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TexLaw
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My wife has a private student loan, that is not federally insured

Resolved Question:

My wife has a private student loan, that is not federally insured or backed in any way.

This loan was taken out in May 2007 when she enrolled in school. She only attended school for that semester and did not re-enroll in school, nor did she ask for a deferment or forbearance.

The credit report shows that the company deferred her payments for over 2 years and shows her first 30-day late in 2010. (she never made a payment)

She was a resident of NV at the time of the contract and is now a resident of NM.

Since this was a contract the Statute of Limitations in both states are 6 years as I understand.

Q's.
1. Would the SOL expire in 2013 (2007 contract signing +6 years)
2. Would the SOL expire in 2017 (2010 First date they say payments were due +6 years)
3. Hypothetically... if they had continued deferring for 20 years (voluntarily and w/o request from the borrower) would the SOL only start after those 2 decades had past?

It seems to me, the debt has been re-aged which is illegal.

I tried to make the info above simple so I could get a very clear, simple and accurate legal answer, but she really has several of these loans they are from 2 different companies and each of those 4 listings all vary from 13-26 months from when the contract was signed and the date they reported the first delinquency. So I need to understand the basic law behind the SOL and what makes it extend and what actually makes the SOL start counting down.
Submitted: 1 year ago.
Category: Legal
Expert:  TexLaw replied 1 year ago.
Hi,

Thank you for your question. The statute of limitations does not begin running until the debt becomes due and then goes unpaid. So, the statute of limitations may be extended by the loan company when they use a deferment. In your example above, you are correct that the SOL did not begin to run until 2010 and will expire on 2017.

If any payment is made on the debt, it restarts the SOL. So, if in 2016, she made a single payment, this changes the date of the SOL deadline to 2022.

Please let me know if you have further questions. Please also remember to rate my answer positively so that I may be compensated for my work by the website.

Thanks,
ZDN
Customer: replied 1 year ago.

"So, the statute of limitations may be extended by the loan company when they use a deferment."


 


She did not ask for a deferment, any deferment they gave they made that decision on their own without request from the borrower, nor approval from her.


 


Are you saying then that if they continued to defer for 20 years, and then made a request for start of payments the SOL would start then? It seems unlikely that would be legal.


 


Do you have any case law that would support your position? We are being aggressively perused by a collection attorney now and the SOL, if calculated from the normal (6 months after leaving school you must start making payments) time-frame would expire in just a few months.

Expert:  TexLaw replied 1 year ago.
First of all, if the lender is providing federally subsidized student loans then there may not be a statute of limitations at all. See the following:

20 USC § 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 title that is seeking to collect a refund due from a student on a grant made, or work assistance awarded, under this title;
(B) a guaranty agency that has an agreement with the Secretary under section 428(c) [20 USCS § 1078(c)] that is seeking the repayment of the amount due from a borrower on a loan made under part B of this title [20 USCS §§ 1071 et seq.] 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 453 or 463(a) [20 USCS § 1087c or 1087cc(a)] that is seeking the repayment of the amount due from a borrower on a loan made under part D or E of this title [20 USCS §§ 1087a et seq. or §§ 1087aa et seq.] 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 title, or for the repayment of the amount due from a borrower on a loan made under this title that has been assigned to the Secretary under this title.

(b) Assessment of costs and other charges. Notwithstanding any provision of State law to the contrary--
(1) a borrower who has defaulted on a loan made under this title shall be required to pay, in addition to other charges specified in this title, reasonable collection costs;
(2) in collecting any obligation arising from a loan made under part B of this title [20 USCS §§ 1071 et seq.], a guaranty agency or the Secretary shall not be subject to a defense raised by any borrower based on a claim of infancy; and
(3) in collecting any obligation arising from a loan made under part E [20 USCS §§ 1087aa et seq.], an institution of higher education that has an agreement with the Secretary pursuant to section 463(a) [20 USCS § 1087cc(a)] shall not be subject to a defense raised by any borrower based on a claim of infancy.

(c) State court judgments. A judgment of a State court for the recovery of money provided as grant, loan, or work assistance under this title that has been assigned or transferred to the Secretary under this title may be registered in any district court of the United States by filing a certified copy of the judgment and a copy of the assignment or transfer. A judgment so registered shall have the same force and effect, and may be enforced in the same manner, as a judgment of the district court of the district in which the judgment is registered.

