Is there a statute of limitations on student loan debt?
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Most creditors and debt collectors have a limited window to take legal action to collect a debt. This window is known as the statute of limitations.
It’s important to know the statute of limitations that applies to your debt if you haven’t paid off your federal or private student loans. This article will explain if there is a statute of limitations for student loans, how long it lasts, and what it means to you.
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Is there a statute of limitations on student loan debt?
Most statutes of limitations are three to six years, but this can vary depending on state law, the type of debt you have and the terms of your credit agreement, according to the Consumer Financial Protection Bureau (CFPB). .
Limitation period for federal student loans
Unfortunately for troubled student loan borrowers, there is no statute of limitations for federal student loans. No matter how long your federal student loans have been in arrears, the federal government can pursue collection through wage garnishment or garnishment of tax refunds or other government benefits. But garnishment cannot exceed 15% of your available salary.
Limitation period for private student loans
Most states have different limitation periods depending on the type of debt you owe. There are generally four types of debt:
- Oral chords – With an oral agreement, you borrow money from someone and agree to pay it back, but not in writing.
- Written agreements – You have a written agreement detailing how much you borrowed, when you borrowed it, how much interest you will be charged, how you will make your payments, and other terms. This is common with auto loans and medical debts.
- Promissory notes – Promissory notes are written agreements, but are generally less detailed than written contracts. Mortgages and student loans are generally considered promissory notes.
- Open accounts – These are credit accounts that remain open for an indefinite period. Credit card debt and other lines of credit fall into this category.
A state may have different limitation periods for credit cards, oral agreements, written agreements, and promissory notes, as well as the time limits for each type of debt. vary by state. In most states, the statute of limitations for promissory loans (which covers most private student loans) is six years, but can be as short as three years or as long as 10 years.
After the statute of limitations has passed, the debt is considered “statute-barred” and the creditor cannot sue you or threaten to sue you.
When does the statute of limitations for student loans begin?
The statute of limitations usually begins when you miss a payment on a debt, although it can also begin when you have made your most recent payment or a partial payment. The official start date also varies by state law.
For example, say the statute of limitations private student loans in your state is six years old and begins on the date you miss a payment. If you missed your payment on January 1, 2021, your limitation period runs until December 31, 2027.
Check with your state attorney general’s office or an attorney familiar with your state’s debt collection laws to learn more about the laws that apply to your situation.
Can You Restart the Student Loan Limitation Period?
In some states, the statute of limitations can be restarted quite easily. For example, if your state starts the clock on the date of your last payment, then making a partial payment – even after your loan is in default – may restart the clock. Some states also restart the clock on the statute of limitations if you acknowledge the debt in writing.
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If your debt is outside the statute of limitations, that doesn’t mean you no longer owe the money. It just means the lender has fewer collection options and can no longer sue you to collect the balance.
Lenders can still try to collect the debt by calling you and sending you letters, as long as they don’t break the Fair Debt Collection Practices Act.
If a creditor or debt collector sues you after the statute of limitations expires, don’t ignore them. A court can still pass judgment against you if you don’t invoke the statute of limitations as a defense, according to the CFPB. For this reason, it is a good idea to discuss your situation with an attorney familiar with the debt collection laws in your state.
Should You Try To Settle Your Student Loan Debt?
It might sound appealing, especially if you can’t pay off your debt in full. But there are some drawbacks, such as:
- Damage to your credit score – When you pay off debt, it shows up on your credit score as “settled.” This is a negative item on your credit report and will stay there for seven years, lowering your score.
- High fees / low success rates – Many companies advertise debt settlement services, promising to help you get out of debt for “pennies on the dollar.” But their services are expensive, with fees of up to 15-25% of the total debt you take out in the program. Moreover, it is not always successful. Less than half of debts are settled after three years, according to the National Foundation for Credit Counseling, a nonprofit credit counseling organization.
- Debt forgiven may be taxable – Usually, when a debt is settled or canceled, the forgiven amount is considered taxable income. Although some federal student loan exemption programs are not taxable, paid private student loans are generally taxable.
If you decide to negotiate a settlement with the creditor, get the creditor’s agreement in writing before making your payment. Otherwise, you might end up restarting your debt statute of limitations, only to find that the creditor has no intention of honoring the end of the agreement.
Ways to Minimize Student Loan Debt
Waiting for the statute of limitations is not the only – or even the best – way to deal with student debt. If you’re having trouble making your payments or are already in default, consider these options:
- Refinance your student loans. Refinance your student loans can allow you to swap your current student loans for a new loan with a lower interest rate, saving you money over time. But proceed with caution before refinancing federal student loans. Refinance Federal Loans to a Private Loan means losing valuable benefits and protections, including deferral, forbearance, income-driven repayment plans, and federal loan cancellation programs.
- Join an income-based repayment plan. An income-based repayment plan sets your monthly federal student loan payment at an amount intended to be affordable based on your income and family size. The Department of Education offers four income-based repayment plans, all of which write off the loan balance if your loans aren’t fully repaid at the end of the repayment period.
- Sign up for an extended 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, typically 25 years. It can help make your monthly payment more affordable. But keep in mind that extending your repayment term likely means you’ll pay more interest in total.
- Consider adjournment or abstention. Both deferral and forbearance allow you to defer or temporarily reduce your federal student loan payments. Deferral is usually available when you are facing temporary personal or financial hardship. Examples include undergoing cancer treatment, serving in the Peace Corps or the military, being unemployed, or going back to school. As long as your loans are deferred, no interest will accrue. Even if you don’t qualify for the postponement, you may still be eligible for forbearance if you cannot make your federal student loan payments due to financial hardship, medical bills, a job change, or for other reasons. During the forbearance period, interest will continue to accrue.
If you are ready to refinance, you can use Credible to easily compare student loan refinance rates.