What can happen if a borrower defaults on federal debt?

When a borrower defaults on federal debt, one of the consequences they may face is the incurrence of fines and penalties. This is because federal loans come with specific terms and conditions, and failing to meet those obligations can trigger various financial repercussions. Federal agencies may impose additional fees, and the borrower could be subjected to collection efforts, which might further increase their financial burden.

Moreover, defaulting on federal debt can have significant implications for one’s future borrowing capacity and financial stability. Federal loans often have programs to help borrowers avoid default, but if these measures are not utilized and the borrower defaults, they become liable for not just the loan amount, but also any additional costs incurred due to that default.

The other options suggest outcomes that are unlikely or inaccurate in the context of federal debt. For instance, loan forgiveness is not guaranteed upon default, nor does defaulting lead to unaffected credit scores; in fact, it typically has a negative impact on credit. Additionally, debts are not automatically discharged upon default; the borrower remains responsible for repaying the amount owed, and legal action can sometimes be taken to recover those funds.