As you consider taking out student loans, you’re most likely very excited to start your education and move forward in life. But before signing anything, it’s extremely important to understand what you’re taking on, including what will happen if, at some point, you aren’t able to keep up with your loan payments. Each type of loan has its own repayment requirements and loan terms, so read carefully. One factor to consider is the statute of limitations on the loan. This is the amount of time that the creditor has to sue you for collection if you don’t pay your loan. I always advise my clients to utilize federal student loans before considering a private loan, due to lower interest rates and more flexible repayment plans. However, there is no statute of limitations on federal student loans. The federal government could sue you at any time if you haven’t paid your loans, even if it’s 40 or 50 years down the road, including interest and fees. The length of the statute of limitations varies by loan and where you live for private loans.

Knowing the Details

The statute of limitations can be three to ten years long. This doesn’t mean that if you stop paying your student loans for that period of time, the debt is erased; you’re still responsible for the debt, but your creditor cannot sue you for the balance owed. They can, however, continue to attempt to collect the debt through letters and phone calls. They may not harass or threaten you, and if they do, you may file a complaint with the Federal Trade Commission. The court usually has zero tolerance for these aggressive tactics, and oftentimes will not extend the statute of limitations if you were treated in this manner. 

If you agree with the creditor that you owe the debt, either verbally or in writing, this can extend or nullify the statute of limitations. Also, making sporadic payments can “reset” the statute of limitations. If you don’t make payments for a few years, then suddenly make a payment, the clock starts again and the statute of limitations is extended. 

Most creditors do not want to sue you; it’s expensive and time consuming. So as long as you’re making an effort and attempting to keep up with the debt, you’re usually safe. Some creditors will even be willing to settle with you for less than your balance, so it’s always worth making a call and attempting to work with them. You may be surprised by how some negotiating can benefit you in the long run.

Look Before You Leap

It’s so important not to borrow any more in student loans than you absolutely must. This will help to keep your monthly payments manageable and shorten the length of time you’ll be making payments. Additionally, you’ll need to understand all the guidelines for unexpected circumstances you may face over the years as you build your career and finances. 


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