First, remember that student loans are not discharged if you file for bankruptcy. Many types of personal debt can be discharged this way, but student loans are not one of them. If you fail to pay what you owe, aggressive collections measures may be taken.
Your loan is considered to be in default if you fail to pay for 270 days. During this time the lender will attempt to contact you and get payment. If, however, you cannot pay or the lender cannot contact you, the loan will be turned over to the Department of Education or the state guaranty agency for collection processes to begin. At this point, the entire balance of the loan is due and you can no longer make your monthly payments on it.
One way the collections process can attempt to collect what you owe is through wage garnishment. Your employer may be forced to send ten to fifteen percent of your income to the lender to pay down the loan. This can continue until the entire balance of the loan is paid. Similarly, treasury offset payments may be required. These are payments made with your tax refunds. In other words, the money you would normally receive as a tax refund will be sent to the Department of Education or the guaranty agency. Legal action can also be taken against those who refuse to pay back their student loans.
Defaulting on your loan has serious non-monetary consequences. If you have a professional license, such as a license to practice law, it could be revoked until you pay back your loan. Also, you will not be able to get any new funding. You may also have a serious blight on your credit score, making it difficult to find other financing that you may need in the future.
So what can you do if you are in a situation where you simply cannot pay back your loan? The best thing to do is talk to your lender. They may be able to work out an alternate repayment schedule for you. Loan rehabilitation programs are also available for loans that are already in default. If your lender is unwilling to work out a rehabilitation program with you, contact the Federal Student Aid Ombudsman's Office to help resolve the dispute.
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