What can the government do if a borrower defaults on federal loans?

When a borrower defaults on federal loans, one of the actions the government can take is to offset monthly federal benefits. This means that the government can deduct the amount owed on the defaulted loans directly from federal benefits such as Social Security payments or other federal assistance programs. This serves as a method of recouping the owed debt and ensures that the government can recover funds it is owed from borrowers who have failed to repay their loans as required.

The other options provided do not accurately reflect the actions available to the government in the event of a borrower defaulting on federal loans. Reducing loan amounts is not typically a measure taken after default; loans tend to remain as initially contracted unless specific circumstances warrant a revision. Forgiving all debts immediately lacks the structure of federal loan protocols, as forgiveness often requires specific criteria to be met, which is not a direct consequence of default. Finally, canceling existing loans isn't a standard procedure for defaults, as the loans remain the responsibility of the borrower until properly resolved through repayment, forgiveness, or other mechanisms defined by law.