What is the Statute of Limitations on a Student Loan? – Forbes Advisor

What is the Statute of Limitations on a Student Loan? – Forbes Advisor

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If you stop making payments on a student loan for several months, the debt will go into collections. The creditor may then decide to sue you for the remaining balance, but they only have a certain amount of time to do it.

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The statutes of limitations is the time period during which a lender can sue you to collect an unpaid debt. Once that time has passed, the lender can no longer sue you to collect the debt. This is called “time-barred” debt. The statute of limitations on student loans depends on the type of loan you have: federal or private.

How the Statute of Limitations Applies to Federal Student Loans

Federal student loans do not have a statute of limitations, similar to unpaid child support. Even if it’s been 30 years since you first missed a payment, the federal loan servicer can still legally collect the remaining balance. They can garnish your wages, which means your employer will be required to deduct the payment from your paycheck. They can also seize your tax refund.

Federal loan servicers do not have to sue you first to be able to garnish your wages or tax refund. They can receive a court order to garnish your wages or tax refund without suing you.

Federal loan servicers can even take part of your Social Security check. In this case, the government is limited to taking 15% of your monthly benefits, or your monthly benefit amount over $750, whichever is less.

Fortunately, federal student loans offer several rehabilitation options for borrowers in default who want to resume monthly payments, which can prevent garnishment of wages, Social Security checks and tax refunds.

How the Statute of Limitations Applies to Private Student Loans

Private student loans have a statute of limitations that range from state to state, ranging from three years to 20 years. When researching your state’s statute of limitations, be sure to find the specific length for private student loans.

Each state may have various statutes of limitations for different types of debt, such as student loans, medical debt, credit card debt, auto loans, mortgages or state tax debt. For example, one state may have a five-year statute of limitations for auto loans and 10 years for student loans.

The statute of limitations can refer to the state where you took out the loan, the current state you live in or in a different state specified in the loan contract you signed. If your loan contract uses the third option, a judge will ultimately decide whether that state’s statute of limitations actually applies to your loan.

“Some ignore it, some apply it, and some do an analysis that could come out either way,” says Boston-based student loan lawyer Adam S. Minsky.

Does the Statute of Limitations Impact My Credit Score?

When the statute of limitations runs out, it doesn’t wipe the loan from your credit report. Most negative marks stay on your credit report for seven years after the first late payment, which may be longer than the statute of limitations in your state.

There are two exceptions, according to West Dover, Vermont-based student loan lawyer Joshua R.I. Cohen. In Mississippi and Wisconsin, creditors must stop reporting loans to the credit bureaus after the statutes of limitations have expired.

How to Determine Your Loan’s Statute of Limitations

“In most states, the statute of limitations is either the date of default or breach, or the date of your most recent payment, whichever is the more recent event,” Minsky says.

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