The IRS can withhold a tax refund for someone who has not paid their student loan debt. They can do this until the student loan is paid in full. This method is one of the government's most-effective ways to collect hundreds of millions of dollars a year.
The federal government also can go after your paycheck. According to the law, it is allowed to take a maximum of 15 percent of the individual's disposable income and no more than 30 times the current federal minimum wage.
The government can collect on a defaulted student loan by reimbursing itself through the individual's Social Security benefits, but not their Social Security income. According to the law, the government can take up to any amount that leaves the individual $9,000 a year or $750 a month. The government cannot collect more than 15 percent of an individual's benefit.
The government has the option of suing for the money owed on a student loan. There are no limits to how much the government can sue for, and individuals can be sued indefinitely.
If you need assistance with a defaulted loan, call the Department of Education's Ombudsman at (877) 557-2575, as of 2009. You can also go to www.fsahelp.ed.gov to learn the steps to take to avoid government action. The ombudsman will not help unless an individual has taken some prior steps to resolve the issue.