There are 43.2 million student loan borrowers in the United States, each with an average balance of $39,351. It’s difficult to keep up with such large amounts of debt, especially when you’re just starting out in the workforce. But what happens to the people who fall behind on their payments? Are the penalties purely financial, or can you go to jail for not paying student loans?
The police won’t haul anyone off to jail simply for missing a few of their student loan payments, but there are a few reasons for people to be concerned about it. And even though jail isn’t on the table for unpaid debts alone, the consequences of missed payments can still make a borrower’s life miserable. Here’s what people need to know about the laws regarding student loans and what happens when someone fails to pay them back.
Can you go to jail for not paying student loans?
No. Technically, it is illegal to arrest someone for failing to pay back their student loans. Jail time for unpaid debts used to be a regular occurrence. But Congress outlawed the practice and the Supreme Court ruled it unconstitutional back in 1833.
Today, there is a clear distinction between the punishments for breaking the two types of law:
- Civil: Matters are legal proceedings between individuals or organizations (lenders, for example.) Punishments include fines and other monetary reparations. Civil offenses are usually a failure to perform one’s legal duty. They include actions like traffic violations, slander, and negligence.
- Criminal: These are disputes between the government and an individual or organization. The government seeks punishment for a misdemeanor or felony. Punishments include fines and possible jail time. Criminal offenses are often much more serious and include violent crimes like theft and assault.
The failure to pay back one’s debts, including student loans, falls under civil law. Lenders can sue the offending borrower, but jail is not a possible outcome — even if the court convicts them.
You can be sued by a debt collector
Debt collectors can take borrowers to court in order to collect their money. The suit is not filed with the intention of sending you to jail. Collection agencies are simply looking for a way to force you to pay them for your debts.
Pro tip: If you receive a court summons, DO NOT IGNORE IT. That could lead to an automatic judgment against you — for example, your wages could be garnished, or you could be held in contempt of court (which could ultimately land you in jail.) If you get a court summons and cannot appear in court for whatever reason, contact an attorney — many offer a free initial consultation — for advice on what do to.
What is the statute of limitations on your debt?
The statute of limitations on your debts is important because it’s one of your best protections against potential lawsuits from creditors and debt collectors, at least when it comes to debts that have been delinquent for years.
Pro tip: Credit accounts that are past the statute of limitations on debt are known as time-barred debts. Note that you’re still generally liable for time-barred debts, and they may still show up on your credit report.
A debt collector can pursue old debts indefinitely. The statute of limitations doesn’t prevent them from attempting to recover their money. It does, however, stop them from initiating a lawsuit against you for the time-barred debt.
In most states, debt collection agencies can and will still attempt to pressure you into paying by other means. For example, they may try to contact you through email, mail, and phone calls, or attempt to contact your friends or family. If this happens, you have rights under the Fair Debt Collection Practices Act.
READ MORE: What is the statute of limitations on debt
Jail is a common threat
Even though it’s illegal to jail someone for not repaying a loan, arrests still happen. But people are not jailed due to the debt itself. Arrest warrants are issued because someone failed to appear in court.
Failing to appear for your court date is a criminal offense that can lead to arrest and jail time.
In other words, failing to pay the loan will not land you in jail. Failing to show up in court on your assigned court date may land you in jail.
You could be arrested even if you miss your court date for legitimate reasons, such as not having transportation to the courthouse, being unable to miss work, needing to care for a dependent or failure to receive the summons in the mail.
Pro tip: This is why it’s particularly important to make sure lenders have updated addresses. Trying to evade your lender could leave you facing wage garnishment or worse.
Here’s what to do when you miss your court date.
What happens if you don’t pay back student loans?
Paying off student loans is a test of endurance. It takes the average borrower 20 years to pay off their balances in full. Maintaining a perfect payment record for two decades straight isn’t easy.
Some student loans have such high interest rates that borrowers feel they’re a scam.
Neither private nor federal lenders will sue student loan borrowers for missing a payment or two. But there are consequences, especially if the behavior continues for too long.
Here’s how the process works:
Delinquency
Whenever a borrower misses a payment, their account becomes delinquent. It will keep that status until the borrower makes up the missing payment, addresses the issue in another way (like forbearance), or enters into default.
Private and federal student loan providers will report delinquencies after 30 and 90 days, respectively. That can have a significant negative impact on a borrower’s credit scores.
The monetary penalties for delinquency also vary by lender. Private student loan providers set their own rules. Federal student loan providers can charge up to 6% of the missed payment balance if the delinquency lasts longer than 15 days.
Default
Student loans enter default after extended delinquency. With private lenders, it’s usually after just 120 days. Federal lenders take a bit more time, usually allowing at least 270 days.
Whether borrowers hold private or federal loans, entering default has extreme consequences. It can:
- Cause the entire remaining principal and interest balance to come due
- Prevent the borrower from receiving Federal student loan assistance
- Damage the borrower’s credit scores
- Lead to a lawsuit and wage garnishment
Again, if a borrower defaults, their lender can sue them. If they don’t show up to court, a judge may issue a warrant for their arrest. Make sure to address any delinquent loans as soon as possible to avoid the possibility.
What to do if you can’t pay back your student loan
When borrowers realize that they might not be able to make their student loan payments, they should contact their lender as soon as possible.
There is plenty of aid available to borrowers who are struggling with student loans, especially federal ones. That includes:
- Income-based repayment plans that adjust payments down to a reasonable level for the borrower’s earning power
- Consolidation loans that can reduce the number of payments, extend the repayment term, and lower monthly payments
- Forgiveness programs that can discharge or cancel large portions of a borrower’s debt
Private lenders are less flexible than federal student providers and don’t offer the same aid programs. But it’s still beneficial to contact them when there’s a problem making payments.
They usually have their own strategies in place to help borrowers keep up with their payments. Either way, don’t ignore the problem. Be proactive and take timely steps to avoid delinquency, default, and lawsuits.
The bottom line
You won’t go to jail for defaulting on your student loans, but it’s important that you obey any court summons, because you CAN go to jail if you’re found in contempt of court. If you anticipate payment problems, have a preemptive chat with your lender to review your options. You don’t want to have to deal with debt collectors or worry about court appearances.
FAQs
In the short-term, all debt consolidation can hurt your credit scores by a few points. However, in the long run, as you build a history of on-time payments and improve your credit utilization ratio, your score will eventually start to increase.
Start by creating a personal budget. Break down your income and expenses. This can help you pay off debt, build savings, and plan for the long term. After that, contact your creditors directly to see if they can modify your payment plans. If your situation is truly desperate, bankruptcy may be another option. Speak with a bankruptcy attorney to learn more if you’re seriously considering this as an option.
Insolvency and bankruptcy are not the same. Insolvency means you’re unable to pay debts when they’re due. While it’s possible to be insolvent without being bankrupt, there is no way to be bankrupt without being insolvent. But there are other solutions besides bankruptcy that can resolve insolvency, including debt consolidation or taking on extra work. You also could work with a credit counselor or debt settlement company.
