On a Friday in Texas in 2016, Paul Aker was at his home and about to check his mail. It was just like any other day, except this time U.S. Marshals were waiting at his doorstep with a warrant to arrest him.
What was the reason? Aker was being arrested after a long process that started with the Texas man not paying his student loans.
Could it happen over your student loan debt?
The state of student loan defaults in America
With outstanding student loan debt in the United States at an all-time high of $1.6 trillion, more young Americans than ever before are burdened with student loan repayment they sometimes cannot keep up with.
The current federal student loan default interest rate is 10.1%, according to the U.S. Department of Education.
Borrowers are struggling to stay out of default, and we’ve seen news stories about people like Aker being arrested after failing to make timely student debt payments.
But can you really be arrested for not paying your student loans, or is there something else to the story?
Can you go to jail for not paying student loans?
Technically, you cannot go to jail for not paying your student loans, the Education Department assures borrowers. If you oblige by standard procedures after failing to make student loan payments, getting arrested is not a possibility.
There was a time in the U.S., almost 200 years ago, when debtors’ prisons were legal and people could be locked up for failing to meet debt obligations. But these institutions have long been abolished.
So, what explains a story like Aker’s? It is true that defaulting on student loan debt can lead to being arrested, but default alone is not a criminal offense.
Then why have people been arrested for student loan default?
The headlines about a borrower being arrested for not making student loan payments are misleading. A few things need to transpire after defaulting on your student loans for an arrest to become a possibility.
So take a closer look at these stories to fully understand the potential consequences of student loan default. Aker’s arrest did, indeed, stem from his failure to repay a $1,500 federal student loan for (for 29 years!). But there is more to the story than that, CNN Money reported in 2016.
Aker was arrested because the U.S. Marshals Service had made numerous attempts to serve him with a summons to appear in federal court due to the unpaid loan. The attempts failed after going through a list of known addresses.
But when the Marshals Service finally got hold of Aker over the phone in 2012 and requested he appear in court, he refused. After this contempt of court, a judge finally issued an arrest warrant for Aker, which led to the scene at his Texas home in 2016.
The borrower was only arrested after allegedly disregarding the U.S. legal system, not solely for failing to repay his student loans. Had Aker appeared in court after he was originally summoned, he likely would have agreed to a repayment plan and remedied the situation without an arrest.
Failing to repay your student loans and entering default will not lead to arrest in and of itself. It’s the steps you take (or don’t) after default, such as Aker’s alleged disregard for legal court notices, that may lead to an arrest.
Consequences of not paying student loans
When you take out student loans, you agree to eventually repay the lender in full, plus interest. A student loan repayment plan will distribute your outstanding student loan balance into monthly payments until the balance is paid off.
Delinquency: If you meet all monthly payments on time, you will likely have no issues with the lender. However, if you fail to make a federal student loan payment and it is 90 days overdue, it becomes “delinquent.”
With a delinquent student loan payment, your credit score will take a hit, which may make it tough to qualify for other forms of financing like credit cards or a mortgage. And even if you still qualify, the terms are likely to be unfavorable.
Default: After a federal student loan payment is 270 days late, it is officially in default. Student loan default means you have failed to repay your loans according to the agreement you made with your student loan servicer.
For private lenders, policies concerning delinquency and default vary. Private student loans will usually be in default after three or four months of nonpayment, but it can be as little as one month.
The consequences of student loan default are much more severe than delinquency and can include:
- A significant decline in your credit score, and the default will remain on your credit report for seven years. This will make it difficult to qualify for other forms of financing or receive favorable terms.
- For defaulted federal student loans, the federal government can seize your tax refund and government benefits or garnish your wages.
- For defaulted private loans, lenders can garnish your wages, but must first win a lawsuit against you to do so.
- If you defaulted on federal student loans, you will lose protections and benefits including deferment, forbearance, access to flexible repayment plans, and student loan forgiveness.
After you default on a federal loan, if the government doesn’t recoup the debt by wage garnishment or other means, it will file a lawsuit, which will require a court appearance.
If you default on a private student loan, the lender will typically employ a debt collector to track you down and ensure you repay all money owed.
The debt collector will first attempt to go directly through you for repayment, but if that doesn’t work, the agency can file a suit to set up a repayment plan or have your wages garnished. This would also require a court appearance as well.
If you fail to appear in court in either situation, only then might the judge issue a warrant for your arrest. This is when the U.S. Marshals may show up at your doorstep.
Know your rights
Debt collection agencies can follow several procedures when attempting to recoup the money owed for student loan debt, including suing you and subsequently garnishing your wages by court order.
However, you also have rights, and it is important to remember that if you are contacted by a debt collector.
Debt collectors must act in a professional manner, and under the Fair Debt Collection Practices Act, it is illegal for them to practice abusive, unfair, or deceptive behavior. For example, debt collectors are not allowed to call you before 8 a.m. or after 9 p.m., or to repeatedly call you to annoy you.
How to work with lenders and avoid arrest
You have several repayment options when you can’t afford student loan payments. Like most things in life, it’s best to be proactive and notify your student loan servicer or lender about your financial troubles.
Two options could help you avoid default for both private and federal loans:
- Deferment: You will not have to make payments for an allotted amount of time, but interest will sometimes still accrue, depending on the type of loan.
- Forbearance: Your student loan payments will be on hold for a specific length of time, and interest will continue to accrue, regardless of the type of loan.
Another option with federal student loans to consider is enrolling in an income-driven repayment plan. Income-driven repayment plans cap your monthly payments at a percentage of your monthly discretionary income and could lead to student loan forgiveness down the road.
Private student loan lenders sometimes offer flexible repayment plans, but usually these plans will not be as consumer-friendly as income-driven repayment plans.
What to do if your loans are in default
If you have already defaulted on your student loan debt or the debt is delinquent and heading toward default, take these steps to avoid a situation that could lead to arrest:
- Ensure all student loan lenders and loan servicers know your current address.
- Reach out to lenders regarding the status of your student loans, while also keeping track of any notices from a lender or servicer that come in the mail.
- Never skip out on a mandated court appearance; this will only make matters far worse for you, as this is the action that will trigger a warrant for your arrest.
Always comply with any legal notices regarding your student loan debt, and develop a good working relationship, by way of communication and respect, with your lender or servicer.
That way, you can work together if monthly payments are tough to make.