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Default is the failure to repay a loan. Avoiding default requires careful planning on your part when making choices about your lifestyle while in college and throughout your entire repayment period.

The penalties for default include:

  • Loss of eligibility for federal funds to continue in school or return to school.
  • Notification of default sent to credit bureaus, damaging your credit rating and resulting in difficulty obtaining future loans for items such as a car or house.
  • Legal action and seizure of assets by the guarantee agency.
  • Garnishment of wages by a collection agency to pay all of the charges, costs, and attorney fees incurred by the lender.
  • Garnishment of federal and state income tax refunds to be applied to defaulted loans.&


There are severe penalties for fraud or misrepresentation in matters pertaining to federal financial aid programs. As warned on the Free Application for Federal Student Aid (FAFSA), submitting false or misleading information may lead to a fine of up to $20,000 and/or up to 5 years imprisonment.

Fraud may exist in any of the following manners:

  • Falsified documents or forged signatures.
  • Use of fictitious names or aliases, addresses, or Social Security numbers.
  • A pattern of misreported information from one year to the next.
  • Counterfeit Student Aid Reports (SARs).
  • False claim of independent status.
  • Stolen or fraudulently endorsed financial aid checks.
  • Embezzlement of financial aid checks or funds.
  • Kickbacks to receive grants, loans, or employment under the Federal Work-Study program.
  • Unreported prior loans or grants, and receipt of concurrent full grants during one award year.
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