What is the statute of limitations on private student loans?
Once this statute of limitations is reached, the creditor can no longer sue you. It is important to note that this time limit only applies to private student loans. Federal student loans are not subject to application restrictions. The federal government can take steps to recover money from you at any time.
What is the statute of limitations on debt?
The statute of limitations on debt refers to the time a creditor can sue you for arrears if your debts are in default. When your loan exceeds this deadline, it is considered "time out". Once the loan period expires, the lender cannot engage with the legal system or sue you for money back.
This does not mean that your student loans go away when the loan becomes delinquent. You will still owe the creditor after the statute of limitations expires. The creditor may still require you to pay. However, the only difference is that the creditor cannot use the legal system to recover the money.
If you have private student loans that have been in default for several years, it helps to understand how the law works.
What is the statute of limitations on private student loans?
The statute of limitations on private student loans varies from state to state. Your student loan debt is subject to the laws and guidelines of the state where you live. The time frame in most states is usually 3 to 6 years, although some states have longer periods.
If the statute of limitations in your state is 3 years, that means the creditor has only 3 years after your failure to sue you for payment. After that, they cannot sue you in court to collect what you owe, although they can demand that you pay back the amount owed.
Here's a look at student loan law timelines for some states:
Arizona - 6 years
California - 4 years
Colorado - 6 years
Florida - 5 years
Georgia - 6 years
Illinois - 10 years
Kansas: 5 years
Louisiana: 3 years
Major - 6 years
Massachusetts - 20 years old
Michigan - 6 years
Missouri - 10 years
Mississippi - 3 years
Nebraska - 5 years
New York - 6 years
Ohio - 8 years old
Oregon - 6 years
Pennsylvania - 4 years
South Dakota - 6 years
Texas - 4 years
Vermont: 6 years
Washington - 6 years
Wyoming: 10 years
As you can see in this small sample of cases, timelines can vary greatly between states.
When does the statute of limitations begin?
In addition to timelines, the rules governing the start date of the statute of limitations also vary from state to state.
In some states, the statute of limitations begins on the last date you were paid. In other states, the date begins on the day you lose your first payment.
In other cases, it starts on the day your loans default. This usually happens 120 days after a missed payment, but sometimes a loan can default after one short payment.
What happens after the statute of limitations expires?
After your state's statute of limitations has passed, the creditor can't take you to court and sue you to pay off your debts. However, the lender is unlikely to let you off the hook so easily. There are several scenarios that can occur after a timeout.
The creditor may not realize that the statute of limitations has expired and decide to sue you after the deadline has expired. If you receive a subpoena for your debt after the limitation period has expired, don't ignore it. You still have to go to court and argue that your student loans should be considered suspended under the statute of limitations. Under these circumstances, it can no longer be collected.
If you do not appear in court and do not make this defense, the judge will not know that the debt has expired and may issue a judgment against you. If the judge rules in favor of your creditor, the debt is collected. If you are not comfortable representing yourself, hire an attorney to defend you.
Even if the judge rules in your favor, your creditor will not easily let go of outstanding debts. Depending on the laws in your state, they may still contact you and pressure you into repaying the loan. But they can no longer threaten you with lawsuits, and they won't be able to use other collection methods like foreclosure on your paycheck or placing liens on your property.
Be careful about restarting the statute of limitations
Lenders can still legally contact borrowers after a student loan repayment holiday ends. Sometimes, the loan holder is not aware that the deadline has expired. Or they may feel pressured or harassed to pay even if the debt is on time. This is something you have to be very careful about.
If your state's private student loan prohibition has expired, don't make the mistake of agreeing to pay that loan back. If you make a payment on a loan that has expired, it restarts the statute of limitations. With that first payment, the clock starts again, and groups will suddenly have the legal means to collect debts that have been outstanding for another 3 to 6 years.
In some states, the statute of limitations may run again when you make a written promise to pay the debt. Even if you don't actually make any payments, a written promise will turn the clock back on time.
In some states, the time limit starts again even if you admit you owe a debt.
You need to be very careful about how to proceed after the private student loan prohibition in your state is over.
How to move forward after your State Statute limits expire
Often, creditors will be willing to accept a settlement for less than you owe after the law is passed. They know they have no legal recourse and would rather cut their losses. However, it may not be very beneficial for you to do so. It is best to speak with an attorney before responding to any creditor communications after the time limit has expired. By doing so, you can inadvertently activate the stat again.
If you absolutely believe your private student loan is past due, send a formal notice to the collector. Tell them that the loan is past due and that you will not be making the loan payments.
The next step is to send a cease and desist letter by certified mail. The letter should include some basic components. It should tell them not to contact you about any refunds. However, they must acknowledge receipt of the letter and inform you of any legal action they intend to take.
In the meantime, do not promise to repay the missed loan in whole or in part. If you feel morally obligated to pay, wait until you can pay in full. Making partial payments or promising to make them may force you to repay the loan before you have the funds to do so.
Final Thoughts
Waiting for the statute of limitations to pass seems like an easy way to get out of paying off your student loan debt. this is not. You may have to default on your student loan for several years before the loan becomes effective. During this period, the creditor will have time to sue you and collect his debts.
If you can't make the payments on your private student loans, the best option is loan refinancing. Choosing lower monthly payments on your new loan will make it more affordable, lowering the risk of default.