What Is the Statue of Limitations on Student Loan Debt?

Student loans may come with a time limit for collections.
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A college or technical education can be an expensive proposition. Many students meet the high financial demands with a loan. There are two basic categories of student loans: private loans and federal loans made or guaranteed by the government. On the subject of defaulted loans, state law sets a statute of limitations for collections. A federal guarantee means the lender has legal recourse until the loan is paid in full.


Statutes of Limitations and What They Mean

A statute of limitations is a deadline on legal actions, such as a civil lawsuit, to collect on a defaulted loan. States enforce their own statute of limitations on written contracts as well as promissory notes. If the law sets out three years as the statute of limitations on a loan, the creditor has exactly three years from the last payment on that loan to file suit against the debtor. If no payment is ever made, the statute runs from the first due date.

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Private Loans and Statutes of Limitations

A private student loan is one made without a guarantee by a public agency, such as a federal or state government. The state statute of limitations applies to private student loans. If the borrower moves out of state, the laws of the state where the loan was originated apply. If a borrower defaults, the lender must file his claim before the statute runs. Otherwise, the defendant can have the claim dismissed by proving that the statute of limitations bars the claim and any judgment against him.


Federal Student Loans

Federal student loans such as the Perkins loan come with a guarantee; if the borrower defaults on the loan, the government makes good on the loss. In 2010, the federal government took over the job of extending loans directly. However, the many businesses and agencies that extended student loans before 2010 have the loans on their books as well. There is no federal statute of limitations on these loans, and state statute of limitations don't apply to loans with a federal guarantee.


Co-signers and Defaults

Because the typical student-loan borrower is young, with little or no income and a short credit history, many private lenders require a co-signer to guarantee the loan. If the borrower fails to make payments, the co-signer is responsible for repayment, and can be sued in case of default. In addition, lenders may write into the loan contract a provision demanding immediate repayment of the loan if the co-signer dies.

Bankruptcy Effects

With a private loan, the borrower can suspend the statute of limitations by declaring bankruptcy. This allows the borrower to reorganize debts, or in the case of Chapter 7 bankruptcy have them discharged by a court. A bankruptcy, however, will not result in a discharge of federally backed student loans. They remain due in full, and state statutes of limitations won't apply. In the case of default, the government can then force repayment through liens, levies, garnishment, and seizure of federal tax refunds