Douglas Olsen
Student loan debt is a significant concern for many, and the consequences of default can be severe. While it is not a crime to be unable to pay your student loans, and you cannot be arrested or jailed for non-payment, there are other serious repercussions. These include damage to your credit score, wage garnishment, and the limiting of your eligibility for other financial aid or loans. In some cases, lenders may also take legal action, and you could be fined for failing to comply with court orders. It is important to understand your rights and the options available to manage payments and avoid default, as the impact of defaulting on student loans can be long-lasting.
Can I go to jail for not paying student loans?
| Characteristics | Values |
|---|---|
| Can I go to jail? | No, you cannot be arrested or jailed simply for not paying your student loans. |
| What happens if I default? | Defaulting on your student loans has serious consequences, including damaged credit, wage garnishment, and loan acceleration. Federal loans have more tools to enforce repayment, while private loans may have to sue you to garnish your wages. |
| What are my rights? | As a borrower, you are protected by the Fair Debt Collection Practices Act (FDCPA). Debt collectors cannot harass you, make calls at unusual times, or threaten you with jail time. Some states have also passed laws, such as the Student Borrower Bill of Rights, to protect borrowers from unfair practices and provide accurate information about repayment options. |
| What if I'm sued? | If your lender sues you for repayment, pay attention to your mailbox for communications and court notices. You may want to hire a lawyer, and the FDCPA allows for attorney's fees to be paid by the debt collector if you win. |
| What if I ignore the lawsuit? | If you ignore the lawsuit, you may be held in contempt of court and an arrest warrant may be issued, as seen in the case of Paul Aker. However, even after his arrest, Aker was not jailed but fined for involving the US Marshals Service. |
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What You'll Learn
You won't go to jail, but there are consequences
While you cannot be arrested or jailed for simply failing to pay your student loans, defaulting on your student loans can have serious consequences. The consequences of default depend on the type of loan—federal or private—and the specific state in which you reside.
If you default on a federal student loan, your loan servicer will send your loans to the Debt Management/Default Resolution Group. The DRG will then send your loans to a collection agency. Federal loan holders can garnish your wages without a court order. They can take up to 15% of your disposable income to repay the defaulted loan. They can also take your tax refund through treasury offset. Collection fees can be as high as 25% to 50% of the amount collected. Defaulting on federal student loans will also result in the garnishment of social security payouts and benefits. Additionally, when you miss a payment or enter default, this information is reported to credit bureaus, and your credit score will suffer. This can limit your eligibility for other financial aid or loans. Even if you pay off the loan in full, the default will remain on your credit report for seven years.
If you default on a private student loan, lenders must sue you and win a judgment against you before they can garnish your wages. Private lenders have less power to enforce repayment, but they can still enact consequences such as collections and loan acceleration.
In either case, debt collectors are prohibited by law, the Fair Debt Collection Practices Act (FDCPA), from harassing you. They cannot contact you at unusual times or places, and they cannot threaten you with jail time. If they do, you can report them or hire a law firm to sue them.
It is important to note that some states have passed laws to protect student loan borrowers. For example, California's Student Borrower Bill of Rights includes protections such as requiring loan servicers to provide accurate information about repayment options and minimizing fees.
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Federal vs. private loans
You cannot go to jail for not paying student loans, although there can be other serious consequences. If you default on federal student loans, your loans will be sent to the Debt Management/Default Resolution Group, and from there, they will be sent to a collection agency. Debt collectors are prohibited by law from harassing you, and threatening jail time is considered harassment.
Federal student loans are issued by the federal government, while private student loans are issued by banks, credit unions, and online lenders. Federal loans are usually the best option for most borrowers due to their low eligibility requirements and unique borrower protections. Private student loans are a good choice for students who have reached the federal loan borrowing limit or who don't qualify for federal loans.
Federal loans have fixed interest rates that are usually lower than private loans, especially for borrowers without a cosigner. They also offer multiple repayment plans and the option for partial loan forgiveness with certain payment plans. Federal loans also offer income-driven repayment plans, which can reduce monthly payments to as little as 10% of discretionary income. They have few to no credit requirements, and if the borrower becomes permanently disabled, the loan balance is automatically discharged. However, undergraduate students face borrowing limits, and origination fees must be paid when taking out a federal loan.
