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Private Loans and Statutes of Limitations

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  • Private Loans and Statutes of Limitations

    There is lots of misinformation out there about whether or not student loans are subject to state statutes of limitations. The answer is that some are and others are not, and of course the student loan companies have done their best to confuse everyone on this topic. Let's first look at federal law on this issue.

    Normally statutes of limitations for debt are governed by state law. But sometimes the federal government will step in and regulate the issue itself. The federal government has removed SOL protections from SOME student loans, but not all. This is important, because what we have to figure out is which student loans the federal law impacts. So let's go right to the statute.

    Title 20 of the United States Code, Chapter 28, Subchapter IV, Part F, Section 1091a. Statute of limitations, and State court judgments
    ------------------------------------------------------------------------

    (a) In general
    (1) 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.

    (2) Notwithstanding any other provision of statute, regulation, or administrative limitation, no limitation shall terminate the period within which suit may be filed, a judgment may be enforced, or an offset, garnishment, or other action initiated or taken by —
    (A) an institution that receives funds under this subchapter and part C of subchapter I of chapter 34 of title 42 that is seeking to collect a refund due from a student on a grant made, or work assistance awarded, under this subchapter and part C of subchapter I of chapter 34 of title 42;

    (B) a guaranty agency that has an agreement with the Secretary under section 1078 (c) of this title that is seeking the repayment of the amount due from a borrower on a loan made under part B of this subchapter after such guaranty agency reimburses the previous holder of the loan for its loss on account of the default of the borrower;

    (C) an institution that has an agreement with the Secretary pursuant to section 1087c or 1087cc (a) of this title that is seeking the repayment of the amount due from a borrower on a loan made under part C or D of this subchapter after the default of the borrower on such loan; or

    (D) the Secretary, the Attorney General, or the administrative head of another Federal agency, as the case may be, for payment of a refund due from a student on a grant made under this subchapter and part C of subchapter I of chapter 34 of title 42, or for the repayment of the amount due from a borrower on a loan made under this subchapter and part C of subchapter I of chapter 34 of title 42 that has been assigned to the Secretary under this subchapter and part C of subchapter I of chapter 34 of title 42.


    Yikes! That's a lot of language. Okay, let's break it down.

    1091(a)(2) basically says, "Okay sport, here are all the student loans that SOLs will never apply to!" Then 1091(a)(2) lists four different types of student loans. Let's go through them.

    1091(a)(2)(A) basically says that if the school lent you student loan, you're out of luck, it won't be time barred.

    1091(a)(2)(B) removes loans "made under part B of this subchapter" from SOL protection.

    1091(a)(2)(C) removes loans "made under part C or D of this subchapter" from SOL protection.

    1091(a)(2)(D) removes loans made by various government agencies from SOL protection.

    Okay, so what do we know? We know that federal law says that state SOLs will not apply if your loan was lent to you by the school, by some governmental institution, or if the loan was made under "parts B or C or D of this subchapter." Well that helps. What the heck is "this subchapter" anyway? Don't you love lawyers?

    This is why I'm glad I went to law school. Well, not really. But here goes. Scroll up and look at the title of the law again. Go ahead, scroll up. What is the full title of the law we're reading?

    "Title 20 of the United States Code, Chapter 28, Subchapter IV, Part F, Section 1091"

    That's right! Sec. 1091 is actually Section 1091 of Subchapter IV, Part F. So when the law says that loans made under Part B, Part C, and Part D of "this subchapter" are removed from SOL protection, it is referring to loans made under Title 20, Chapter 28, Subchapter IV, Parts B, C, and D. So what loans were made under those parts? Let's take a look!

    The statute can be found here: http://www.law.cornell.edu/uscode/20..._28_20_IV.html

    Note that Subchapter IV, Part B deals with federal loans made under the FFELP program. And Part C deals with federal Direct Loans. And Part D deals with federal Perkins loans.

    These are the ONLY loans removed from SOL protection.

    There is NO mention of private loans.

    There is NO mention of loans from non-profits.

    All student loans not expressly removed from SOL protection by this law are still subject to state SOLs. This includes private student loans from private institutions like Citibank, and from non-profits like Access Group.

    If there is still interest in this subject, I'll go through some cases in a second post on the issue.

