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Statute of Limitations for Private Student Loans

Statute of Limitations for Private Student Loans
Mark Cappel
UpdatedDec 14, 2011
Key Takeaways:
  • Private student loans can be discharged in bankruptcy under narrow circumstances.
  • Private student loan creditors must use the court system to get a garnishment.
  • contains many student loan payment resources.

If the statute of limitations expires on a private student loan and it is not paid, will that prevent me from applying for federal student loans?

When I was in college I took out both some private loans in Indiana. The loans were taken out 1996-1998. I withdrew from school in 1999 due to illness and did not finish my last year. Illness, unemployment and extreme economic hardship has prevented me from making payments and the private loans have sat in collections/default for a number of years. The statute of limitations is about to expire on those private loans. My question is two-fold: 1. If the statute of limitations expires will it also drop off my credit report? 2. If the statute of limitations expires and it is not paid, will that prevent me from taking out additional federal loans if I get to the point where I'm ready to return to school to finish my degree?

Thank you for your question about your private student loans in default and the statute of limitations that apply to private student loans.

When most people think of "student loans," they generally think of those loans which are insured by the federal Department of Education and are heavily regulated by federal law, as federal student loans are far more common than private student loans. Total student loan debt is estimated to be $1.1 trillion, as of 2011. According to a 2010 report by Sallie Mae, the largest private student loan lender, the outstanding balance of Federal Student Loans totals $759 billion, or about 70% of the total student loan market.

Private Student Loans

Many banks and other financial institutions offer students private loans, which are not federally insured, to help people pay education costs that exceed the amount of their federally insured student loans. These private student loans are basically unsecured personal loans, with one key difference from other unsecured loans. Private student loan debt is generally not dischargeable in bankruptcy.

Quick Tip

Check the Dept. of Education’s National Student Loan Data System (NSLDS) to see if the loan is federal. State statutes of limitations do not apply to federal loans, and are subject to collection indefinitely. Student loans not backed by federal grants or guarantees do not appear in the NSLDS, and are therefore private. Private student loans are subject to state statutes of limitations.

Statute of Limitations and Student Loans

Federal student loans have no statute of limitations. Unlike federally insured loans, private student loans are governed by your state’s statute of limitations for taking legal action to collect on written contracts. Once the statute of limitations expires, the creditor’s efforts to collect on the debt are limited by your raising the statute of limitations as a defense.

If you think that the statute of limitations for these debts is about to expire, I encourage you to consult with an attorney in your area to discuss the implications of an expired statute, and what actions you need to avoid to prevent the statute of limitations from being tolled or restarted.

Credit Report and Student Loan

Your state’s statutes of limitations do not determine how long accounts can appear on your credit report. The length of time accounts can appear on your credit report is governed by the Fair Credit Reporting Act, a federal law. Generally speaking, negative listings will appear your credit report for seven years, while bankruptcies will appear for ten. So if your state’s SOL is five years, an account can appear on your credit report for two years after your state’s SOL has passed.

A new company purchasing your account cannot lengthen the time that the account can appear on your credit report. Be careful, though, because many debt purchasers try to change the date of last activity on old accounts so they appear on your credit report for a longer time. You need to pull your credit report and carefully review the accounts in question to make sure that no unauthorized changes have been made. If you find any suspicious information on your credit report, you should dispute the listings with the credit bureaus.

See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information. To find out more about credit, credit scoring, and credit reports, I encourage you to visit the credit resources page.

Default and Loan Eligibility

Federal student loan regulations state that people who have defaulted on federally insured student loans cannot take out new federal loans, until their defaulted loans have been rehabilitated. Thankfully, defaulting on private student loans, or any other type of credit for that matter, should not negatively affect your ability to obtain new federally insured loans in the future. Most federal loan programs do not take a borrower’s credit rating into consideration when making lending decisions, so your past performance on private loans should not be an issue when seeking a federally insured loan in the future. To read more about federal loan programs, you can visit the Dept. of Education’s financial aid Web site.

I wish you the best of luck in your future educational pursuits. I hope that the information I have provided helps you Find. Learn. Save.




