This week, social media has been exploding over a story out of Houston, TX that a man was arrested by U.S. Marshals over a 30-year old defaulted federal student loan. People are, quite understandably, angry and terrified about the prospect that the federal government may now be arresting people who default on their student loans.
It’s a bit more complicated than that, however.
First of all, as a threshold matter, let me make one thing absolutely clear: It is not a crime to default on student loans. Don’t get me wrong – defaulting on student loans (particularly federal student loans) is very serious. The federal government has draconian collections powers that can cause significant hardships for student loan borrowers, and the secondary consequences of default can be even more crippling. Default can literally ruin someone’s life, and it’s no laughing matter. But, I’ll say it again: It is not a crime to default on student loans.
So what happened to this guy in Texas?
The borrower in this case defaulted on his federal student loan decades ago. He was sued in federal court, and failed to respond to the summons. A judgment was issued in his absence. Afterwards, the court repeatedly summoned the borrower to appear in court to deal with the judgment – multiple orders were issued over the course of several years (when you are summoned to court, you must appear). Court officials say they were able to speak to the borrower by phone at one point, and they again ordered him to appear, but he refused. The presiding judge then issued an arrest warrant for the borrower for being in contempt of court. He was then ultimately arrested on that warrant (the contempt of court charge). He was briefly held, made to sign a payment agreement for the underlying loan, and was released.
So was the borrower arrested because he had defaulted student loans? Sort of, but only indirectly. He was arrested because he was repeatedly ordered to appear in court, repeatedly refused, and was finally found to be in contempt of court. This can happen in any circumstance where someone is ordered to appear in court and fails or refuses to do so – it doesn’t matter what the underlying issue is. In this case, the underlying issue was defaulted federal student loans, but it could be anything that requires you to appear in court. And judges generally don’t just hand out arrest warrants for contempt out of nowhere – it’s usually only after the person repeatedly fails or refuses to comply with a court order.
That said, do I support what happened in Texas? Absolutely not. This was a federal student loan of about $1,500. Your tax dollars already pay to support a federal student loan servicing system contracted out to private companies that is completely inept; a federal student loan debt collection system contracted out to private firms that is inefficient and routinely violates the law; and now we’re sending heavily armed federal law enforcement officials on behalf of these contractors to drag people to court? Over a 30-year old, $1,500 loan? Please. I think we can do better.
As U.S. Congressman Gene Green said, “There’s got to be a better way to collect on a student debt that’s so old… Our federal resources, our U.S. marshals and the federal court system are being used by the private sector.” This is not okay.