student graduates, withdraws, or drops below half-time attendance in school. Consequences of Defaulting on a Loan After a loan has been in default for 270 days (meaning no payment has been made) and the loan agency is unable to collect the loan, the loan is turned over to the state's guarantor. The loan may become "accelerated," meaning the entire balance will be due in a single payment. The following steps may be taken in order to collect the loan. The United States Department of the Treasury may offset federal and/or state tax refunds. The Department may also require an employer to garnish 15% of disposable employee pay to be put toward repayment of the loan. Additional collection costs may be assessed. Legal action may be taken against the defaulted borrower. And finally, the credit bureau may be notified, resulting in a damaged credit rating. [2] Options for Defaulted Borrowers Through the VFA proposal, borrowers who previously defaulted on their loans are able to enter a rehabilitation process and clean up their credit reports. [3] In the loan rehabilitation process, borrowers can reverse their delinquent status by making nine voluntary, on-time, consecutive payments. Borrowers can also get assistance in re-establishing eligibility for federal student aid. See also Surety American Student Assistance Student Loan Guarantor Cohort Default Rate References [1] American Student Assistance. Voluntary Flexible Agreement Report 2007. © 2007. [2] Federal Student Aid. Retrieved on October 8, 2008. [3] USA Funds Education Access Report. Retrieved on October 3, 2008. External links Department of Education's notice to guarantors to participate in VFA Cornell University School of Law Department of Education Amendments to the Higher Education Act of 1965 United States Congress United States federal education legislation