No, You Won’t Be Arrested For Falling Behind On Your Student Loans

Student-Loan-Repayment-2

Today, more than ever before, a college diploma or job-training credential is one of the best investments you can make in your future. By some estimates, a bachelor’s degree is worth an average of a million dollars over the course of your lifetime.

But college also has never been more expensive, and far too many Americans are struggling to pay off their student loan debt.

Maybe you haven’t quite landed that dream job in your field of study yet. Or you decided to go into public service instead of taking the highest-paying offer. Your reward for investing your time and money in the skills and knowledge needed to secure your future shouldn’t be a sky-high monthly payment.

That’s why President Obama has fought hard to make college more affordable and to help borrowers keep their student loan payments manageable. Today, thanks to those efforts, you never have to pay more than 10 percent of your monthly income on your federal student loans. Even if you’re temporarily unemployed, you’ve got options to stay on top of your loans – after all, 10 percent of zero dollars is zero dollars.

With the option to cap monthly payments based on income, everyone with a federal student loan should be able to manage his or her monthly loan payments and stay out of default. In fact, unlike with private loans, the federal loan repayment options are designed specifically to help student loan borrowers avoid default.

There are consequences if you do default – it’s bad for your credit and your financial future, for starters.

But we want to clear up misperceptions about one thing that’s not a consequence for falling behind on your student loans: going to jail.

America hasn’t had debtors’ prisons for nearly two centuries, and you cannot be arrested simply for not paying your student loans.

Here’s the truth about what happens if you fall behind: the Department of Education’s loan servicers work for almost a year to contact borrowers who get off track on their payments. During that time, servicers work to inform the borrowers of their options to get back on track and the effects of defaulting.

If a borrower does default, the Department attempts to establish repayment on the debt and then, if that doesn’t work, tries other methods to collect. Only if all other methods are unsuccessful does the Department of Education turn debt over to the Department of Justice for collection through litigation. We’re required to do that by law.

Referral of student loan cases for litigation is extremely rare – less than one tenth of one percent of all borrowers – but even then, borrowers are not arrested for nonpayment of their student loan.

If you’ve seen high-profile claims to the contrary, there’s probably more to the story. Last month the Washington Post broke down one such case:

If you’ve defaulted on federal student loans, you can breathe more easily. You won’t be arrested for simply failing to make payments.

For a hot second, people were panicking after a Houston television station reported that a resident there, Paul Aker, had been arrested because he owed $1,500 for a federal student loan he took out in 1987…

Well, thank goodness there was more to Aker’s story…

Marshals had made several attempts to contact Aker to appear in federal court, according to Hunter. Notices were sent to numerous known addresses. Marshals spoke with Aker by phone and requested that he appear in court, but Aker refused, a statement from officials said. So a federal judge issued a warrant for Aker’s arrest for failing to appear at a December 2012 hearing.

“A big misconception is people are being arrested for not paying their loans, when in fact they are being arrested for failure to appear in court,” [chief deputy U.S. marshal for the southern district of Texas Richard] Hunter said. “At the point the U.S. marshals show up at your door, there have been months — perhaps many years — of notices, summons, et cetera, issued.”

One obvious lesson from this story is that if you’re summoned to court, you should appear. But the bigger picture is this: it’s much easier and better to get help with your loans well before it reaches that point. We know that millions of Americans are feeling the burden of their college debt and we’ve created new options to help.

If you’re having trouble making your monthly payments, look into Income-Driven Repayment plans. Again, these plans allow you to cap your payments at 10 percent of your monthly income – with payments that can be as low as $0 per month. And all Income-Driven Repayment plans allow borrowers to have their remaining balances forgiven after they’ve made payments for either 20 or 25 years (depending on the plan). Even if you’ve already fallen behind on your loans, you can get back on track.

To find out more about Income-Driven Repayment options, visit studentaid.ed.gov. Or, if you are having trouble repaying student loans and would like to discuss these options, reach out to your student loan servicer. If you don’t know who your servicer is, call Federal Student Aid at 1-800-433-3243 or visit studentaid.ed.gov/login to find out.

Matt Lehrich is Director of Communications at the U.S. Department of Education.

19 Comments

  1. Ben R. Apparently you have never had to deal with the IRS when they contend you owe them money. Kindler and gentler they are not.

  2. I signed up for Public Service Loan Forgiveness and started paying last May (2015). Signed up for auto debit, too, so that all payments would be on time. No problems until March of 2015 when no payment was debited. My auto debit mysteriously stopped. So now I have a ‘8 days late’ notice on my payment record. Nobody has an answer as to why to auto debit stopped. I had to sign up all over again. I assume that since I have a late status on one of my payments, I am no longer eligible for the PSLF. How convenient.

  3. Please help me. I can’t get help from anyone. I am trying to update an incorrect SS number on the FSAID page. When I try to edit my SS number, it won’t save. It says I have to call. So I call. They say it’s updated. I go back and look and see the wrong SS number. So I do it again. Every day for two weeks now. Nothing fixed. I need to submit a FAFSA but can’t because I can’t get past this hurdle to get my SS number corrected. This is ruining my sanity. Someone please help!

  4. Mark W: Ok, let’s say you “only” have to pay taxes on $70,000 worth of earned income from student loans after retirement- so long “Golden Years!” “1099s might never be issued.” Then again, they might. The question is really: why is the DoED virtually writing blank checks to schools, especially the for -profit post secondary schools, who are relatively expensive,and have dismal graduation and gainful employment statistics? This problem is not new. It has been well documented for years. By doing so, DoED aids and abets both the scholastic and financial failure of many people who are just starting out in life, want to make a living and feed a family. Goodbye American dream and welcome American nightmare.

