Staying on top of student loans and other financial obligations can be challenging. If you’re having trouble making monthly payments, or you’re concerned about how you’ll repay your loans down the road, you might be wondering what happens if you don’t pay your debt.
While you cannot be arrested or put in jail for failing to pay your student loans, there are repercussions for missing student loan payments, including damage to your credit and wage garnishment.
Here’s a look at the potential legal and financial consequences of not paying debt, as well as tips for tackling student loan debt after you graduate.
Going to Jail for Debt
No matter how much or what type of outstanding debt you have, a debt collector cannot threaten to or have you arrested for that unpaid debt. Doing so is a violation of the Fair Debt Collection Practices Act and would be considered harassment.
A lender can, however, file a lawsuit against you to collect on an outstanding debt. If the court orders you to appear or to provide certain information, but you don’t comply, a judge may issue a warrant for your arrest. A judge can also issue a warrant for your arrest if you don’t comply with a court-ordered installment plan (such as child support).
Bottom line: You never want to ignore a court order, since doing could result in an arrest and, potentially, jail time.
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Can You Go to Jail for Not Paying Student Loans?
No, you can’t be arrested or put in prison for not making payments on student loan debt. The police won’t come after you if you miss a payment. While you can be sued over defaulted student loans, this would be a civil case — not a criminal one. As a result, you don’t have to worry about doing any jail time if you lose.
As mentioned above, however, ignoring an order to appear in court could result in an arrest. And, unless you want to deal with a long, messy legal process and added expenses on top of your debt (in the form of attorney and court fees), it’s in your best interest to do whatever you can to avoid defaulting on your student loans.
Statute of Limitations on Debt
In terms of debt collection, the statute of limitations refers to the amount of time that creditors have to sue borrowers for debt that’s past due.
Federal student loans don’t have a statute of limitations. This means that federal loan servicers can collect your remaining student loan balance at any point. Keep in mind that the federal government doesn’t have to sue you to start garnishing wages, tax refunds, and Social Security checks.
For other types of debt, including private student loans, many states have statutes of limitations between three and six years, but some may be longer. The timeframe can vary based on the type of debt and the state law named in your credit agreement.
If you’re sued by a debt collector and the debt is too old, you may have a defense to the lawsuit. You may also have a claim against the collector for violating the Fair Debt Collection Practices Act, which prohibits suing or threatening to sue for a debt that is past the statute of limitations.
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What Are the Consequences of Not Paying Off Student Loan Debt?
The consequences of not paying your student loan debt differ depending on what type of student loans you have.
Federal Student Loans
Typically, with federal student loans, the loan becomes delinquent the first day after a payment is missed. If you don’t make a payment within 90 days, your loan servicer will report the delinquency to the three national credit bureaus.
If you don’t make a payment for 270 days (roughly nine months), the loan will go into default. A default can cause long-term damage to your credit score. You may also see your federal tax refund withheld or some of your wages garnished.
Once your federal student loan is in default, you can no longer receive deferment or forbearance or any additional federal student aid. Plus, you’re no longer eligible for an income-driven repayment plan, and your lender can sue you for the money you owe.
If, however, you had student loans that were on the pandemic-related pause, there is good news: Until September 30, 2024, borrowers who miss making payments on their federal student loans won’t be penalized in the ways described above. The Biden administration is providing a 12-month “on-ramp period,” during which a borrower won’t be reported as being in default to the national credit agencies. Interest will still accrue, though, so you’re not completely off the hook.
Private Student Loans
If you don’t pay private student loans, the consequences will depend on the lender. Generally, however, this is what happens: As soon as you miss a payment, your loan will be considered delinquent. You’ll get hit with a late fee and, after 30 days, your lender can report your delinquency to major credit agencies.
After 90 days, your loan will typically go into default. At that point, your loan may be sold to a collections company. Your (and any cosigner’s) credit score will also take a hit. In addition, your lender can sue you for the money you owe. They may also be able to get a court order to garnish your wages. However, they can’t take any money from your tax refunds or Social Security checks.
Tips for Getting Out of Student Loan Debt
You won’t go to jail for not paying back your student loans, but you can still face some significant consequences for missing payments. Here are some ways to stay (or get back) on track.
1. Set up a Budget
It can be hard to manage your finances without a plan. Creating a monthly budget is a helpful way to keep your spending in check and make sure you have enough money for your loan payments. Once you write down everything you’re spending on each month, you may find some easy places to cut back, such as getting rid of streaming services you rarely watch or spending less on takeout and afternoon coffees. Any money you free up can then go towards loan repayment.
2. Increase Cash Flow
Reining in your spending with a budget is a good place to start, but it may not be enough for getting out of debt. Having some extra cash on hand can help manage debt payments and offer some breathing room within your monthly budget.
To boost your income, you might consider taking on more hours at your current job, getting some freelance work, or picking up a side gig (such as food delivery, dog walking, or babysitting). You don’t have to do this forever — just until your student debt is paid off, or at least well under control.
