The national student loan debt reached $1.77 trillion in 2023. With such a large amount of debt, staying on top of debt and other financial obligations can be challenging.
If you’re having trouble making monthly payments, 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 garnishments.
This guide will examine the potential legal and financial consequences of not paying debt, as well as offer tips for tackling student loan debt.
Going to Jail for Debt
Not all debt is treated equally by the law. So when can you go to jail for debt?
When debt is ordered by a court, which is the case for child support, missing payments could put you at risk of jail time. To clarify, an arrest would be made for violating a court order, rather than being unable to pay child support.
Failing to pay federal taxes is another situation that could result in jail time, depending on the circumstances. Not paying your taxes could lead to a civil suit with fees and fines, whereas tax evasion or fraud can carry a prison sentence with a conviction.
The key difference is that the latter involves knowingly misrepresenting your finances to get out of paying taxes when you actually have the means to.
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. That’s because failing to pay back debt is a civil offense — not a criminal one.
Under civil law, a lender or creditor can sue borrowers to collect the money owed to them. A civil suit may require a court summons, which if ignored, could lead to jail time for failing to appear in court.
Dealing with debt collectors and a potential lawsuit can be overwhelming. If you’re in this situation, note that the Fair Debt Collection Practices Act ensures certain protections from abusive and illegal debt collection practices.
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 when you stop making payments. Keep in mind that the federal government doesn’t have to sue you to start garnishing wages, tax refund, and Social Security checks.
The statute of limitations on private student loans ranges from 3 to 10 years based on where you live currently or at the time you borrowed, though this may vary.
But when does the statute of limitations on debt start? Depending on the state, the clock starts ticking as soon as you miss a payment or on the date of your most recent payment. Making a partial debt payment could also reset the timer on the statute of limitations.
What Are the Consequences of Not Paying Off Student Loan Debt?
Depending on the type of loan and lender, you may have to start making monthly payments as soon as it’s disbursed. Meanwhile, certain types of federal loans (Direct Subsidized, Direct Unsubsidized, or Federal Family Education Loan) and some private student loan options offer a six-month grace period before payment is due.
If you miss a payment, the loan becomes delinquent, even if missed by one day. However, covering payments on private student loans within 90 days before they enter default can prevent lenders from reporting your non-payment to credit bureaus and a subsequent hit to your credit score. For federal loans, you have 270 days before loans are considered in default.
When loans enter default, borrowers become vulnerable to the consequences of not paying debt. In addition to a lower credit score, borrowers could be sued by collection agencies to have their wages and government benefits garnished. Defaulting on federal loans could rule out any future student loan assistance from the government.
Borrowers in severe financial distress may consider filing for bankruptcy. It is extremely rare to have student loan debt discharged in bankruptcy. It’s worth noting that student loans will only be discharged in Chapter 7 or 13 bankruptcy if the borrower can prove that repayment would cause undue hardship.
This is ultimately decided in an adversary proceeding in bankruptcy court, and may be challenged by creditors. The legal costs of doing so are prohibitive for many borrowers declaring bankruptcy.
Review your options for tackling debt early to avoid ending up with debtors’ prison student loans.
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Tips for Getting Out of Student Loan Debt
Falling behind on your student loans can be stressful. Fortunately, there are options for getting back on track.
Here are 10 ways to get out from under your student loan debt:
It’s hard to manage your finances without a plan. Creating a personal budget is a helpful way to keep your spending in check and determine how much you can afford to allocate to paying off debt.
Sticking to a budget can take discipline. Setting up automated savings can help ensure you set aside enough money for your student loan payment and essential expenses each month.
Knowing how a student loan works, including the interest rate, minimum payment, and the loan term, is foundational to a sound budget.
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.
Taking on a part-time job, freelance work, or selling nonessential personal belongings are a few ways to increase cash flow.
3. Create a Debt Reduction Plan
After taking inventory of all your debts, creating a debt reduction plan is a strategic way to map out how you’ll approach repayment.
A popular system is the avalanche method, which calls for putting any extra cash towards the debt with the highest interest rate while making minimum payments on other balances.
Another option is the snowball method, which focuses on ticking off the smallest debt balances in succession while still taking care of minimum payments on other debt.
Comparing how your current and projected debt compares to the average debt by age can help inform how you approach debt reduction.
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4. Debt Consolidation
If you have multiple debts, it can be difficult to prioritize repayment. They’ll likely all have different interest rates, minimum payment amounts, and dates when payment is due.
Consolidating debt under one loan can streamline the repayment process and potentially lock in better terms for a portion or all of your existing debt.
5. Ask for Help
Asking your lender for a lower monthly payment that you can afford is a possibility worth trying. Reaching out early on can potentially increase your chances of success, as it saves the lender time and money spent on debt collection.
Getting support from friends or family can help too, whether it’s putting money towards debt payments or co-signing on a loan to consolidate debt.
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6. Check State Loan Programs
The federal government offers student loan forgiveness to borrowers who meet certain eligibility criteria, such as working in a certain profession or having a permanent disability.
Similar programs are available at the state-level across the country, and generally base eligibility on specific professions or financial hardship.
For instance, the Rural Iowa Primary Care Loan Repayment Program can provide up to $200,000 towards repaying eligible student loans for doctors who commit to working five years in designated locations.
Meanwhile, the NYS Get on Your Feet Loan Forgiveness Program 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 Employer About 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.
8. Refinance Your Student Loans
Many borrowers choose to refinance their student loans to qualify for a lower interest rate, thus paying less over the life of the loan.
Your income and credit history will impact your ability to refinance, so this strategy may be less fruitful if your student loans are in default. Additionally, refinancing federal student loans will eliminate them from federal borrower protections and payments, such as income-driven repayment plans or federal forgiveness programs. If you are taking advantage of these programs, refinancing may not be the right choice for you.
9. Set Up Income-Based 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:
• Revised Pay As You Earn Repayment Plan
• Pay As You Earn Repayment Plan
• Income-Based Repayment Plan
• Income-Contingent Repayment Plan
The monthly rate is based on family size and discretionary income — usually between 10% to 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.
10. Find New 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.
Although you won’t go to jail for failing to pay your student loans, there are financial consequences, like wage garnishments, subpar credit, and civil lawsuits from debt collectors.
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.
If you’re exploring lenders, check out SoFi. Private student loans from SoFi come with no fees and a six-month grace period. And with multiple repayment plans, you can choose the option that best aligns with your budget.
Do student loans go away after 7 years?
No, student loans won’t disappear after 7 years. However, late payments or defaulting on a loan will be removed from your credit report after 7 years.
How long before student loans are forgiven?
The Public Service Forgiveness Program requires 10 years of service for student loan forgiveness, while income-based repayment plans take 20 to 25 years of repayment 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. Lenders must first sue and get a court judgment to garnish your bank account.
Photo credit: iStock/shadrin_andrey
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