Student Loan Statute of Limitations: How it Works

If you default on your private student loans (meaning you stop making payments), the lender has a limited time to sue you to get the money back. This time limit is called the “statute of limitations,” it varies depending on your state.

What happens when the time limit runs out?

The unpaid debt becomes “time-barred.” This means the lender can’t legally force you to pay through a lawsuit. But they might still contact you and try to collect the debt. If they contact you, they must let you know that the debt is time-barred.

The timeframe for the statute of limitations on private student loans can be complicated.

Ahead, I’ll explain how to determine whether your debt is approaching the statute of limitations and what actions you might consider before that deadline.

I’m Stanley Tate, a student loan lawyer. If you have questions about how the statute of limitations applies to your situation, feel free to contact me for a consultation.

There’s no statute of limitations for federal student loans. This means the federal government can sue you anytime to collect on defaulted federal student loan debt like:

• Direct Loans

• Parent PLUS Loans

• Stafford Loans

• Subsidized and Unsubsidized Loans

• Federal Family Education Loans (FFEL)

• Health Education Assistance Loans (HEAL)

• Perkins Loans

But federal student loan borrowers are rarely sued for unpaid debt.

The Education Department has broad and powerful tools to collect student loan debt, including:

• Wage Garnishment: Withholding parts of your wages directly using administrative wage garnishment powers.

• Tax Refund Offset: Seizing your tax refunds, including your spouse’s part of the refund.

• Social Security Offset: Taking part in your Social Security benefits, no matter your financial hardship.

Private student loans have a statute of limitations of anywhere from 3 to 15 years. After this, they become time-barred debt. The exact time frame may depend on where you live now, where you signed the promissory note, or what the agreement says.

Related: What Happens If You Default On Private Student Loans?

Private student loan contracts often involve banks headquartered in one state lending to students in a different state who move to another after leaving school. These contracts may specify that a particular state’s laws apply to disputes. But that doesn’t mean that’s the statute of limitation the court will use if a lender or debt collector sues you.

It could be:

• Where you lived when you signed the contract.

• What the contract says.

• Where you live today.

The answer often depends on whether your court has a borrowing statute.

More than half of the states in the U.S. have “borrowing statutes.” A borrowing statute is a law that determines which state’s statute of limitations applies when a creditor sues in a state different from where the student loan borrower entered into the loan agreement.

How Borrowing Statutes Work

Borrowing statutes generally require a lawsuit to be filed within the shorter of two deadlines:

• The statute of limitations in the state where you took out the loan.

• The statute of limitations in your current state.

For example, if you took out a student loan in California, where the statute of limitations is 4 years, and then moved to Nevada, which has a 6-year statute, borrowing statutes would typically require any lawsuit to be filed within California’s shorter 4-year limit.

To add another wrinkle, some statutes use the creditor’s location over where you took out the loan or where you live. This is because the economic injury — i.e., the missed student loan payments — occurs in the creditor’s home state. For example, if a lender in Delaware, with a 3-year statute of limitations, extends credit, that shorter period applies even if you move to a state with a longer statute.

The core principle behind borrowing statutes is to ensure fairness and prevent creditors from’ forum-shopping’ for states with longer statutes to sue consumers. It balances protecting consumers from stale claims and acknowledging creditors’ rights.

 

Yes, a creditor or collection agency technically can still attempt to sue you even after the statute of limitations has ended. This, however, does not mean they are guaranteed to win.

Here’s what you need to know:

• Your Defense: If you get sued over an old debt, you can ask the court to dismiss the case because it’s “time-barred” (meaning the statute of limitations has passed). This is a strong defense.

• Don’t Ignore a Lawsuit: Responding to a lawsuit is important, even for expired debt. Otherwise, the court may automatically rule for the loan holder.

• Potential Countersuit: Debt collectors cannot knowingly pursue expired debts. If a debt collector sues you despite the statute of limitations ending, you might have grounds to countersue them for violating the Fair Debt Collection Practices Act.

Important: Consulting an attorney specializing in consumer debt can help you understand your specific rights and best strategy.

State laws differ on whether the statute of limitations for student loan debt starts to run when you miss your first monthly payment (default) or when the creditor declares the entire loan balance due right away (acceleration).

For example, I recently represented a client in Virginia facing a lawsuit over a 15-year-old unpaid student loan debt. The lender claimed that it had only recently accelerated the debt. So we knew that Virginia’s statute of limitations had not yet expired. Because we understood this state’s specific laws, we helped the client negotiate an out-of-court settlement rather than fight the debt before a judge.

Related: Can You Be Sued For Student Loan Debt?

