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Most creditors and debt collectors have a limited window to file a debt collection lawsuit. This window is known as the statute of limitations.
It is important to know the statute of limitations that applies to your debt if you default on your federal or private student loans. This article will cover whether there is a law to restrict student loans, how long they last, and what that means for you.
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Is there a statute of limitations on student loan debt?
Most statutes of limitations range from 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).
Federal Student Loan statute of limitations
Unfortunately for non-performing student loan borrowers, there is no limitation period for federal student loans. No matter how long your federal student loans have defaulted, the federal government can continue to collect by withholding wages, forfeiting tax refunds, or other government benefits. But the reservation cannot exceed 15% of your available wage.
The statute of limitations for a private student loan
Most states have different statutes of limitations based on the type of religion you owe. There are generally four types of debt:
- oral agreements – By oral agreement, you borrow money from someone and agree to repay it, but not in writing.
- written agreements – Have a written agreement detailing how much you borrowed, when you borrowed it, how much interest you will incur, how you will make the payments, and other terms. This is common with auto loans and medical debt.
- promissory notes – Bills of exchange are written agreements but are usually less detailed than written contracts. Mortgages and student loans are usually considered promissory notes.
- open accounts – These are credit accounts that remain open for an indefinite period of time. Credit card debt and other lines of credit fall into this category.
A state may have different laws for credit card restrictions, oral agreements, written agreements, promissory notes, and schedules for each type of debt. Varies by state. In most states, the statute of limitations on promissory notes (which covers most private student loans) is six years, but it can be up to three years or up to 10 years.
Once the statute of limitations has expired, the debt is considered to be “by statute of limitations,” and the creditor cannot sue you or threaten to sue you.
When does the statute of limitations for a student loan start?
The statute of limitations usually begins when you miss a debt payment, although it can also start when your last payment or partial payment was made. The official start date varies by state law as well.
For example, say the statute of limitations on Private Student Loans Your state is six years old and begins on the date you miss the payment. If you miss your payment on January 1, 2021, your statute of limitations will run 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 about the laws that apply to your situation.
Can you restart the statute of limitations for a student loan?
In some states, the statute of limitations can be restarted quite easily. For example, if your state starts the clock on the last payment date, making a partial payment—even after the loan defaults—can restart the clock. Some states also restart the clock under statute of limitations if you acknowledge the debt in writing.
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What happens when the statute of limitations for a student loan expires?
If your debt is out of statute of limitations, it does not mean that you no longer owe money. It just means that the lender has fewer collection options and can no longer sue you to collect the balance.
Lenders can still try to collect debts by calling you and texting, as long as they don’t breach Fair Debt Collection Practices Act.
If a creditor or debt collector sues you after the limitation period has expired, don’t ignore it. The court can still rule against you if you do not file a 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 who is familiar with the debt collection laws in your state.
Should you try to settle your student loan debt?
Settling Your Student Loan Debt It involves negotiating with the lender and getting them to agree to accept less than the full amount owed as the final payment for your debts.
This may sound attractive – especially if you can’t pay off your debts in full. But there are some downsides, such as:
- Damage to your credit score – When you settle a debt, it appears in your credit score as “settled.” This is a negative element on your credit report and will stay there for seven years, causing your score to drop.
- 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 very expensive, with fees as high as 15% to 25% of the total debt you enroll in the program. Plus, it’s not always successful. Less than half of the debt is settled after three yearsAnd According to the National Foundation for Credit Counseling, a nonprofit credit counseling organization.
- Forgotten debt may be taxable – Generally, when debt is settled or forgiven, the amount that is exempt is considered taxable income. While some federal student loan forgiveness programs are not taxable, private, settled student loans are generally taxable.
If you decide to negotiate a settlement with the creditor, obtain the creditor’s approval in writing before making the payment. Otherwise, you may end up restarting the statute of limitations on your debt, only to discover that the creditor does not plan to meet the end of the agreement.
Ways to reduce student loan debt
Waiting for the statute of limitations isn’t the only — or even the best — way to deal with student loan debt. If you’re having trouble making payments or are already in default, consider the following options:
- Refinance your student loans. Refinance your student loans It may allow you to replace your existing student loans with a new one at a lower interest rate, saving you money over time. But proceed with caution before you refinance your federal student loans. Refinance Federal Loans into a Private Loan It means losing valuable benefits and guarantees, including deferment, forgiveness, income-driven repayment plans, and federal loan forgiveness programs.
- Sign up for an income-paid payment plan. The Income-Based Payment Plan sets your monthly federal student loan payment at an amount that is intended to be affordable based on your income and family size. The Department of Education offers four income-driven repayment plans, all of which forgo any remaining loan balance if your loans are not paid in full at the end of the repayment period.
- Sign up for an extended payment plan. An extended payment plan is a type of payment plan offered by the Department of Education that allows you to make lower monthly payments over a longer period – usually 25 years. This can help make your monthly payment more affordable. But keep in mind that extending the repayment period likely means that you will pay more total interest.
- Consider procrastination or patience. Both deferral and forbearance allow you to temporarily defer or reduce your federal student loan payments. Deferment is generally available when you experience temporary personal or financial difficulties. Examples include undergoing cancer treatment, serving in the Peace Corps or the military, being unemployed, or going back to school. While your loans are deferred, you will not accrue any interest. Even if you don’t eligible for deferment, you may still qualify for the forbearance if you are unable to make your federal student loan payments due to financial hardship, medical expenses, a change in job, or other reasons. While in patience, interest will continue to accrue.
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