But is this the way to go? Can you bury your head in the sand and pretend your loans don’t exist? It’s a gamble, and the outcome depends on the types of loans you have: federal or private loans.
Federal student loans
Unfortunately, loans don’t just magically disappear just because you haven’t paid in years or never made a payment.
Well, most don’t.
The federal government owns a whopping 93% of student loan debt. And guess what? Federal student loans don’t have a statute of limitations. That means they’ll follow you to the grave.
Related: Is My Spouse Responsible for My Student Loans If I Die?
Even if your student debt has fallen off your credit report, you’ll still owe federal student loans. You’ll also be at risk of wage garnishment, tax refund seizure, and Social Security benefits offset until you return your account to good standing.
Now, historically, the U.S. Department of Education and its debt collectors have made it challenging to do just that. They’ve forced borrowers to jump through hoops, fill out endless paperwork, and make monthly payments for nine straight months. It’s a bureaucratic nightmare that can seem never-ending.
But there’s some good news on the horizon. During the pandemic, the Biden administration has stepped in to help the 8 million borrowers with FFEL and Direct Loans who have found themselves in default. They’ve introduced a program that could get those borrowers back on track with a simple phone call and an agreement to make future federal student loan payments based on their discretionary income.
Related: How to Apply for Fresh Start Program for Student Loans
Private student loans are a different story.
They’re subject to a statute of limitations. That means the loan holder must sue you within a certain period of time, or else they lose the right to force you to pay by court order. The length of that period depends on the terms in your promissory note and the state law where you live.
This is where things get murky.
Even if the statute of limitations has passed, private lenders can still send you collection letters if they don’t violate any laws. This is usually when you’ll get tempting student loan settlement offers, promising to wipe your slate clean for pennies on the dollar.
But what are you actually paying for?
Here’s the truth: paying the settlement amount won’t remove the late payments and defaulted private student loans from your credit history. And if the collection agency admits they can’t sue you, what incentive do you have to pay?