Private student loans usually offer a choice of fixed or variable interest rates. Fixed rates stay the same, giving predictable monthly payments, while variable rates may change depending on the loan's index. Private loans offer different repayment plans, including options to make interest-only or fixed payments while still in school, which could lower the total loan cost. Some private loans allow you to track your credit health for free with quarterly FICO Credit Scores. Private loans can be taken out by a student, often with a cosigner, a parent, or a creditworthy individual.
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Debt collection practices
While you cannot be arrested or imprisoned for not paying your student loan debt, debt collectors can take borrowers to court to try and collect the money owed to them. This is not a criminal case, and jail is not a possible outcome. However, if you fail to comply with a court order, you can be held in contempt of court and arrested. Therefore, if you receive a court order to appear, it is important that you do so.
Debt collection laws vary by state, and there are statutes of limitations in place to prevent creditors and debt collectors from using legal action to collect older debts. These typically range from three to six years, but some may be longer, and federal student loans do not have a statute of limitations. The Fair Debt Collection Practices Act (FDCPA) protects consumers from unfair practices of third-party debt collectors. For example, debt collectors may not threaten arrest or legal action if it is untrue, and they can only contact you at reasonable times, generally between 8:00 a.m. and 9:00 p.m. Debt collectors are also not allowed to contact you at work if you tell them they cannot, and they cannot post about your debt on social media.
If you are facing default or delinquency, you have federal and sometimes state rights that protect you from unfair debt collection practices and deceptive lenders. Some states have a student borrower bill of rights, which includes protections such as requiring loan servicers to provide accurate information about repayment options and minimizing fees. If you anticipate payment problems, it is best to have a preemptive chat with your lender to review your options.
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Wage garnishment
You cannot go to jail for not paying your student loans. However, there are consequences for defaulting on your student loans, and one of the most significant ones is wage garnishment.
For private student loans, the process is slightly different. Private lenders must get permission from a court to garnish wages, which means they must sue and win a judgment. Private lenders can garnish up to 25% of your weekly disposable income, depending on your earnings and location.
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Court summons
If you are unable to pay your student loan, you may be sued by your lender in court in an attempt to retrieve the defaulted loan. This is a civil case and not a criminal one, so you will not be arrested or jailed for non-payment. However, it is important to respond to a court summons, as ignoring it could result in an automatic judgment against you. This may include wage garnishment or a charge of contempt of court, which could potentially lead to jail time.
If you receive a court summons, you must decide whether to respond or forfeit your defence. If you decide to defend yourself, you will need to respond by filing forms with the court, paying court fees, and informing the other side that you are participating in (or answering) the lawsuit. This is usually the longest part of the process, as you will need to gather evidence to defend yourself in court. If the case isn't settled, it will go to trial.
It is important to note that debt collectors are prohibited by law, specifically the Fair Debt Collection Practices Act (FDCPA), from threatening arrest or legal action if it is untrue. They are also only allowed to contact you about household debts, such as credit card bills, auto loans, medical bills, student loans, and mortgage payments. If they call outside the hours of 8 am and 9 pm, this is considered illegal, and you can bring up a counterclaim in court against them.
While you cannot be arrested or jailed for non-payment of student loans, there are other serious consequences, such as late fees, a damaged credit score, and wage garnishment. Therefore, it is in your best interest to do whatever you can to avoid defaulting on your student loans. This includes setting up a budget that makes room for monthly loan payments, picking a suitable repayment plan, and investigating forgiveness options.
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Frequently asked questions
No, you cannot be arrested or jailed simply for not paying your student loans. However, there can be serious consequences, such as damaged credit, wage garnishment, or a court summons.
Federal loan servicers can take severe steps like wage garnishment without a court order. They don't need a court order to begin taking money from your paycheck—just a notice stating your wages will be garnished within 30 days. The federal government orders your employer to withhold 15% of your disposable income to repay the defaulted loan.
Private student loan companies are more limited in their enforcement options. They have to sue you and win a judgment against you before they can garnish your wages. Private lenders can also enact consequences such as collections and loan acceleration.
While you cannot be arrested for simply not paying your student loans, you can be arrested for contempt of court or failing to appear in court. In 2016, a man was arrested for failing to respond to a court summons regarding his student loans, but he did not spend any time in jail.
