What is the statute of limitations on student loans?

When it comes to student loans, a statute of limitations is the amount of time your lender has to use the court of law to collect your debt.

That said, there are no statutes of limitations placed on federal loans. They were struck down by Congress in 1991.

On top of potentially facing a lawsuit, there are significant consequences if you allow your federal loans to default. Your credit report would suffer, and your wages and tax refunds could be garnished, among other penalties.

On the other hand, banks, credit unions and online lenders must abide by the statutes of limitations on private student loans, as set by each state government. Depending on the state with jurisdiction, a lender might have as little as three years or as long as a decade to bring a suit against you to retrieve your debt.

Although the timing varies from state to state, the rules of play are generally the same:

• The statute of limitations “clock” starts ticking from when you fail to make a payment.
• The statute could be reset in some cases, such as if you make a payment.
• The statute won’t stop a lender from attempting to collect your debt (only its ability to file suit for that debt).

Say you’re on a 10-year repayment term but haven’t made a payment in four years. If your state’s statute of limitations on private student loans is five years, your lender could drag you into a courtroom anytime in the next 12 months.

When can you be sued for your student loan debt amount?

The costs of student loan default are many, and they only increase when lawyers get involved. If you want to avoid potential attorney’s fees and other court costs, you might be wondering about when exactly you could be sued for your debt.

If you go 270+ days without making a payment on a federal loan, your servicer (or its collection agency) could sue you for the debt — plain and simple.

However, it would take some guesswork to determine when — or even if — the servicer or agency would actually file suit. For example, it’s unlikely you would find yourself in court if you’ve only recently defaulted on a relatively small amount of debt. There are simply too many defaulters for the government to sue all of them.

From a legal standpoint, private lenders have a little less leeway. They could sue at any moment after you default (as outlined in your loan agreement) and before your state’s statute of limitations on private student loans takes effect.

Which brings us to the definition of time-barred debt. Time-barred debt is legalese for financial obligations that can’t be haggled over in a courtroom once the statute of limitations has expired.

Also, just because you can’t legally be sued for your time-barred debt doesn’t mean a lender won’t try. If you find yourself being served papers, you might need to prove to the presiding judge that your debt is time-barred (or paid off). You can accomplish that by providing the court with proof of your last payment date. That makes holding onto your loan paperwork a smart practice.

How to handle your private student loan debt

If you’ve gotten this far, you may think you could survive a few more years, at least until your state’s statute of limitations on private student loans expires.

Before ignoring your debt, though, let’s cover a few more considerations:

Dealing with collections agents

Whether you have a federal or private loan, you might learn that it’s been transferred to a collections agency. That’s one fact of dealing with zombie debt: It can come back to haunt you, as collections agents tend to reach out routinely.

On the plus side, collections agents are required to be truthful if you ask about the status of your debt. It’s important to understand your other rights, as reserved by the Fair Debt Collection Practices Act.

Harming your credit report

If you don’t make payments for a number of years on your student loans, your credit score will fall off a cliff. Additionally, your credit report will show your late payment history, which comprises 35% of your FICO Score.

What’s more, the default (or defaults) will stay on your credit report for seven years. That could prevent you from borrowing in the future, whether to continue your education or to buy a home.

Unless you’re willing to stall your personal finances for almost a decade, think twice about running from your creditors.

Considering alternatives to handle your distressed debt

Fortunately, there are several alternatives to manage your federal loans:

• Seek loan forgiveness: Survey federal programs that offer cancellation or repayment assistance to see if you’re eligible.
• Deferment and forbearance: Pause your monthly payments because of a hardship or other eligible life event.
• Income-driven repayment (IDR)Reduce your monthly payments by switching to an IDR plan that caps them at a percentage of your income.
• Consolidation and refinancing: Group your debt via a direct consolidation loan with the government, or combine them and possibly lower your interest rate by refinancing your student loans with a private lender. If you go with the second option, just be sure you won’t miss out on federal loan protections that will be irreversibly lost via refinancing.

But for outstanding private loans, your options to reduce or pause payments might be limited, depending on your lender. Open up the lines of communication to learn about what your bank, credit union or online company can do to support you.

If you have strong credit and stable finances (or a cosigner who does), you could consolidate your debt via student loan refinancing, just as with federal loans. This would allow you to choose a new loan term and, as noted above, maybe save money with a lower interest rate as well.

For more dire situations — perhaps to discharge or decrease your debt via bankruptcy — you could consider various forms of debt relief. And if you need legal support, you might start by using the American Bar Association’s resources or contacting your state attorney general’s office.

Reconsider testing the statute of limitations on student loans

Waiting it out might seem like a novel approach to your student loans. For federal loans, however, it’s rarely wise. There are no statutes of limitations, so your debt won’t simply disappear, no matter how much you ignore it.

And while there is a time limit on private lenders’ ability to sue over your debt, testing that limit could cause long-term harm to your credit and leave your finances in limbo. In this case, ignorance doesn’t sound so blissful.