," they wrote.