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Understanding How Statutes of Limitations Apply to Student Loans

By Drew Cloud, The Student Loan Report

Student loans present a convenient option for many students who either do not qualify for financial aid or who need to supplement their scholarships and grants. Even so, it’s important to understand your rights prior to taking out those loans, including the methods lenders can use for collecting debt if you should fall behind on your loan payments. You should also understand the statutes of limitations that apply to student loans.

What Is a Statute of Limitations?

In terms of debt collection, a statute of limitations refers to the amount of time the lender has to sue for outstanding debt. This time limit does apply to private student loans but is not applicable to federal student loans, including the Perks, Stafford, and Parent PLUS loans, as well as federal consolidation loans. There has not been a statute of limitations for federal student loans since 1991. The specific amount of time for a statute of limitations also varies from one state to another.

In some states, the statute of limitations is capped at three years, while it’s as long as 10 years in other states. Many times, consumers make the mistake of believing that simply because a statute of limitations has expired, the lender cannot continue attempting to collect the debt. This is not the case. The statute of limitations only prevents the lender from suing you. It does not eliminate the debt. If you are not clear about the statute of limitations as it applies to a specific debt, it’s important to consult with an attorney. You should also be aware that collectors are bound by law to inform you if the statute of limitations on your debt has expired, if you ask.

Given this, it’s important to be aware that you also have the right to extend the statute of limitations. Depending on the situation, you may be able to either waive or extend the existing statute of limitations by agreeing either verbally or in writing to repay the debt or agree that the debt is valid. This is only applicable in situations in which the lender is allowed to sue you for the debt. Most creditors will not do this if you are making payments in a satisfactory manner.

Reviving the Statute of Limitations on Debts

Additionally, making a payment on a debt can serve to revive a statute of limitations. For instance, suppose you stop making payments on a debt in a state where there is a five-year statute of limitations for such debts. The timeline for the statute of limitations ceased when you stopped making payments. In the event you never make another payment or take any other action that would otherwise extend the statute of limitations, the creditor’s option to sue you would end five years later. Should you make a payment at any time during that five-year period, however, the statute of limitations would begin again and not end until another five years had passed.

Some creditors purchase old debts for a small amount of money and then attempt to collect the debt using aggressive collection tactics. In and of itself, this practice is not illegal, as you are still responsible for the debt. It is illegal if the creditor attempts to harass you, tricks you into renewing the statute of limitations, or threatens you in any way.

Fortunately, most courts will not accept a renewed timeframe if you were unaware that the statute of limitations was being renewed. In the event a creditor attempts to sue you or even threatens to sue for a debt on which the statute of limitations has expired, it’s important that you contact your lawyer or file a complaint with the Federal Trade Commission.

It can be relatively easy to settle a loan with an expired statute of limitations. Once a creditor knows it’s no longer an option to force you to pay back the debt using legal action, it is often much more agreeable to settling the debt for less than what is actually owed.

There is no statute of limitations on federal student loans. Regardless of whether the loan is several decades old, if you have failed to make payments, you can still be sued for payment by the federal government. In the interim, collection costs and interest will likely continue accruing, which will make the amount owed even greater. For this reason, it’s a good idea to try to work out a solution with your loan holder. Doing so will usually be far less expensive than simply ignoring the issue.

Other factors can also affect the statute of limitations behind state laws. Among those factors are whether the school was accredited at the time you attended and how the loan was used. These two factors alone can have a significant impact on which part of a loan and even whether the loan can be collected.

The Difference Between Credit Reporting and Statute of Limitations on Debt

Borrowers should also be aware that the length of time that information regarding loan payments, including collection accounts and late payments, can remain on credit reports differs from the statute of limitations for being sued for collection. The Fair Credit Reporting Act governs negative information reported on credit reports. Simply because the statute of limitations has expired on a loan, it does not mean that negative information will no longer appear on a credit report. Likewise, just because there is no information regarding a debt on your credit report, it does not mean the creditor can longer attempt to collect the debt.

Remember, when researching student loans, it’s vital to understand the collection rules as they apply to such loans. Furthermore, never borrow more money than you realistically expect you will be able to repay and carefully consider the impact it could have on your life if you experience financial problems in the future and are not able to repay your loans.

he Student Loan Report is a content partner of The Port Arthur News providing news and commentary. This content is produced independently of The Port Arthur News.