What happens if you Default on your Federal Student Loans?
When a student loan is in a default status, the borrower loses all federal rights these loans hold. The government has powerful tools to use against borrowers who do not make student loan payments.
Once your loan goes into default status, the non-payment of the loan will affect your credit score, as well as preventing you from getting additional federal student loans.
How will this impact me financially?
TAX REFUND OFFSETS
The US Department of Education works alongside the IRS and will intercept your income tax refund that you may be entitled to until your federal student loans are paid in full. This is one of the most popular methods of collecting on defaulted loans, and the US Dept of Education collects annually hundreds of millions of dollars.
The US Department of Education also works alongside the Department of Labor and if a loan is in a default status, they will contact your place of employment and garnish your paycheck without previous notice nor do they need a court order.