Statute of Limitations for Private Student Loans
- Private student loans can be discharged in bankruptcy under narrow circumstances.
- Private student loan creditors must use the court system to get a garnishment.
- Bills.com 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.
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 Bills.com 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.