BBill, Feb, 2010
One suggestion: negotiate! See the resource Debt Negotiation and Settlement Advice for tips and tactics in working with the collection agent.
JJorge Chave, Feb, 2010
I had a student loan with wachovia, afte divorce I had to file BK and they stop deducting my student loan pay out of my checking account they told me they couldn't deduct anymore since I file BK and I had to send the payments by mail, however,they were returned to me; so after discharged I contact wachovia to resume payment and they told me wells fargo has my loan; I called and the want me to pay $2400 dollars down payment or they will settle for $9k the bad thing is I don't have either and now they are threating me with scary collection tactics. I just want to be able to resume my mothly payment I had before. Any suggestions?
BBill, Sep, 2009
Let me deal with your easy question first: I am not aware of any requirement by the US military that its enlistees have a certain credit score or be debt-free before they join the service. Second, regarding the collection agent having a freer hand in making a deal with you than the original creditor, that is a common occurrence. Keep in mind that the original creditor (Wachovia) almost certainly sold the debt to the collection agent (CCC) for a discount. This explains the flexibility the collection agent is offering in repayment. See the Student Loan Borrower Assistance Project (SLBA) document Private Loan Collections page for more information on your rights regarding student loans. Regarding the deferment based on the condition that you provide the collection agent your bank account and tracking number, that raises a huge, flaming, electrified red flag for me. With this information, an unscrupulous creditor can not only pillage your bank account, they can start pounding it with withdrawals that will cause massive overdraft charges for you.
JJoe, Sep, 2009
I have a wachovia student loan for $25000 that I have paid on time until I lost my job in april. My last payment was made in July and the loan was current for the first year and a half that I was making payments. I am now unemployed with no income or assets, and my cosigner(father) is also unemployed and losing his house. A collection agency (Credit Collection Services) has been contacting me daily about working something out, and has offered to grant me a hardship deferment (on the condition that I give them a bank account and routing number, seems fishy), something wachovia denied me several times on the basis that it was a PRIVATE student loan and therefore didnt qualify. My question is how can a collection agency offer me something that wachovia denied me, and what can happen if I dont pay. I nor the cosigner have any assets any longer and neither of us have income. The collection agency is saying they can prosecute, freeze my bank accounts, take my car (which is paid in full only worth $2000), Is this true or a scare tactic? I am also trying to get into the military, do you know if this will affect my ability to enlist? Thank you for your help.JOE
BBill, Mar, 2009
I am a little confused, according to what you state in your question, it looks like the loan was previously in default and with a collection agency. When dealing with collection agency it is imperative that you get everything in writing. I suggest that you explain what happened to the officials at TERI and see if you can come to an agreement on a payment plan. Call the collection agency and ask them how long you need to make ON TIME payments until they will report your loan as "rehabilitated" to the credit agencies. This period is typically 12 months of consecutive on time payements. ONE late payment and you may slip right back into default. After 12 months of payments, you could be considered for financial aid programs.
RRyan Dygulski, Mar, 2009
Hey Bill, need help. My wife's private student loan with Wachovia Guaranteed by TERI was thrown into default in Febreuary 2009 despite secured payments with a collection agency acting on Wachovia's behalf. On Feb 13th we secured payments in the amount of $438.00 with the collection agency to bring our account current. The CA assured me that this would stop any default. It wasn't until we went to go make our next payment online in March (On Time) that we found out the loan had been defaulted and sold to the Guarantee Agency, TERI. We weren't givin any notice of the default, no calls, no letters, no right to cure, no nothing. My only contact was with the collection agency with whom we complied 100% of what we were asked to do. I called Wachovia to find out what had happened and she only said the loan was sold and we will be sending us a check for the $438.00, that they had held for over a month now, and someone would be contacting me. Even the collection agency coulden't believe what had happened and called Wachovia (With me hidden on the phone) to verify. He challenged the secured payments and she only said it must not have been enough. He (The CA) apologized to me and said there was nothing more he could do. This $438.00 with Wachovia was our final hurdle Bill. Finally 100% caught up and moving forward on a budget with all bills paid on time. Now we have to repay this loan, uggg. I am very fearful of the amount that we're going to have to come up with, it may sink us for good. My question is how much can we expect to be added to the loan. We were in the repayment phase on our 10 year note and the interest was capitalized once the deferment ended. We didn't use any forbearances and have been paying for a little over a year now. My last statement showed a balance of $10,600 and an interest rate of 4% (prime + a margin as stated in the contract). My note states that in default TERI has the right to capitalize all interest owed on the note at the time of default. In addition raising the margin by 2% per annum. Assuming 20% collection fees what can I expect the collection agency to come at me with. Thank You In Advance,Ryan