Is there a statute of limitations on student loan debt?

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If you have defaulted on your student loan, it is important to know the statute of limitations on student loans to avoid potential legal issues. (iStock)

Most creditors and debt collection agencies have a limited window of time to file a lawsuit to collect a claim. This window is known as the statute of limitations.

It is important to know the statute of limitations on your debt if you have defaulted on your government or private student loan. This article will tell you if there is a statute of limitations on student loans, how long it is, and what it means for you.

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Is there a statute of limitations on student loan debt?

Most statute of limitations range from three to six years, but this can vary based on state law, the nature of your debt, and the terms of your loan agreement, according to the Consumer Financial Protection Bureau (CFPB).

Statute of limitations for federal student loans

Unfortunately, there is no statute of limitations on federal student loans for troubled borrowers. Regardless of how long your federal student loans have been in default, the federal government can pursue forfeiture through wage garnishment or confiscation of tax refunds or other state benefits. However, the garnishment may not exceed 15% of your available wages.

Statute of Limitations for Private Student Loans

Most states have different statute of limitations depending on the type of debt you owe. There are basically four types of debt:

  • Oral agreements – With a verbal agreement, you borrow money from someone and agree to pay it back, but not in writing.
  • Written agreements – You have a written agreement that sets out how much you borrowed, when you borrowed it, how much interest you will be charged, how you will make payments, and other terms. This is common with auto loans and medical debt.
  • Promissory notes – Promissory notes are written agreements, but they are usually less detailed than written contracts. Mortgages and student loans are usually considered promissory note loans.
  • Open accounts – These are credit accounts that remain open indefinitely. Credit card debt and other lines of credit fall into this category.

A state may have different statute of limitations for credit cards, verbal agreements, written agreements, and promissory notes, and the time limits for each type of debt vary depending on the state. In most states, the statute of limitations on borrower’s note loans (which cover most personal student loans) is six years, but it can be three or ten years.

Once the statute of limitations has expired, the debt is considered “statute barred” and the obligee cannot sue or threaten you.

When does the limitation period for the student loan begin?

The statute of limitations usually starts when you fail to make a payment for a debt, but it can also start with the last payment or partial payment. The official start date also varies depending on state law.

For example, let’s say the statute of limitations for private student loan in your state is six years and starts on the day you miss a payment. If you missed your payment on January 1, 2021, your statute of limitations runs until December 31, 2027.

Contact your state attorney general or an attorney who is familiar with your state’s collection laws to learn more about the laws that apply to your situation.

Can you restart the statute of limitations for student loans?

In some states, the statute of limitations can easily be restarted. For example, if your state starts the clock on the day of your last payment, a partial payment can restart the clock even after your loan has defaulted. Some states also restart the statute of limitations if you acknowledge the guilt in writing.

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What happens when the statute of limitations on student loans ends?

If your debt is out of the statute of limitations, it doesn’t mean you no longer owe the money. It just means the lender has fewer collection options and you can no longer sue for collections.

Lenders can still try to collect the debt by calling you and sending you letters as long as they are not against that Fair Collection Practices Act.

If a creditor or debt collection company sues you after the statute of limitations has expired, don’t ignore it. According to the CFPB, a court can still issue a judgment against you if you do not increase the statute of limitations as an objection. For this reason, it is a good idea to discuss your situation with an attorney who is familiar with your state’s collection laws.

Should You Try To Pay Off Your Student Loan Debt?

Paying off your student loan debts involves negotiating with the lender and getting them to accept less than the full amount owed as the final payment for your debt.

That might sound tempting, especially if you can’t pay off your debt in full. But there are some drawbacks, such as:

  • Damage to your creditworthiness – When you pay off a debt, it will show up as “paid” on your credit score. This is a negative point on your credit report and will stay there for seven years, which will drag your score down.
  • High fees / low success rates – Many companies advertise debt settlement services and promise to help you get rid of debt for pennies on the dollar. But their services are expensive, with fees ranging from 15 to 25% of the total debt that you sign up for the program. Plus, it’s not always successful. Less than half of the debt is paid off after three years, according to the National Foundation for Credit Counseling, a nonprofit credit counseling organization.
  • Released debts can be taxable – In general, when a debt is paid or waived, the amount waived is considered taxable income. While some state student loan programs are not taxable, billed private student loans are generally taxable.

If you do decide to negotiate a settlement with the obligee, get the obligee’s approval in writing before making your payment. Otherwise, you could start the statute of limitations on your debt all over again, only to find that the creditor is not about to honor the end of the agreement.

Ways To Minimize Student Loan Debt

Waiting for the statute of limitations isn’t the only – or even the best – way to deal with student loan debt. If you’re having payment issues or are already in default, consider these options:

  • Refinance your student loans. Refinancing your student loan You may be able to exchange your current student loan for a new loan with a lower interest rate, which will save you money over time. However, proceed with caution before refinancing federal student loans. Refinancing Federal Loans Into A Personal Loan means the loss of valuable benefits and protections, including respite, forbearance, income-oriented repayment plans, and federal lending programs.
  • Sign up for an income-based repayment plan. An earnings-based repayment plan sets your monthly federal student loan payment at an amount that should be affordable based on your income and family size. The Department of Education offers four income-based amortization plans that will dispense any remaining loan balances if your loans are not paid back in full at the end of the repayment period.
  • Sign up for an advanced repayment plan. An extended repayment plan is a type of repayment plan offered by the Department of Education that allows you to make lower monthly payments over a longer period of time – usually 25 years. This can help make your monthly payment more affordable. Remember, however, that extending your repayment deadline will likely mean you will be paying more interest overall.
  • Consider respite or indulgence. Deferment and deferral allow you to temporarily postpone or reduce your state student loan payments. Postponement is usually possible if you are facing temporary personal or financial distress. Examples are cancer treatment, service in the Peace Corps or the military, unemployment or returning to school. No interest accrues while your credit is deferred. Even if you don’t qualify for deferment, you may still be eligible for a deferral if you cannot make your state student loan payments because of financial difficulties, medical expenses, a change of job, or other reasons. Interest continues to apply during the deferral.

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