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Statute of Limitations for Student Loans

Is there a Statute of Limitations for Student Loans?

There is much confusion regarding the applicability of the statute of limitations on bringing lawsuits to collect on defaulted student loans. Part of this confusion can be attributed to changes in federal laws that eliminated the statute of limitations on federal student loans. As such, in order to determine if an SOL applies, it’s important to identify whether the loan is private, or are they backed by the government (ie. Stafford Loans, Plus Loans, Perkins Loans, etc…).

Private student loans are generally subject to the statute of limitations for breach of a written contract (or promissory note), which in New York is 6-years from the date of breach. However, if the Plaintiff is a debt buyer, under New York's borrowing statute CPLR §202, the lawsuit must be brought within both the SOL's in NY, as well as in the state where the cause of action accrued. For the purposes of SOL, private student loans are treated similarly to lawsuits for credit card debts and other contract disputes.

The Higher Education Act §484A(a) absolves the limitations for the Department of Education and guaranty agency’s to file a lawsuit on defaulted student loans regardless of the age of the debt. Simply put, a borrower that is sued on a federal student loan will not be able to rely on a Statute of Limitations defense.

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Federal Student Loans are unrestricted by Statute of Limitations

With the substantial costs associated with college tuition and living expenses, some student loan borrowers are finding it nearly impossible to keep up with their monthly payments. This forces some to forego making any payments at all and consequently defaulting on their loan obligations.

When a loan is enforced after many years have passed, it may be difficult for the borrower to remember the terms of the loans (i.e. interest rate), the payments made on that loan, or whether the borrower even applied for the student loan. It may be tough to dig up old promissory notes, bank statements, and payment receipts, and it can be challenging to determine whether the balance was calculated correctly. Furthermore, while a loan is in default status for years, collection fees and compounding interest can inflate the balance substantially.

In the United States, there are certain acts that do not have a predetermined time limitations for prosecution. For example, murder, fraud, kidnapping, war crimes, and treason are all unrestricted by a statute of limitations. It defies logic that a borrower of federal student loans would be subject to similar treatment as some of the most hardened violent criminals.

Is Statute of Limitations a valid defense to a student loan lawsuit?

After a loan enters default status, the lender may elect to bring a lawsuit. With most debts, legal action must be brought within the applicable statute of limitations. This provides a level of protection and fairness to ensure that consumers are not entrapped by old debts. If the statute of limitations has elapsed and your private student loan lender has brought a collection lawsuit, you may be able to seek dismissal of the case in its entirety. Unfortunately, borrowers of federal student loans do not benefit from the statute of limitations defense.

How do I resolve an old federal student loan?

Options for resolving defaulted federal loans vary. Sometimes the Department of Education and the guaranty agency’s are willing to forgive some of the accrued interest and collection fees if the debtor is able to pay the remainder within a 90-day period. These settlements are rare and are usually reserved for individuals which are deemed nearly uncollectable.

Outside of negotiating a settlement, the borrower may be eligible to either consolidate student loans or enter into a rehabilitation program. Upon the loans being removed from default status, the borrower will be able to elect a repayment plan for the duration of the loan, and will no longer be at risk of tax-offset or administrative wage garnishment.

Lastly, borrowers should become familiar with the various programs that allow for the discharge or forgiveness of eligible student loans. For example, individuals that are permanently disabled, and students whose schools have been closed prior to program completion, might be able to eliminate their federal student loans. Similarly, workers in the public sector and teachers may also qualify for loan forgiveness.

If you’re unable to keep up with your minimum payment, the New York City student loan attorneys at the Law Office of Simon Goldenberg, PLLC can help you understand your options and take back control of your life.

Contact our lawyers at 888-301-0584 to learn your options for student debt relief.