There are many types of government loans out there ñ loans to go to school, to start a small business, and even to buy a house. It is considered a social service for the government to provide funding and financing to certain people in the community. World War II started the onslaught of social service programs to aid the people of the country. As time as gone on, these programs have been expanded considerably, much to the delight of the people they are helping. However, before anyone takes out government loans, it is important to understand exactly what they are getting into and what will happen if they default.
It is important to note the difference in government loans as opposed to conventional loans. For the most part, conventional creditors are limited as to what they can do to you if you default on a loan. This varies from state to state, but in Texas, a creditor must sue you to get any relief and, even then, most of your personal property is protected as well as your wages and retirement accounts. While some other states allow creditors to garnish your wages, this is fairly uncommon.
This is very much not the case when it comes to government loans. In fact, if you default on a government loan, there is little they can not do to you, short of throwing you in jail. They can and will garnish wages, seize income tax returns, and levy property, because, as the government, they have the right to do so.
It is also interesting to compare the two and their differences in a bankruptcy scenario. While the bankruptcy code is anything but simple, in laymanís terms, most debts receive no protection under the bankruptcy code and can be wiped out or discharged under the right circumstances. However, this is not the case with most government obligations. For example, student loans are explicitly not dischargeable in bankruptcy, nor are tax obligations. For this reason, if you were to default on a student loan, you could seek relief in the bankruptcy court, but ultimately would receive none. You would be forced to pay the loan back or risk a great deal of grief for not doing so.
Government loans are not something to be toyed with. An increasing number of students are attending college on student loans issued by the government. However, special thought should be given to decisions regarding borrowing in the form of government loans.