By the end of 2022, student loan debt hit an all-time high of $1.75 trillion, with more than 45 million borrowers owing more than $30,000 each. In 2021, college graduates who took out student loans borrowed an average of $37,113 — about $12,000 more than borrowers from the Class of 2010.
While students may have plans to repay their loans by securing a great job soon after graduation, this doesn’t always happen. CNBC reports that more than a million students default on their loans each year. That figure is expected to jump to 40% of borrowers by 2023, which would equate to 18 million loans in default.
So, what happens when a student fails to repay their loan? Can you get arrested for skipping out on your payments? It’s complicated.
Can You Go to Jail for Not Paying Student Loans?
While a borrower will not face jail time for defaulting on a loan, borrowers can still go to jail. If a judge issues a ruling that requires you to take certain actions and you don’t follow through — or if you repeatedly ignore a court summons — an arrest warrant will be issued.
Although in its early days America had laws that allowed for jailing anyone who couldn’t — or wouldn’t — pay their debts, the practice was outlawed in 1833. There are no more debtor’s prisons in this country. If you head to the U.S. Department of Education’s website, you’ll learn that “going to jail” is not a consequence of failing to pay your student loans.
There are two types of offenses in the U.S.:
- Civil: These involve disagreements between individuals or organizations. One party sues another for failing to perform a legal duty. Civil offenses include breach of contract, slander and minor traffic offenses like breaking the speed limit. People will not go to jail for committing a civil offense. Fines and other payments are the only legal punishments. Because civil charges involve individuals or businesses, a borrower and a lending company, for example — if a lender sues you over your student loan debt, it will be in civil court.
- Criminal: These disputes are between the government and individuals or organizations. They are heard in criminal court. Common punishments in criminal cases usually involve fines, incarceration and, in some cases, acts of restitution. The government seeks punishment for committing either a misdemeanor or felony. Punishments for felonies will be significantly more severe than misdemeanors.
Failure to repay debt is not a criminal act in the U.S. It is a civil matter. What’s the difference? Criminal charges require committing a crime against the state. Civil charges are between two individuals or businesses — a borrower and a lending company, for example. If a lender sues you over your student loan debt, it will be in civil court.
You will not go to jail over a civil matter.
The confusion associated with being arrested for defaulting on student loans comes from a lack of clarity over the reason for the arrest.
Pro tip: If you get a summons to appear in court, do not ignore it. Failure to appear could lead to wage garnishment or even lead to a court order for your arrest due to contempt of court charges. Always appear in court when scheduled.
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What are the Penalties for Not Paying Student Loans?
Graduates are typically expected to make their student loan payments six months after graduation. This gives most people time to land a job and get on their feet. Most likely, the loan requires monthly payments. The payment date for the loan is always clearly listed on the payment coupon. The loan becomes delinquent when the lender does not receive the payment by the due date.
The first consequence for borrowers comes after the student loan has been delinquent for more than 90 days. This is when the loan servicer reports the non-payment to the three major national credit bureaus — Experian, TransUnion and Equifax. This will lower your credit score. A low credit score makes it hard to qualify for other loans, such as auto loans and mortgages. Some landlords also check an applicant’s credit score before approving them for a rental, so you can see how not keeping up with your student loan can hurt you down the road.
Delinquent federal student loans are considered in default once 270 days have passed since the last payment was made. Once in default, you won’t be eligible to apply for any future federal student aid. The government will also take steps to seize your tax refund, garnish your government benefits, or garnish your wages.
Private student loans may enter default status much earlier, usually between 90 and 120 days. At this stage, the private lender will initiate court proceedings to have a judge grant permission for the lender to garnish your wages.
If a lender opts to sue you and you choose not to show up to your initial court date, the judge may rule against you in your absence. You will be responsible for following any rulings made by the judge. If you don’t, you could be found in contempt of court and have a warrant issued for your arrest.
READ MORE: Student loan debt statistics
Can Collections Agencies Collect Student Loans?