(d) Special rule. This section shall not apply in the case of a student who is deceased, or to a deceased student's estate or the estate of such student's family. If a student is deceased, then the student's estate or the estate of the student's family shall not be required to repay any financial assistance under this title, including interest paid on the student's behalf, collection costs, or other charges specified in this title.


If the loans are purely private, then Nevada law provides:

Where contract obligations are payable by installments, the limitations statute, Nev. Rev. Stat. § 11.190(1)(b), begins to run only with respect to each installment when due, unless the lender exercises his or her option to declare the entire note due.

Clayton v. Gardner, 107 Nev. 468 (Nev. 1991)

As a general rule, the payment of interest on a debt will ordinarily take the debt out of the operation of the statute of limitations. Guild v. Meredith Village Sav. Bank, 639 F.2d 25 (1st Cir. 1980); 54 C.J.S. Limitations of Actions, § 323 (1948). The theory on which this rule is based is that the payment amounts to a voluntary acknowledgement of the existence of the debt which raises an implied new promise to pay. See Hamilton v. Pearce, 547 P.2d 866 (Wash.App. 1976).

Mobile Discount Corp. v. Price, 99 Nev. 19 (Nev. 1983)

In your case, the deferment is a right reserved by the lender. Thus, the payment has not yet become due. When it becomes due, this starts the statute of limitations. If a payment is made, this will restart the statute of limitations.

Please let me know if you have further questions. Please also remember to rate my answer positively so that I am compensated for my work by the website.

Thanks,
ZDN
Customer: replied 1 year ago.

Awesome information, ok, this information brings up just a couple more questions. And since we're digging into a more robust answer, I'll bump up the value of the question.

1. You said, "In your case, the deferment is a right reserved by the lender. Thus, the payment has not yet become due." Where in law does this come from? Again, what if the lender "forgot" about the loan for 20 years, leaving it in deferment and then said "now 20 years later...it's due". Wouldn't this become a stale debt (expired SOL) under some, more applicable consumer protection law to prevent debt aging?

2. Since my wife is living in NM now, wouldn't she have to be sued here, and the law of this State would apply. Are there any conflicting / different wording in the NM SOL statute that would give her a different timeline on the SOL here? I think I read somewhere that the owner of the debt can choose the longer of the two SOL's if different (State the contract was executed and State of current residence, but I'm not totally sure on that).

3. "Where contract obligations are payable by installments," Since there aren't "Installments" in a student loan, ie: It's not like a car or home payment that has a fixed time of repayment, (fixed number of payments) does this apply to us? I know it's not open-ended like a credit card but it's also not like an "installment" loan... what's your thoughts on that...does it fall under a different category in the SOL statute (something other then an "installment loan"?

Expert:  TexLaw replied 1 year ago.
1. You said, "In your case, the deferment is a right reserved by the lender. Thus, the payment has not yet become due." Where in law does this come from, again, what if the lender "forgot" about the loan for 20 years, leaving it in deferment and then said "now 20 years later...it's due", wouldn't under some sensible other law, this debt would have become stale?

A: This would be a matter of contract law and statutory law. In other words, the contract (i.e., loan agreement) itself would provide when the loan becomes due and payable. The deferment right has to be stated in the loan agreement and specified. However, a lender can agree to defer a due date on a loan as long as it wants to. As the lender, it has the right to modify repayment terms in this fashion. The statute of limitations is not thought of as a sword. In other words, it is not an offensive weapon. It is a defensive shield when there is a breach. Thus, to trigger it, you need to breach the contract to start it running. This can be done by repudiating the agreement outright. In other words, you would right a letter to the student loan company and say that you are repudiating the loan agreement and will not pay it. This sets the statute of limitations to start running and it cannot be reset by a deferment.

2. Where would the lawsuit take place. Assuming there was no provision in the loan agreement wherein your wife agreed to be sued in a different forum, the loan company would sue you in New Mexico. However, most contracts will state what law controls them. Thus, if the contract is to be interpreted under Nevada law pursuant to the contract's own terms, the Nevada statute of limitations will also probably apply (this isn't set in stone and the New Mexico court may hold differently). The New Mexico SOL looks to be identical with the Nevada SOL, so this would not help much.

3. Installment loan

I disagree and believe that a student loan is treated as an installment loan. It is not a revolving loan like a credit card, and has a repayment schedule.
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4265
Experience: Lead trial/International commercial attorney licensed 11 yrs
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