Government: You won’t be cuffed for student loan defaults
It won't help your credit history, but defaulting on student loans will not earn you a one-way ticket to jail.
That word comes from the Education Department in a blog post that advises students past and present that they won't be put behind bars for missing payments.
"America hasn't had debtors' prisons for nearly two centuries, and you cannot be arrested simply for not paying your student loans," Matt Lehrich, communications director at the department, wrote on a blog this week.
When people do start missing payments, Lehrich said, the agency's loan servicers work for almost a year to contact borrowers. They'll be informed of their options to get their payments back on track and the consequences of defaulting, such as taking a hit to one's credit rating.
The department said Thursday that other attempts to collect are made, through the use of private collection agencies, garnishing wages and other actions. As a last resort, the loans are referred to the Justice Department for collection via the courts - something required by law.
Lehrich's blog about student loans followed the arrest in February of a Houston man who had defaulted years ago on a $1,500 student loan dating back to 1987. Reports initially said Paul Aker was arrested for not paying what he owed on the federal loan, but it was later learned that marshals had arrested him for failing to appear in court, and after many attempts to contact him, not because he hadn't paid back the loan.
The Education Department said it refers a small percentage, about 0.25 percent, of federal student loans to the Justice Department - 1,300 in the 2015 fiscal year, down from almost 2,600 in 2009. Those numbers don't necessarily represent the number of borrowers, though, since many borrowers often have two or more loans.
There are options for many people struggling to pay back student loans, such as the Pay As Your Earn repayment plans that allow borrowers to cap student loan payments at 10 percent of income. A loan is usually considered in default if a payment has not been made in more than 9 months.
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