If you truly have your student's interest in mind, then you may inquire as to their ambitions into the spending money on becoming a pilot in the first place.. [need to undergo a psychological evaluation].. If this individual has an actual deficiency, ..[This is because the student served some jail time in the past year.].. you may ask yourself if you want this individual sharing your airspace, let alone your cockpit. You may also consider that this individual has past circumstances (problems with the law) that would eliminate him/her from any prospect of flying positions in the current, or future job climate, which I would think you should disclose to your student. [Charges are not drug/alcohol related, they are traffic tickets and missed court date type offenses.] And you know this to be fact how? Besides traffic tickets aren't good either, let alone missed Court date offenses.
Not trying to read too much into your question, but it seems that the student asked a good question, and you are trying to keep a student, in bad economic times for flight instructors, for the wrong reasons, I.E. your own.