Statute of Limitations on Student Loans

If you’re one of the 44 million student loan borrowers in the United States, you have to sift through a host of rules, regulations, and requirements when it comes to your rights as a student debt borrower.

Your rights as a borrower often depend on the type of loan you have. That’s particularly true when it comes to the legal action a lender can take if you completely stop paying your loans. In most cases, private student loan lenders maintain the right to sue you should you stop paying, but they must do so within what’s considered the “statute of limitations.” 

Legal action typically only comes once you’ve been contacted for quite some time by debt collectors. Once that time is up, the lender can no longer take legal action against you according to state law.

This doesn’t apply to federal loans, although federal loans have protections private loans don’t such as income-driven repayment options. Also, there isn’t a federal statute of limitations on repaying loans. These are state-based statues, so you need to learn your specific state’s statute. 

Though this may sound like the loophole you’ve been waiting for, don’t get too excited. Stopping payment can have dire consequences on your credit report and other areas of your life. It can impact your ability to buy a home, get credit cards and make any big purchases in your life. Being in debt collection can cause problems for years to come.

Let’s look at everything you need to know about the statute of limitations on student loans and how it applies to your student loan debt.

On this page:

• What is the Student Loan Statute of Limitations?
• Can the Statute of Limitations be Extended?
• Paying Student Loans After Statute of Limitations has Passed
• Where to Find the Statute of Limitations on Your Loan

What is the Student Loan Statute of Limitations?

Though many borrowers familiarize themselves with their repayment options, few take time to understand another aspect of their loan – the statute of limitations. The statue limitations represent the period of time that a borrower is legally accountable for repaying their private student loan, or the time period during which the lender can take legal action against the borrower should they fail to make payments.

The statute of limitations on student loans depends on where you live. It can be as little as three years or as long as 10 years. For example, Pennsylvania borrowers typically have a four-year statute of limitations, while those in Rhode Island will need to wait a full decade. In New York, according to consumer law, there is a six-year statute of limitations on private student loans. 

So what if you just quit paying your loans and waited out the designated time period? If you stop paying your federal student loans, which don’t come with a statute of limitations, you could have your paycheck garnished and your tax returns seized for the unpaid debt. If you receive any type of federal funds, they can also be seized.

Private lenders don’t have the same broad reach that the federal government does, but don’t count on the lender not suing you. In fact, if you haven’t paid your loans and the statute of limitations is near, then a lawsuit is likely in the works.

If your lender takes legal action to recoup their losses, you may be on the hook for even more than your loan, once the court fees are factored in. Your lender can also get a court order to garnish your income. And, if you had the support of a cosigner, your lender can decide to take legal action against them as well.  

Further, if you do reach the statute of limitations, you are technically still on the hook for the loan, and though they can’t sue you, they can continue to attempt to collect the debt through a collection agency. Plus, the lender likely will report you and your cosigner to the credit bureaus, and that can hurt your credit score and your overall financial situation. 

In short, it’s not typically a gamble worth taking.

Can the Statute of Limitations be Extended?

Again, the rules regarding the statute of limitations on all consumer debt vary by state. In some states, the statute of limitation can be extended or waived if the borrower gives verbal consent that the debt is valid.  

More frequently, the statute of limitations is often actually extended by making a payment. So, if you live in a state that has a statute of limitations of five years and you only make one payment in the fourth year, the clock starts again, and you will not hit your statute of limitations for another five years.

Paying Student Loans After Statute of Limitations has Passed

So, your statute of limitations has passed, and you managed to avoid legal action. Should you just stop paying it and move on with your life? The answer is no. Though your lender can’t sue you, the debt is still yours to repay, and failure to do so will inevitably and significantly impact your credit as well as that of your cosigner, if you have one.

As your creditworthiness declines, so does your ability to get a car loan, buy a house, or engage in any other type of financing arrangement, including personal loans. Though it’s worth mentioning that defaulted student loans will eventually fall off your credit scores, typically in seven years.

Where to Find the Statute of Limitations on Your Loan

Every student loan comes with a tremendous amount of fine print, and that’s likely where you’ll find the statute of limitations as it pertains to your loan.

If you can’t locate it there, you can inquire with your lender, though this may draw attention to your account, which can trigger legal protocols. Finally, if you’re currently working with a financial adviser, you can check with them. Of course, keep in mind that statutes are governed by state-specific laws, a review of which can also help you determine the date on which it passes.

Bottom Line

If you’re applying for a private student loan, it’s important to fully read and understand the loan agreement, and that includes noting the statute of limitations. Though waiting it out may sound tempting, doing so can have dire consequences for your personal finances, especially if the lender does invoke their right to sue you.

Further, even if you successfully evade your lender, doing so will have a tremendously negative effect on your credit score, leaving you unable to access finances for a home, a car, or other purchases. You should make all efforts to pay your loan. If you can’t manage your payments, work with your lender to determine a feasible repayment plan or consider loan consolidation and refinancing options if you’re struggling with your monthly payment.