With most kinds of debt, lenders only a certain period of time that they can pursue legal action to collect on an outstanding balance. This time period is called the statute of limitations.
But there's a big difference between student loans and most other kinds of debt, like mortgages or auto loans. With student loans, there's a strong chance the federal government could be your lender rather than a private company. And that complicates the statute of limitations laws for student loans.
The bottom line is that only private student loans are subject to statutes of limitations, the defense of laches and the defense of infancy. But if you do have private loans, these rules can affect whether they're legally enforceable. Keep reading to learn what else you need to know about the statute of limitations laws for student loans.
What Is The Statute Of Limitations?
A statute of limitations is a limit on the period of time during which a lender can sue a borrower to collect on a defaulted loan. After the statute of limitations has expired, the loan is referred to as time-barred debt and is no longer legally enforceable.
The lender can attempt to collect a debt after the statute of limitations has passed, but they can’t file a lawsuit or threaten to file a lawsuit to collect the debt.
Some lenders will file a lawsuit anyway, hoping to get a court judgment against the borrower. This is why a borrower should show up in court (preferably with an attorney) if they are sued. Otherwise, they will lose by default. When the borrower presents evidence that the statute of limitations has passed, the judge will dismiss the case with prejudice, thereby blocking the lender from refiling the lawsuit at a later date.
Time-barred debt can remain on the borrower’s credit report for up to 7 years after the last payment, except in Mississippi and Wisconsin, where the debt must be removed from the credit report once the statute of limitations has been reached.
What Are The Statute Of Limitations Laws For Student Loans?
Now that we've covered what statute of limitations are in a general sense, we'll now look at the rules surrounding student loans. Here are the statute of limitations laws for student loans that you should be aware of.
Federal Student Loans
There are no statute of limitations laws on federal student loans. The statute of limitations on federal student loans, which was previously 6 years, was repealed by the Higher Education Technical Amendments of 1991 (P.L. 102-26), effective April 9, 1991.
The Higher Education Amendments of 1992 (P.L. 102-325) subsequently made these changes retroactive in effect for all loans made on or after April 7, 1986 and for any lawsuits pending on or after April 9, 1991. So there's currently no limit on the period of time during which federal student loan debt may be collected.
The federal government also has very strong powers to compel repayment, even without filing a lawsuit. They can garnish up to 15% of the borrower’s wages administratively. They can also offset federal income tax refunds and up to 15% of Social Security retirement and disability benefit payments.
Private Student Loans
Private student loans, on the other hand, are still subject to statutes of limitations laws, which vary by state from 3 years to 10 years (with 6 years being the most common). The statute of limitations starts with the date the borrower failed to make a payment that was due or the date of the most recent payment, whichever comes later.
It isn’t always clear which state’s statute of limitations applies: the state in which the borrower resided at the time the loan was made, the state in which the borrower currently resides, the state in which the student attended college, or the state in which the lender is/was located. If the contract has a choice of law clause, that clause will determine the applicable state.
Borrowers should consult with a qualified attorney and not assume that any particular state’s statute of limitations laws for student loans applies. It should also be noted that if borrowers move out of the country, the statute of limitations clock will be tolled (suspended) until they return to the U.S.
What Is The Defense Of Laches?
The defense of laches seeks to have a legal claim dismissed because of an unreasonable delay in pursuing the claim. The borrower would have to show that the lender’s failure to pursue a claim in a timely manner negatively impacted the borrower’s ability to defend against the claim.
Although not the same as a statute of limitations, the defense of laches is based on similar notions of fairness. For example, records are lost and memory fades as time passes, making it harder for a borrower to prove that they do not owe the debt.
Borrowers rarely try to raise the defense of laches because most student loan promissory notes require borrowers to keep their contact information up to date. If the borrower does not receive a loan statement or coupon book because they moved, that’s the borrower’s fault, not the lender’s.
The defense of laches generally does not apply to the federal government. (See, for example, United States v. Rhodes, 788 F. Supp. 339, 342 and United States v. Menatos, 925 F.2d 333) The courts have also generally held that the defense of laches does not apply to federal student loans because Congress acted to retroactively repeal statutes of limitations for federal student loans.
In principle, the defense of laches might still apply to private student loans. But, in practice, it's rarely used to defend against lawsuits concerning private student loans.
What Is The Defense Of Infancy?
The defense of infancy is based on the idea that minors lack the capacity to enter into legal contracts, such as loan promissory notes. This renders a student loan unenforceable because the student was underage at the time the loan was borrowed, even if they were enrolled in college.
Federal student loans are not subject to the defense of infancy. Congress eliminated the defense of infancy for federal student loans in the Consolidated Omnibus Budget Reconciliation Act of 1985, effective April 7, 1986.
Private student loans are subject to the defense of infancy, however, which is why lenders require the student (and cosigner) to have reached the age of majority for their state of legal residence. The age of majority is 18 in all states except for Alabama and Nebraska, where it's 19, and Mississippi, where it's 21.
Borrowers should be careful if they're contacted about any time-barred debt. Time-barred debt can be resurrected if the borrower makes a payment on it, even a token “good faith” payment, acknowledges the debt or promises to repay the debt. Do not sign anything without speaking with an attorney first.
Without acknowledging that the debt is yours, ask for proof that the debt is owed, the name of the original lender, the account number, the original name and address of the borrower, and the amount and date of the last payment. Ask for this information in writing within 30 days by certified mail, return receipt requested. Again, have this letter reviewed by an attorney before you send it.
Finally, keep in mind that you can tell a lender or collection agency to stop contacting you about time-barred debt by exercising your rights under the Fair Debt Collection Practices Act (FDCPA).
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).
Editor: Robert Farrington