Can You be Arrested for Not Paying Your Student Loans?

on April 20, 2016

The federal government has very strong powers to compel repayment of defaulted federal student loans, but imprisonment is not one of them.

The federal government does not have the legal authority to arrest anybody over unpaid student loans. The Higher Education Act of 1965 provides for criminal penalties of up to 5 years in prison and fines of up to $20,000 for fraud involving federal student aid funds at 20 USC 1097(a). These penalties apply to situations involving embezzlement, theft, fraud, forgery and false statements, such as knowingly and willfully providing false information on the Free Application for Federal Student Aid (FAFSA). Similar penalties apply for obstruction of justice. These penalties do not apply to a failure to repay defaulted federal student loans.

The U.S. Department of Education can garnish up to 15 percent of a defaulted borrower’s wages, offset federal and state income tax refunds and withhold up to 15 percent of Social Security disability and retirement benefits, all without a court order. Collection charges of up to 20 percent will be deducted from every payment. The federal government can prevent the renewal of professional licenses (including driver’s licenses in some states). The U.S. Department of Education can report the default to credit reporting agencies, which may affect the borrower’s ability to qualify for credit cards, auto loans and mortgages. Some landlords and employers check credit histories, so a default on a federal student loan may affect the borrower’s ability to rent an apartment or get a job. Borrowers who are in default on their federal student loans are ineligible for FHA and VA mortgages and may not enlist in the U.S. Armed Forces.

The U.S. Department of Justice can sue a borrower to collect a defaulted loan. With a court judgment against the borrower, the federal government may be able to seize the borrower’s assets (e.g., bank levies) and place a lien on the borrower’s home.

If a defaulted borrower is sued and is ordered to appear before a judge, the judge can issue a bench warrant for the borrower’s arrest if the borrower fails to show up in court. But, this just doesn’t happen. The U.S. hasn’t had debtor’s prisons since the 1800s.



When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs.

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