Certain situations can extend a lender’s deadline to sue you over a debt. Here’s what you need to know:

• Active military service typically extends the statute of limitations on all types of debt, including student loans.

• Filing for bankruptcy automatically puts a hold on collections efforts, including extending the statute of limitations.

Also, each state has its own rules about when the limitation period can be extended. Common reasons for extensions might include:

• Leaving the state: Depending on the law, this may extend the timeline, but usually not if you can still be legally served with a lawsuit.

• Being a minor: In some states, the clock doesn’t start ticking until the borrower turns 18.

But what if you make a partial payment or acknowledge the debt? Does either action reset the statute of limitations clock? The answer varies significantly by state:

• Kansas: A partial payment restarts the statute of limitations on debt collection. This means making any payment towards your debt can extend the time a creditor has to pursue you legally.

• Maryland: Unlike Kansas, Maryland requires a written and signed admission of the debt to reset the statute of limitations. Simply making a partial payment does not extend the creditor’s timeframe to sue.

• California and New Mexico: In these states, acknowledging an old debt doesn’t affect the statute of limitations. Even if you acknowledge the debt, it won’t extend the period for legal action to be started against you.

How long an unpaid debt can damage your credit score differs from the timeframe a creditor has to take legal action against you for nonpayment.

• Credit Reporting: Federal law (the Fair Credit Reporting Act or FCRA) generally limits how long negative information can stay on your credit report. Late payments, collections, and student loan default statuses usually fall off after seven years.

• Statute of Limitations: This sets a deadline for how long a creditor can legally sue you to collect the debt. SOLs vary by state. Yours might be as short as three years. This means it’s possible to be legally no longer required to pay a debt, yet it could still hurt your credit score.

If a negative mark persists on your credit report beyond the 7-year limit:

1. Start with a Dispute: File a dispute directly with the credit bureau reporting the issue. They must investigate and remove inaccurate information.

2. Seek Professional Help: If the dispute doesn’t resolve the issue, consider consulting an FCRA attorney. They specialize in consumer credit law and can help you assert your rights.

3. Consider Your State Attorney General: Sometimes, your state’s Attorney General’s office may offer assistance with credit reporting issues.

Dealing with unpaid student loans is stressful, but if the statute of limitations hasn’t ended, you have options and time on your side.

Here’s what you can do:

Federal Loans

If you’re struggling with student loan payments, switch to an income-driven repayment plan like the SAVE Plan. These plans adjust your monthly payment based on your income and family size.

If you have a high income and can’t afford the IDR Plan payments, ask for a forbearance or deferment. These can temporarily pause payments, but interest may still accrue. Consider these options only as a short-term solution.

You can also look to loan forgiveness programs. Right now, the Education Department is reviewing borrowers’ accounts to give them credit toward 20 and 25-year loan forgiveness.

We’ve helped many clients meet the eligibility requirements for this one-time account adjustment by combining their federal loans into a Direct Loan. The deadline to apply for loan consolidation is April 30, 2024.

Private Loans

Unlike federal loans, private lenders rarely offer the same flexibility in repayment plans. Your primary options if you need to reduce payments are often limited to:

• Refinancing: This option can lower your monthly payment by giving you a better interest rate and a longer repayment term. But not everyone will meet the eligibility requirements. To qualify for student loan refinancing, you’ll need a credit score in the 700s, enough income for the new student loan payment, credit card bills, and other expenses, or a cosigner with both. Use an online marketplace like Credible to shop for the best rates and terms.

• Negotiating a settlement: If refinancing isn’t possible and your loans are delinquent or in default, you might be able to negotiate a settlement with the lender for less than the total owed. This arrangement often lets you pay less than you owe on your student debt. But it will add negative marks to your credit report.

• Student Loan Bankruptcy: We use this option for clients struggling to refinance or pay off student loans. Success isn’t guaranteed due to laws making student debt hard to eliminate. But we have a strong track record of using this process to eliminate student debt or negotiate much better payment terms with lower interest rates.

Related: Private Student Loan Debt Settlement

Federal student loans do not have a statute of limitations, meaning there’s no time limit for legal action to collect these debts. But private student loans do have a statute of limitations, which varies depending on several factors.

The key factors determining the statute of limitations for your private student loans include the state where you currently reside, the specific terms outlined in your promissory note, the location where you signed your loan agreement, and the date of your last payment. It’s important to note that the date when the loan was charged off usually does not impact the statute of limitations.

If you’re looking for assistance with your private student loans, consider scheduling a call with our team. We have successfully guided hundreds of individuals in navigating their student loan issues, helping them to find effective solutions for managing their debt and improving their credit scores.

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