Is There a Statute of Limitation for My Student Loans?

Is there a statute of limitations on student loan debt? An essay in the New York Times by a writer who strategically defaulted on his student loans has rekindled the ongoing debate about the fairness of allowing young people to be saddled with large — or even massive — debt, sometimes for the rest of their lives, and what happens when they decide to buck the system.

But not all student loans last forever. Whether it does depends in part on the type of loan. Private student loans are subject to statutes of limitation. Federal student loans, however, have not been subject to statutes of limitation for nearly 25 years.

“The elimination of the statute of limitation for government student loans in 1991 placed borrowers in unenviable, rarified company with murderers, traitors, and only a few violators of civil laws,” wrote the National Consumer Law Center in a policy brief.

Statutes of limitation generally limit how long creditors or collectors can sue borrowers to collect debts. In most cases, collectors can still try to collect on time-barred debts, but may be limited in their ability to use the courts to do so. Consumers who are sued for debts beyond the statute of limitation (a.k.a. “time barred” debts) can raise the statute of limitation as a defense against the lawsuit.

The statute of limitation usually begins when a borrower last made a payment or defaulted. Making a payment at a later date, or in some cases even acknowledging the debt, can restart the clock on the statute of limitation.

Why It’s Important to Seek Legal Guidance

Statutes of limitations are a matter of state law, and the time period that applies to a specific loan is not always clear.

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There are primarily two ways that state laws handle the statute of limitations, explains Joshua Cohen, a consumer lawyer who specializes in student loan law. Some states are “procedural,” he says. In those states, the law of the state in which the lawsuit is filed applies. (Debt collectors must sue debtors where the debtor currently lives.) “If you are in Connecticut, it’s a six-year statute of limitations, and you are stuck with (the law of) the state where you live.”

In other states, this time period is “substantive,” he says. In those states, “the courts say whatever law governs the contract” is the one that applies. Florida is one of these states. If the lawsuit was filed against a debtor in Florida, “the statute of limitations from the state of the contract” would apply, says Cohen. That period might be shorter than the five-year Florida statute of limitation, but it couldn’t be longer. And still other states, such as New York, have “borrowing statutes,” he says which means it “borrows the statute (of another state) based on the contract.”

And then there are additional nuances. Cohen explains: “In Vermont, there is a six-year statute of limitation, but if (the contract) is witnessed, it is 10 years. In Pennsylvania those signed under seal have a 20-year statute of limitation and at least one lender buries a clause in there that says it is signed under seal,” he says.

Sometimes these limits are based on case law rather than clearly spelled out in state law. In other words, they aren’t always crystal clear, even for attorneys, much less for consumers. Therefore, consumers who are facing default or collection on a private student loan would be wise to contact a consumer law attorney in their state for help.

“Get an opinion from a lawyer licensed in your state,” recommends Steve Rhode, founder of GetOutofDebt.org. “So many of these private student loans were packaged and rebundled that challenging the loan documentation will limit if it is collectible, regardless of time.”

Borrowers can locate consumer law attorneys with experience in student loan law at TheStudentLoanLawyer.com or at the website of the National Association of Consumer Advocates.

Besides challenging a time-barred debt, there may be other ways that students can avoid having to repay their private student loans. “These limitations include what the loan was used for and if the school was accredited at the time of attendance,” says Rhode. “Those two facts can provide strict limitations on what part of, or whether, the loan can be collected.”

Note that the length of time that negative information such as late payments or collection accounts can remain on credit reports is governed by a different law, the Fair Credit Reporting Act. So just because the statute of limitation has expired on a student loan debt, that doesn’t necessarily mean it won’t appear on your credit reports. And just because a debt doesn’t appear on your credit reports, that doesn’t mean that it can no longer be collected. (Either way, it’s important to check your credit reports regularly to see what’s being reported on them. You can get your credit reports for free once a year from AnnualCreditReport.com, and you can get a free credit report summary from Credit.com every month to watch for any changes.)

“The removal of both statutes of limitation and bankruptcy protections from student loans should never have happened,” says Alan Collinge, founder of Student Loan Justice. ”This has given rise to an out-of-control, predatory lending and collection system that is devastating families by the millions.” He takes particular issue with the fact that defaulted student loans are profitable for the government — and says the lack of these consumer protections are the reason why.

What Can You Do If You Can’t Pay?

Since it’s unlikely this will change in the near future, here are steps to take if you have student loan debt you can’t pay:

Make sure you first understand whether your loans are private or federal. (Check the National Student Loan Data System which should include your federal loans, or ask your servicer if you still aren’t sure.)
Get your credit reports to find out which loans are reported, and the status of those loans. While the credit reports shouldn’t be your sole source of information about these debts (reporting mistakes do happen), they may help identify loans you’ve lost track of.
If you have federal loans, look into loan forgiveness programs or flexible repayment plans such as Income-Based Repayment or Income-Contingent Repayment.
A credit counselor with expertise in student loan counseling may be able to help you navigate your options for a low fee as well.
If you have private loans, talk with a consumer law attorney to discuss your options, including strategic default, bankruptcy or negotiation/settlement.
Watch out for student loan relief scams that may charge high fees for services that are free (such as applying for payment relief directly with your servicer).