Imagine this: you’re lounging around at home one weekend day when you hear a knock on your door. Outside are seven armed U.S. Marshals waiting to take you to prison. But you’re not a criminal. You haven’t done anything wrong — at least, nothing you can think of.
What you are being arrested for is failing to pay off your outstanding student loan balance.
Recently, a Texas man claimed he was put in jail and then forced by a judge to sign a repayment plan for a $1,500 bill from 1987, according to Houston Fox 26.
In another instance, Minnesota Daily reported that U.S. Marshals were conducting a sting dubbed “Operation Anaconda Squeeze” in order to round up student loan debt owers.
While it may seem implausible that someone would be carted away to a jail cell for not paying up, these stories have many student loan debt holders asking, “Can I really be arrested for not paying back my student loan debt?”
What really happens when you don’t pay
The numbers may shock you: 43 million Americans have outstanding student loan debt totaling roughly $1.3 billion. But even more alarming is that the Federal Reserve Bank of New York shows 37 percent of debt holders are making payments and actively working to reduce their share of their student loan debt.
So what about the other 63 percent of those who owe? If the police are coming after debtors, shouldn’t our prisons be packed to the brim with those late on payments?
Major consequences for late payers
The truth is that getting to the point of an arrest is actually a very long journey. It all starts off with a missed payment.
After your first day of missing a payment, your loan is now classified as “delinquent” until you take action. In the meantime, depending on your lender, you may be charged a late fee.
After a month, your lender is able to report your missed payments to one or more of the three credit bureaus. This repeats every 30 days or until you make your payment.
At 270 or more days late, your loan goes from “delinquent” to “default.” At this point, your loan becomes due in full and immediately. You may see your debt garnished from your paycheck or withheld from a tax return.
Many loan providers may then turn your debt over to dreaded collections agencies. As the debtor, you are responsible for paying collection fees which can run from 18-40 percent of your student loan balance.
Arrested for not paying student loans … not exactly
In the case of the Texas man arrested for his $1,500 worth of student loan debt, the timeline was not in his favor. The loan originated in 1987, meaning he was well past the 270-360 day mark to keep his loan from defaulting. Failure to pay collection agencies for nearly 30 years means the collections agency is well within its right to sue him.
According to Consumerist, it was when the collections agency sued the Texas debtor and he failed to appear in court that a judge ordered a bench warrant for his arrest.
In the “Operation Anaconda Squeeze” cases in Minnesota, the same was true for those who were arrested — failure to appear in court or to pay the debt after the court case with the collections agencies led to arrest warrants.
Keeping yourself out of jail is easy
If you are behind on your student loan payments, you have ways to avoid a costly court case or even an arrest. All it takes is a phone call to your lender.
No matter how late your payment is, your best bet is to call your student loan servicer and admit to your mistake. Yes, making the first move can be worrying, even scary, but it is also the best way to avoid a much harsher penalty.
Luckily, the federal government offers student loan debt holders ways to return a delinquent debt (under 270 days past due) back to current. The easiest way is to pay your missed payments and any late or processing fees.
However, there are also circumstances in which you have missed your payments due to financial hardships like losing a job or a medical emergency. In these cases, talk with your federal loan servicer about options such as deferment or forbearance. Getting a deferment or forbearance doesn’t cancel your loan or the money you owe, but these options can postpone or reduce your payments based on your situation.
For defaulted loans, you may qualify for a rehabilitation program in which you set up a new payment through the Department of Education. Once you have made three consecutive payments, you can additionally apply to consolidate your loans.
The short take
For the Texas man arrested for student loan debt, his story isn’t exactly as straightforward as headlines reported. In his case, it wasn’t missing a payment or avoiding the collection companies that landed him in jail. His arrest was sparked by avoiding a court order after nearly three decades of not making an effort to pay.
If your loan is currently delinquent, in default, or being handled by a collections agency, you cannot be arrested for the outstanding debt. However, you should still act fast to rectify the situation and prevent future financial problems.
Create your own “get out of jail” card by contacting your lender today to potentially avoid the most extreme penalties.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
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The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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