  5. ALERT: This is simply a game of semantics. While you may not be technically arrested for loan default, they can take you into custody for the purpose of financial discovery in an attempt to force debtors to pay up. REMEMBER: THIS IS MONEY YOU OWE! LOANS YOU AGREED TO PAY BACK! That said, what you are being arrested for is the failure to acknowledge the courts attempt to force action upon you and you ignore it! Don’t be fooled! They will eventually come after you to collect what they are owed! And you will pay, maybe until the grave, but you will pay!

  6. I question the sanity of the IBR plan when it comes to graduate debt. It’s one thing for someone with $30,000 or less in student loans, but it’s another when they have $100,000 plus in loans and we could have predicted from day one this could not have been paid in full. At that point it has become a handout and encourages abuse.

  7. Borrowers currently under IBR like me are paying 15% of our monthly income towards our loans; the 10% cap is only for new borrowers. The new laws should benefit all borrowers, not just new ones. Last year I paid $6,000 in federal student loan repayment. Only $13.00 of that went towards principal. in addition, I paid the same amount in private loan interest. There is no income based repayment for private student loans. When will the federal government and the Department of Education provide assistance to those with high private student loan debt?

  8. I defaulted on my loan, I was finishing another program to get a clinical license but it’s not available through school, I had to pay a supervisor and I attempted to get my payments deferred but was denied. It was my fault for avoiding the calls but I couldn’t afford the payments fur both my supervision and the loan. My issue is this. When my loan default GC Services picked it up. They garnished my wages without advising me until about 1 week before it happened and I could not find any help in that time frame. They charged 18.9% of the balance of my loan to “service me” for 2 months. That was almost $20,000.00. That is corruption at its finest. Who wrote the law to allow such collection agencies to do that?

  9. I would like the Dept of Ed to reply to Bill Mosso’s comments. When you retire and SS is your only income, how do you survive?

  10. I have student loans with Navient and the U.S. Department Of Education I believe I need to do a forberance or deferment with both as I have no income other than food stamps obtained through the (SNAP) program. I have been unable to obtain federal financial aid to continue Graduate School at the present time.

  11. It is not entirely true that there will be no Debtors Prison. Employers and prospective employers have been told that I had, “Committed a Federal Crime”, and that if I was hired in any capacity they could face civil fines or imprisonment, because the Government alleges that I did not pay all my student loans. The Government refuses to meet with me; and they refuse to provide any accounting records, because the loans they allege that I didn’t pay, were in fact paid in full in 1991. And, the loan was the subject of Document Forgery by the Federal Government , demanded that Sallie Mae/ Student Loan Marketing Association forge 300 student loan documents specifically to use as evidence to deceive State and Federal Courts. The loans in question were private loans and Not Federally Insured. That of course was part of the purpose for forging documents. Document evidence will be provided, if you ask lawtonmd at Yahoo dot com.

  12. The corrupt banks could be bailed out, but the ignorant young people who were duped into taking out loans at an outrageous interest are forever cursed for their naivety? Many of the colleges that these young people attended promised them jobs on graduation, and these colleges lied to them. Why not go after the lying colleges? That would make more sense, and be more profitable.

  13. This information is misleading. Even if you pay a “mere” ten percent of your monthly income, interest will keep accruing on the deferred balance effectively creating what has been called a debt peonage. If, by the time you retire, you have not paid off the balance, you will receive a 1099 statement from the IRS that treats the balance as a form of earned income. If you can not pay, at this point the IRS will garnish your SS checks until payment in- full is made. You can never discharge this debt through bankruptcy so no amount of forbearance will by the DoEd will help.

    • There is however a Public Service Loan Forgiveness if you are in various public service industries (e.g. teaching) where after 120 ontime payments (10 years) the balance owing is totally forgiven without a 1099 statement to the IRS.

    • Bill Mosso’s comment above is also misleading. While it is true that you could be issued a 1099 by the holder of your direct federal student loan note, the IRS does treat it as income, and then you’re assessed income tax on that “income”. Also the IRS do have programs for those who have issues with paying back tax. So let’s say your federal student loan debt forgiven is $70,000, and they issue you a 1099 for $70,000… you owe the IRS income taxes on the $70,000… you don’t pay the whole amount.

      Also legislation changes from time to time… as more student loans get forgiven, 1099s might never be issued and the IRS taxable income problem goes away.

      • In addition to that, the IRS already allows the exclusion of cancelled debt income due to insolvency – defined as liabilities prior to cancellation exceeding assets to cover them.

        • Ben R. We are talking about SS income and borrowers who may have had a lifetime of deferred payment with building interest that they can’t pay. You can cancel the debt, but the IRS will not cancel the tax debt once you start to receive SS. Therefore you will not be insolvent. Now, try arguing the opposite point of view to the always kinder and gentler IRS.

          • Most people in this situation will be insolvent so will not be taxed on the imputed income. Unless they happen to have a pile of cash or idle property they can sell sitting somewhere that exceeded their liabilities, including the now larger student loan balance, they would have no means to pay the tax, and if they did have such means, we must ask why they didn’t pay more of their loans in the first place. We want people to pay off their loans after all.

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