More than 40 million Americans have student debt, and many are struggling to pay it off. Some people in that situation worry if a debt has a time limit and what happens if they stop paying. When selecting how to handle your student debt, it’s important to grasp the statute of limitations.

Creditors and student loan debt collection agencies must adhere to a statute of limitations when collecting a debt. The debt collection statute of limitations, in particular, controls how long a creditor can sue you to recover an unpaid obligation. For example, states often limit the debt collection time term for contractual debts such as private school loans to between three and ten years.

Student loans with a statute of limitations 

Because federal loans for students do not have a statute of limitations, lenders and collection agencies can force you to pay (aka sue you) at any time. So whether you’ve been in student loan default for a year or 20 years, the loan holder has the legal right to use the judicial system to force you to pay if it so wants.

Private student loans, on the other hand, have a three to ten-year statute of limitations. They then become time-barred. Your state of residency determines the precise time frame. When the statute of limitations on debt expires, the obligation is deemed “time-barred.” However, a time-barred debt is not the same as debt forgiveness. A creditor or collection agency cannot sue you since the statute of limitations has expired. However, you may continue to get collection calls and letters, and the account may still appear on your credit reports.

If you’re unsure whether your student loan statute of limitations has expired, consult your state’s guidelines or contact your state’s attorney general.

What duration is the statute of limitations for credit reporting on student loans? 

Federal law also limits the time that most bad information can stay on your credit report. In most situations, the Fair Credit Reporting Act (FCRA) allows negative information on your credit report, such as defaulted loans or collection accounts, to remain on your credit report for up to seven years.

Due to the lack of a statute of limitations for federal student loans, these negative accounts can remain on your credit record eternally. Only after you have paid off your federal student loans will the default be erased from your credit reports — and even then, it will take seven years from the time of payments to remove those accounts.

Can student loans ever be discharged? 

While many types of obligations can be wiped out in bankruptcy, student loans are far more difficult to discharge. You must demonstrate to the court that repaying the loans will cause you excessive financial hardship in order to have them dismissed. This could imply demonstrating:

If you have to repay the debt, you will be unable to maintain a subsistence level of living.

Repaying the loan would put you in financial hardship for a considerable amount of the loan repayment period.

You tried in good faith to repay the loan before declaring bankruptcy. 

If you can persuade the court that repaying your student loan would put you in an unreasonable financial difficulty, the court may decide to discharge your obligation. However, the bankruptcy court may decide to dismiss only a portion of your debt or to change the conditions of your loan repayment instead.

Private student loans may be much easier to discharge in bankruptcy than federal student loans. A recent New York appeals court ruling determined that private student loans are not dischargeable in the case of bankruptcy, which may encourage more students to choose this option. Some politicians are also working on legislation that would make it simpler to discharge federal student loans after a 10-year waiting period.

Student loan forgiveness and cancellation 

Some students may be eligible for loan forgiveness if they meet specific criteria. For example, the Public Service Forgiveness Program permits some borrowers who work for a qualifying government agency or non-profit organization and have made 120 monthly payments to have their balance forgiven. Some teachers are also eligible for loan forgiveness.

As part of the COVID emergency relief initiative, government loan payments and interest accrual have been suspended since March 2020. In 2022, the executive branch authorized loan forgiveness of $10,000 for all federal borrowers and $20,000 for Pell Grant recipients. As of this writing, that forgiveness scheme is in a lawsuit; federal student loan payments will be suspended until at least the end of August 2023, depending on the outcome of the court case.

The bottom line 

The penalties of student loan default can make your financial life unpleasant in a variety of ways. These negative accounts can harm your credit history and credit score, making it difficult to qualify for fresh financing until the matter is resolved. In addition, there is no debt collection statute of limitations on defaulted federal student loans, and you may not be able to discharge these debts in bankruptcy. A student loan debt collections agency can help you pay your debts in ways possible that will not hurt your financial state.

If you have defaulted on federal student debt, you should think about whether student loan rehabilitation or consolidation could help you. Where consolidation or rehabilitation of defaulted private student loans or federal loans is not an option, consulting with a student loan attorney or an organization that provides student debt assistance for tailored assistance may be beneficial.