3. Create a Debt Reduction Plan
If you have multiple debts, it’s a good idea to take an inventory of everything you owe and then set up a comprehensive debt reduction plan.
A popular system is the avalanche method, which calls for putting any extra cash toward the debt with the highest interest rate while making minimum payments on other balances. When that debt is paid off, you put your extra money towards the debt with the next-highest interest rate, and so on.
Another option is the snowball method, which focuses on ticking off debts in order of size, starting with the smallest debt balance, while still taking care of minimum payments on other debt.
4. Apply for an Income-Based Repayment Plan
If you have federal student loans, there are four income-driven repayment plans you can apply for to make your monthly payments more manageable. These include:
• Saving on a Valuable Education Plan (SAVE; replacing Revised Pay As You Earn)
• Pay As You Earn
• Income-Based Repayment Plan
• Income-Contingent Repayment Plan
Monthly payments are a percentage of your discretionary income, usually 10% or 20%. What’s more, all four plans forgive any remaining balance at the end of the 20- or 25-year repayment period. Note that in some situations, you may be required to pay taxes on the forgiven amount, according to IRS rules.
5. Find Another Repayment Plan
Besides income-based repayment, borrowers can explore a variety of other federal repayment plans to help pay off debt. For example, the graduated repayment plan helps recent college grads find their financial footing by setting smaller monthly payments at first before increasing every two years.
Some private lenders also offer a choice of different repayment options.
6. Look Into Forgiveness Programs
The federal government offers student loan forgiveness to borrowers who meet certain eligibility criteria, such as working in a certain profession, having a permanent disability, or after making payments for a certain amount of time on an income-driven repayment plan. Similar programs are available at the state-level across the country, and generally base eligibility on specific professions or financial hardship.
The Rural Iowa Primary Care Loan Repayment Program, for instance, provides up to $200,000 toward repaying eligible student loans for doctors who commit to working five years in designated locations.
The NYS Get on Your Feet Loan Forgiveness Program, on the other hand, offers up to 24 months of debt relief to recent graduates in New York who are participating in a federal income-driven repayment plan.
7. Ask About Employer Tuition Reimbursement Programs
Besides health insurance and a 401(k), your employer may provide other benefits, including tuition reimbursement programs, to support and retain their employees.
Often, these programs are focused on annual tuition expenses that employees incur while studying and working concurrently. Still, employers may offer to contribute to student loan payments as well.
💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.
8. Explore Refinancing Your Student Loans
Student loan refinancing could help you save interest and make your monthly payments easier to manage. Generally, though, refinancing only makes sense if you can qualify for a lower interest rate.
Refinancing involves taking out a new loan with a private lender and using it to pay off your existing federal or private student loans. You can often shop around and “browse rates” without any impact to your credit scores (prequalifying typically involves a soft credit check). Just keep in mind that refinancing federal loans with a private lender means losing access to government protections like income-driven repayment plans, student loan forgiveness programs, and deferment and forbearance.
Also know that lenders typically require your loans to be in good standing before approving a refinance. That means you generally can’t refinance a student loan in default. You can, however, consider refinancing after recovering from a student loan default.
The Takeaway
Although you won’t go to jail for failing to pay your student loans, there are a number of negative consequences, like late fees, a damaged credit score, wage garnishment, and even being taken to court. The current “on ramp” to repayment of federal student loans, however, removes these consequences until September 30, 2024.
Whatever type of student loan you have, you can help the road to repayment go smoothly by setting up a budget that makes room for monthly loan payments, picking a repayment plan that fits your needs and budget, and investigating forgiveness options.
Finding a student loan with a competitive interest rate and flexible repayment terms can help avoid the stress and repercussions of not paying student loans down the line.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Do student loans go away after 7 years?
No, student loans won’t disappear after seven years. Negative information about your student loans (such as late payments or defaulting on a loan) will be removed from your credit report after seven years, but the loans themselves will stay on your reports until you pay them off or have them forgiven.
Many states have statutes of limitations of between three and six years to prevent creditors and debt collectors from using legal action to collect on older debts. However, federal student loans don’t have a statute of limitations.
How long before student loans are forgiven?
The Public Service Forgiveness Program requires making the equivalent of 120 qualifying monthly payments under an accepted repayment plan (while working full-time for an eligible employer) for student loan forgiveness. With an income-based repayment plan, you need to make payments for 20 to 25 years to have the remaining balance forgiven. State programs may offer more rapid repayment assistance and forgiveness.
Can student loans seize bank accounts?
Yes, but not right away. If you have federal student loans, your wages or bank accounts can be garnished only if you have officially defaulted on your loans (i.e., you haven’t made a payment for at least 270 days). The government does not need a court order or judgment to garnish your wages.
If you default on a private student loan, your creditor must first sue you to obtain a judgment and submit a court order to your employer before your wages can be garnished.
Photo credit: iStock/shadrin_andrey
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