Private Student Loan Collection Rules

[JustJen]

I just got married this year, and I am helping my husband sort out his student loan payments. I have student loans, but mine were all federal so that's all I'm accustomed to. Due to some stuff he got behind on payments (they were ridiculously high based on his income), so I encouraged him to try to do a repayment plan based on income for the federal loans (prior to our wedding) - long story short they got put into deferment until 2019 (once we file married for this tax year I'm sure he wouldn't qualify for any type of assistance, and the payment will go up in 2019 based on my income). 

He has one private loan - that quite honestly he's just been ignoring (I just checked and last payment was back in 2013). Stupid I know! He just received some letter from some collection agency offering to settle for 10% of the balance. I noticed in fine print it stated that this debt was past the date in which the original grantor could sue for the debt.

And that's my question - I know federal loans never go away, even in a bankruptcy situation. I always assumed that was true for all student loans regardless of whether they were federal or private. Is that not the case? Do regular statue of limitation laws for debt (according to state) apply to private student loans?

Thanks for any insight!

Jen

[19eighty5]

Great question as i'm curious about this as well.

[JustJen]

I know! I hope someone with experience responds. I searched the boards and I'm seeing people saying two different things.

Since we're married now at the end of the day this will affect me as well, so trying to get this sorted out. I definitely don't believe in shucking your responsibility, BUT there's been no activity on that one private loan account since 2013 - settling today would no doubt restart the 7 yr clock on it falling off of his credit report (with it's bad payment history) vs 2 years and it being gone. They said they would just update the account as settled and a balance of $0, but nothing about removing the negative history.

We own a home (my name) currently, but will probably buy something else in a few years. I make a lot, but with housing prices rising (and with us possibly looking to keep our current home as a rental) - it would be nice to be able to include my husband on our next home loan if for nothing else the added income. But with his current credit score that wouldn't be possible.

[Anonymous]

I don't have any private student loans so I can't speak about that personally or professionally, but I do know that he is not in the clear. It's true, depending on the state it might be beyond the statute of limitations to sue, but that doesn't mean they can't collect the debt. I spent years dodging a debt because I (thought I) couldn't pay it back. Except collections can go after your wages, your bank accounts, and even more until suddenly it doesn't feel like you're dodging anything after all. I ended up just making regular, smaller payments (yes, which resets the SOL, but with me paying something they had little reason to sue me) until years later I was able to afford the settlement, paid in three parts. I also learned the hard way deferments are designed to benefit then more than you with the interest.
The only possible out I've seen is them not having your Master Promissory Note.
Anywho here is an excerpt from US News:

"[SOL] For some, it's as few as three years; for others, it's as many as 10 years. What confuses some consumers is that just because the statute of limitations has run out on a debt doesn't mean that the creditor still can't attempt to collect the loan from you – or that you may not be morally obligated to repay that debt, depending on the situation.

To be clear, the statute of limitations only bars the creditor from suing you – it doesn't wipe away the loan. If you aren't sure which statute of limitations rule applies to a particular debt, check with an attorney or your local attorney general's office. Also, note that if you ask, a collector is required by law to tell you if the statute of limitations for your loan has passed.
...In some cases, by agreeing verbally or in writing that the debt is valid or by agreeing to repay the debt, you may extend or waive the existing statute of limitations period. Again, this only means the creditor has the option to sue you for the loan, something they are unlikely to do if you are making satisfactory payments. ...The good news is that loans with expired statutes of limitations can be easy to settle. If the creditors know they can no longer force you to pay via legal action, they are often amenable to a settlement amount significantly less than what you actually owe....Meanwhile, interest and likely collection costs will continue to accrue, making the loan significantly more expensive.

This is one reason borrowers should check with their loan holder. Even if you don't think there is a remedy for your financial situation, there almost always is – and finding that solution will almost always be much cheaper in the long run than trying to ignore the problem and hope it goes away."
https://www.usnews.com/education/blogs/student-loan-ranger/articles/2016-10-26/understanding-the-sta...

[JustJen]

Thanks for your input.

How would one manage to garnish your wages or go after bank accounts, without a legal judgement? Wouldn't they need that in order to be able to take such measures? 

I do understand that of course you still owe the debt even if it's past the statue of limitations - it's just legally they would not have the ability to collect. If they tried to sue, your defense would be the debt is past the statue of limitations.

Still on the fence with this - and this is strictly from a what's going to have the least negative impact on his credit score going forward. Before it was all talks on the phone, but he's just received a written statement from the collection agency. If he doesn't respond in 30 days they might say the debt is valid, and restart the clock (if I remember correctly - I haven't had personal credit issues in ages so I'm a little rusty on all the rules). So need to make a decision to either take the settlement and have the CR update to now, and then have to wait another 7 years for the "bad" history to fall off. Or take the gamble and the debt is scheduled to fall off CR in 2 years (which will highly coincide with us purchasing a new home).

[Anonymous]

Yes, you're right. For a private loan, they would need a judgement against him to do those things; they already can't sue him.
A third option might be pay-for-delete if they are willing to do that even though it's a settlement. I'm not sure if talks would refresh the debt.

On one hand I think people become more financially responsible after owning up to the debt as you're trying to do. Practically, I can see where it could benefit him to wait it out if you absolutely have to include him on the loan. You said there was a loan being deferred until 2019. Does he intend to honor the payments for that?

I don't know the legality of it ignoring the debt but you could always post a question on Avvo for free or search their database (I think I've seen this type of a question asked before). Nothing beats free legal advice!
I wish you guys the best of luck on the student loans and the house.

[JustJen]

Yes in 2019 he'll start making payments on the loans in deferment - we've already had that discussion so he's aware. I also put a reminder on my own calendar so if he forgets I can remind him! I also told him to never reapply for income based repayment, I learned from here that they will use my income as a factor as well - which would likely result in those payments skyrocketing.

If we plan to keep our existing home to use as a rental, then yea I think having the additional income from him will help getting the loan approved on a new home. 

I'll check out the board you mentioned, and also check here on the rebuilding thread since apparently regular credit rules apply since it's a private loan. He wants to pay it, I was the one that started to investigate the potential credit score impact of all this. We've got a little less than 30 days to make a decision! 

Thanks for your help!