Knowing your rights is always a good thing. But when it comes to student loans, it can be difficult to understand what you can do to manage that debt — especially if you run into financial hardships and you’re unable to make your monthly payments. That’s when statutes of limitations can be an important concept to understand.
It’s important to note that these laws only apply to private student loans, not federal loans. There are, however, federal loan programs to help struggling borrowers with those debts.
With that in mind, here’s what you should know about statutes of limitations for student loans.
- Basics of private loans’ statute of limitations
- Determining the statute of limitations on your education debt
- Consequences of falling behind on student loan
- How to handle your loan payments
Statute of limitations on private student loans
Statute of limitations laws limit the amount of time that you can be taken to court for something. For private student loans, this means there’s a finite period you can be sued for unpaid debts.
Each state sets its own statutes of limitations, and the timespan depends on the type of debt you have, where you live, and what state laws may apply based on your original loan agreement. For private student loans, these periods generally range from three to 10 years. After that, the debt is considered “time-barred” and the lender can no longer bring legal action against you.
Exactly when the clock starts also varies by state. “The statute of limitations for private student loans typically begins when a borrower becomes delinquent on their payments, which usually happens when they are 180 days late on a payment,” explained Andrew Latham, a Certified Financial Planner based in North Carolina.
However, the clock could also begin as soon as your first missed payment or might even restart if you were to make additional payments at any point — even partial payments. In some states, the clock can reset if you were to acknowledge the debt in writing or simply promise to pay.
Statutes of limitations don’t change how unpaid debt works appears on your credit report, though. Defaulted student loans can significantly affect your credit, and would generally only fall off your credit report after seven years.
An expired statute of limitations also won’t protect you from collection attempts in most states. While the lender can’t sue you for a time-barred debt, it can still contact you to get you to pay up.
Determining the statute of limitations on your private student loans
Where you live will often have a big impact on the length of your debt’s statute of limitations. Other factors that can influence this include the type of loan you took out and what information is listed in your loan contract. Review your loan’s promissory note for more information about missed payments and applicable state laws.
You can get a general idea about your statute of limitations via your state’s government website or by searching “[state] statute of limitations” in your browser. To find out when the clock started on your debt, ask the debt collector for information about the date of your last payment. Then, you can contact your state’s attorney general office and ask about your state’s statute of limitations.
Consequences of the statute of limitations on private student loans
Before the statute of limitations runs out on private student loans, the debt collector has the opportunity to sue for those unpaid debts. If the court rules in its favor, it could garnish your eligible income or take money from your bank account.
If missed payments, collection attempts, or a lawsuit appears on your credit report, your credit will be significantly impacted, making it difficult to qualify for things like student loan refinancing, car loans, or rental leases. If you have a cosigner on your delinquent loan, they would be obligated to make payments and their credit would be equally damaged.
There can be other financial consequences associated with stopping your payments, too.
“The downside of trying to run out the clock on private student loans is that interest and fees may continue to accrue, and the debt can still negatively impact the borrower’s credit score,” said Latham. “Additionally, the creditor may take legal action to collect the debt, which can result in wage garnishment or seizure of assets.”
If a lender attempts to sue you but you believe the statute of limitations has passed, it’s important not to ignore the lawsuit. Instead, provide proof to the court that the statute of limitations has run out, including the date of your last payment. You might also contact a lawyer for legal advice; there are attorneys who specialize in debt relief.
By contrast, missing payments — but getting back on track within a few months — typically has fewer long-term consequences. Any number of missed payments could negatively impact your credit, but if you can quickly make up the missing amount, you’ll avoid private student loan collections listed on your credit report. In that case, you also wouldn’t have to worry about things like wage garnishment or asset seizure.
How to handle your student loan payments
If you’re unable to make payments on your student loans, you have options. Taking action early can help avoid the worst consequences.
For example, some private lenders will offer temporary forbearance periods, which allow you to pause payments for a given amount of time. Interest typically still accrues during that time, so it can increase your long-term costs, but it can be a useful option if you can get back on track within a few months.
For federal loans, you can take advantage of government programs, like opting for income-driven repayment plans that cap your monthly dues at a percentage of your earnings. Deferments, forbearances, and forgiveness programs are other remedies.
No matter your situation, it’s important to communicate with your lender (or in the case of federal loans, your loan servicer) if you find yourself falling behind on payments.
“My advice if you are behind on private student loan payments is to reach out to your lender as soon as possible to discuss your options,” said Latham. “This could include enrolling in a deferment or forbearance program, consolidating your loans, or exploring alternative repayment plans.”
Of course, another option is to let the clock run out so that the statute of limitations would apply and you couldn’t be sued for that debt. As noted above, there are many potential consequences to this strategy, so you’ll have to weigh those carefully against your situation. But for some, it can be the best way to get by.
“It may make sense to let the statute of limitations run out on private student loans in situations where the borrower is unable to make payments and has no realistic way of paying off the debt,” said Latham.
Before deciding what’s best, consider contacting a lawyer or a legal aid office in your state to help clarify your situation.