Yes. If you aren’t making payments, your student loans can go into default and even be sold to a debt collector. This can lead to harassing phone calls from collection agencies. They’ll also appear on your credit report and hurt your credit score. You have some protections under the Fair Debt Collection Practices Act. Make sure your rights aren’t being violated.
READ MORE: How to deal with debt collectors when you can’t pay
If you have student loans in collections, please call the Office of Debt Collection Services at 1-800-621-3115 or visit myeddebt.ed.gov.
Options for Student Loan Borrowers Who Can’t Make the Monthly Payments
Fortunately, there’s a great deal of help if you cannot make the required minimum monthly loan payments. However, you must take action before your account becomes delinquent.
READ MORE: Easy guide to student loan forgiveness programs
Contact the Lender
Start by contacting your lender to see if you can negotiate a lower monthly payment that’s more in line with what you can afford. You’d be surprised how many lenders are willing to work with borrowers. They’d rather collect some money than no money at all.
Income-Driven Repayment Plans
If you have a federal student loan, you have some income-based repayment options. You can contact the lender and request to be put on a loan repayment plan. You’ll need to demonstrate a financial need; however, those who qualify will have their monthly loan payment adjusted based on their income. Not only does that mean a lower monthly payment, but also the possibility of having any remaining debt on the loan forgiven after 20 to 25 years.
President Joe Biden recently announced some planned revisions to IDR plans to help ease some of the long-term financial burdens associated with repaying federal loans. It includes some provisions for student loan forgiveness. You can read more about them at whitehouse.gov.
Deferments are an option for several different groups of people. Individuals serving in the military, students still attending school, employees of a public service organization, students in a medical residency, and anyone suffering financial hardship is eligible to apply for a deferment on their student loans. With a deferment, you can pause your student loan payments for a period not exceeding three years. During this time, subsidized loans do not accrue interest; however, unsubsidized loans do.
A forbearance is similar to a deferment in that it pauses your payments. The loan will continue to grow interest with a forbearance, which means when you resume making payments, you’ll have a larger debt to tackle. Most forbearance programs are available in 12-month increments, so you’d need to reapply each year that you qualify.
Learn more about the differences between student loan forgiveness, deferment and forbearance:
Refinance or Consolidate
If you have more than one loan, you may be able to refinance or consolidate your loans. Debt consolidation leaves you with one payment. Having one monthly payment is much easier to manage than multiple payments. You’ll also want to shop around, as it’s possible you could consolidate with a company that can offer a lower interest rate. Some of the top financial institutions that provide consolidation loans include SoFi, Discover Student Loans, Splash Financial, and CommonBond.
Student Loan Rehabilitation Program
Only federal student loans that are in default are eligible for the Student Loan Rehabilitation Program. This program requires borrowers to make nine monthly payments over 10 months. The payments must be made within 20 days of their due date to count. Once a borrower meets these criteria, the default status is removed from his or her account, collection activities cease, and borrowers are once again eligible for future federal student aid.
READ MORE: Guide to the different types of student loans
The Bottom Line
You won’t go to jail for defaulting on your student loans. But you may go to jail if your lender sues you and you ignore a judge’s orders. If you know you can’t make your payments, contact your lender or a nonprofit credit counselor because numerous options and programs might offer some relief.
The Fair Debt Collection Practices Act is a federal law that spells out rules about actions third-party debt collectors can and cannot take when going after certain kinds of debt. It applies to student loan debt collection efforts.
There’s no statute of limitations for federal student loans. However, any private student loan that has passed the statute of limitations is a time-barred debt. This means your lender cannot sue you to collect the money. The statute of limitations differs by state, though. It can range anywhere from three to 10 years.
Yes. If you fall behind in repaying your federal student loans and collect Social Security benefits, It’s possible that a portion of your monthly check will be withheld. The reduction averages about $2,500 per year, according to the Center for Retirement Research at Boston College.