  • #2
    Keep in mind, I am not disagreeing with you in principal, all I am saying is that there are VERY FEW student loans that actually fall out side of those definitions. I think what you are overlooking is that there is a distinction between "funding source" and "program" All student loans are "funded" by 3rd parties (citigroup, access etc). But most of those loans are "made" under some part of this act. For the usual circumstance, there is not SOL for student loans.

    Now, if you went to some no name Trucker school for your CDL and got a "loan" from them, you might have some luck. But if you went to a main line university, the bulk, if not all, your student loan was somehow "made" under this statute.

    You think I am understating it, I think you are over stating. This is the problem with law school style analysis, (you may be technically right, but it has no application in the real world )

    But, by all means, post some cases. I am not sure why you haven't already?

    Comment


    • #3
      This is not correct KeithDoxen. The statute of limitations for student loans went away in the Clinton era. Private loans still are subsidized by the government on the backend, which is why they are not dischargable. The loans are treated like federal loans because they are associated with schools, ie non-profit institutions that receive tax benefits from the government. You can only use the loans for these non-profit institutions, and the institutions receive federal tax exemption and other federal benefits, so the federal government governs the loans. That was a big part of the justification that made private loans non-dischargable, and it applies to the statute of limitations as well. I agree that there is case history on both sides however. The majority of private loans are from government-aided organizations such as Sallie Mae anyway, and would fall under the federal jurisdiction for that reason.
      You can't take a picture of this. It's already gone. ~~Nate, Six Feet Under

      Comment


      • #4
        Originally posted by HHM View Post
        Keep in mind, I am not disagreeing with you in principal, all I am saying is that there are VERY FEW student loans that actually fall out side of those definitions. I think what you are overlooking is that there is a distinction between "funding source" and "program" All student loans are "funded" by 3rd parties (citigroup, access etc). But most of those loans are "made" under some part of this act. For the usual circumstance, there is not SOL for student loans.

        Now, if you went to some no name Trucker school for your CDL and got a "loan" from them, you might have some luck. But if you went to a main line university, the bulk, if not all, your student loan was somehow "made" under this statute.

        You think I am understating it, I think you are over stating. This is the problem with law school style analysis, (you may be technically right, but it has no application in the real world )

        But, by all means, post some cases. I am not sure why you haven't already?
        Patience is a virtue, my friend!

        Comment


        • #5
          Going forward, we will not have to worry about any of this. Every loan is now from the federal government. Banks are not allowed to service or offer student loans anymore. You get all your loans from the fed. I was notified of this about 6 or 8 months ago by the fed. when receiving a student loan disbursement. Although I would love if I could D/C student loans, i will not hold my breath in this lifetime.
          Filed Chapter 7 October 5, 2010 -341 held Nov. 8, 2010- Report of No Distribution Nov. 12th, 2010- Discharged 1-10-2011 Closed 1-28-2011

          Comment


          • #6
            Okay, for those interested in case law, I don't have access to WestLaw anymore, but here are some citations for those who do.

            TERI v. Piazza

            TERI issued a private student loan. Claims that the 15 year SOL of Ohio applies, but court applies New York's shorter SOL. TERI loses on SOL grounds.

            Hemar v. Ryerson

            In this case, Hemar won (I believe) but the court did apply normal SOL analysis and found that the creditor had filed suit within the SOL and was not time-barred.

            Note that in neither of these cases is anyone discussing how SOLs do not apply to these student loans. I'm pretty sure that the attorneys for these student loan companies would have brought this up if it were in fact the case.

            Also check out TERI v. Yokoyama. This is a very recent (2008) case dealing with private student loans. Yokoyama wanted to apply her state's SOL for written contracts, but the court applied instead the SOL for negotiable instruments under the state's commercial code. Again, everyone seemed to accept the reality that these private student loans were governed by the appropriate state SOL. http://scholar.google.com/scholar_ca...=1&oi=scholarr
            Last edited by KeithDoxen; 10-03-2010, 04:05 PM.

            Comment


            • #7
              Hemar v Ryerson case link

              Originally posted by KeithDoxen View Post
              Okay, for those interested in case law, I don't have access to WestLaw anymore, but here are some citations for those who do.

              Hemar v. Ryerson

              In this case, Hemar won (I believe) but the court did apply normal SOL analysis and found that the creditor had filed suit within the SOL and was not time-barred.
              FYI: Hemar v. Ryerson: http://caselaw.findlaw.com/mo-court-...s/1274150.html

              Comment

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