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Most student loans are backed by the federal government. The federal government has extraordinary powers to collect defaulted student loans if you don’t pay. It can seize tax refunds, deny you any new federal student loans and grants, garnish a percentage of your wages without a court order, charge you very large collection fees, and even take a portion of your Social Security benefits. To make matters worse, there is no time limit for collection on federal student loans. The government can keep trying to collect for twenty, forty, or even more years.

Consequently, federal student loans require your immediate attention, both because of the federal government’s special collection powers and because of the special rights you have to cancel, reduce, or delay your payment obligations. However, these special rights require you to take action to request them—you cannot wait for the government or the loan collector to offer these options to you.

These special collection tactics and student rights apply only to federal student loans and not loans made by your school, a bank, or another financial institution without any backing from the federal government. Those other loans are called private student loans. How you deal with private student loans will differ greatly from how you deal with federal student loans. Private student loans are discussed at the end of this chapter.