Student Loans and Statutes of Limitations

If you're having trouble repaying your Direct or Federal Stafford Loans or Federal Perkins Loan, you have probably found yourself wondering, as many of us have, if there is any way to get out of repayment. What if you've been unable to pay much (or anything at all) on your loans for years, as interest accrues and they just get bigger and bigger?

Is there a statute of limitations on federal student loans? In other words, if a borrower who can't (or just doesn't want to) pay just waits long enough, can that borrower get out of paying the debt? Do lenders, and especially their nasty collection agencies, have to stop pursuing the poor borrower after, say, seven or ten years?

The short answer is "no." But the idea that federal student loans have a statute of limitations is a common enough misconception among students that some further explanation is due. Even some lawyers, who ought to know better, counsel their clients that they don't have to worry if they can't repay - there's always the statute of limitations.

But first: what exactly is a statute of limitations? The Random House Dictionary defines a statute of limitations as "a statute limiting the period within which legal action may be taken."

So, for example, a state or federal law may decree that there is a statute of limitations on prosecuting certain offenses, such as petty theft, while there may be no statute of limitations on more serious violations of the law. (As the police shows on TV always tell us, there's no statute of limitations on murder.) Once the statute of limitations has ended, you can no longer be prosecuted for stealing that stick of gum you took when you were ten years old.

As far as federal student loans are concerned, the statute of limitations never meant that the loans were cancelled entirely after a certain period of time. It only referred to the collection measures the lender or collection agency could take, such as suing the borrower in court, enforcing a judgment against the borrower granted by a court, offsetting a borrower's federal or state income tax refunds, or garnishing the borrower's wages.

But like murder, there's no statute of limitations on the collection of federal student loans. As 20 USC 1091a(a)(1) states: "It is the purpose of this subsection to ensure that obligations to repay loans and grant overpayments are enforced without regard to any Federal or State statutory, regulatory, or administrative limitation on the period within which debts may be enforced."

So why do many people believe there is a statute of limitations on federal student loans? Because there was, once. Though these loans were never canceled simply because they weren't paid, the loan holders would often stop trying to collect them after a certain number of years of unsuccessful attempts, say three, five, six, or ten years depending on the state. The loan holder, typically the U.S. Department of Education's Debt Collection Service Center (as it was then called), would then write them off, although debts in this category would not be considered paid in full. (The borrowers of such loans could still be prevented from getting more federal student aid and loans from other federal agencies unless they acknowledged the loans and began repaying them.)

But this is no longer the case. If you received federal student loans, you can't avoid payment them just by not paying them, waiting out the collectors, ignoring their billing statements, dunning letters or telephone calls. Unless you qualify for cancellation for some other reason - such as permanent and total disability, closed school issues, bankruptcy (in rare cases), or death - chances are you'll have to get rid of your student loans the old fashioned way - by paying them off.

For advise on how to do that, you may wish to request a free U.S. Department of Education booklet called Repaying Your Student Loan, which you can obtain by calling 1-800-4-FED-AID (1-800-433-3243). You can also obtain further information at the Department's Web site at www.studentaid.ed.gov.