A reader recently wrote in, concerned about whether an old unpaid student loan could be reported to the credit reporting agencies:
I was recently contacted about an old school loan. It is either close or very close to the statue of limitation and has never showed up on my credit report. I thought maybe the school charged it off years ago. It is now with a collections company who made their first phone call to me yesterday. I did not pick up and they did not leave a message.
It is a private loan. It was given by the school probably around 7 years ago. It has never showed up on my credit report, and was recently sold to a collections agency.
I want to eventually settle and get rid of this debt. My main concern is if they haven’t reported it and we come to a settlement agreement, do they or can they, then report that to the credit bureaus?
Also, would there be a reason that it was never reported to the credit bureaus?
Concerned About Old Student Loan Debt
Dealing With an Old Debt
Having a debt emerge out of the foggy past is disconcerting. Old debts that seemed long dead and gone can return like a zombie from The Walking Dead at the worst possible time.
There are a number of important factors to consider before you pick up the phone and talk to the collector.
And speaking of the collector, the collection company may or may not be the new debt owner. It is hard to tell who exactly owns bad debt when it is sold and resold. If you do wind up speaking with the collector, the first thing you should do is not admit to owing the debt but ask them to prove the debt is valid. Here is a sample letter you can use. With bad debt changing hands over-and-over, and with so much time passed, I’m not confident the collector or new debt owner even has the necessary documentation to prove this debt is legally owed by you.
Technically this debt should no longer appear on your credit report if it has been more than seven years and 180 days since you last went delinquent. In reality most of these old negative debts fall off a credit report after seven years.
That being said, don’t be surprised if it resurfaces as a new entry. That would be an error, but it happens all the time. There are paid credit monitoring services that you may want to consider enrolling in to make sure they don’t just drop this on your credit report in error (you can also view your credit report summary for free on Credit.com, and any changes can alert you to pull your credit reports).
You mentioned the statute of limitations. That’s the time period in which a creditor can sue you over the delinquent debt. There is nothing to prevent a creditor from attempting to collect outside of the statute of limitations, even though they may have to inform you they can’t sue.
Determining when the statute of limitations will actually expire in your specific case will require the legal opinion of a lawyer who is licensed in your state. You see, there are things that can stop and start the clock and make the exact expiration date a little murky. Paying a local attorney some money to assess your situation would be money well spent.
If the attorney determines the debt will soon be outside the statute of limitations, and it has been longer than seven years since you last went delinquent, you could ignore the debt and monitor your credit reports for any errant listings.
Keep in mind, just because a debt is outside the statute of limitations and the creditor should not sue you over the debt, that doesn’t mean they won’t. Most consumers lose these cases by default because they just don’t fight back. Armed with an attorney’s opinion you’ll be able to fight back like a champ and terminate the suit.
At this point I’m not even sure you even need to consider settling the old debt. There is a good chance the debt is just unenforceable and/or unable to be verified. However, if you want to repay the debt for your own personal reasons, just know it can restart the statute of limitations again.
It is possible to settle private student loan debt. People are able to do it today with loans that are in default. More people facing insurmountable private student loan debt are even considering strategically defaulting on the debt to get to a place where they can settle.
The typical settlement is in the 50% range and with the age of your debt and the amount of interest and penalties that may have been added, the total amount owed might be a very large number. Even half of that number may still be a lot of money.
The best settlements are typically achieved when people have the full settlement amount on hand to make one settlement payment. If you do elect to settle the debt make sure you get the offer in writing before you settle and never lose that piece of paper. Keep in mind that settling the debt may also trigger the creditor to report to the IRS the forgiven debt and if you are not insolvent you may have to pay income tax on that amount.
As for why it was never reported to the credit bureau, there are some very simple reasons for that. You see, no creditor is required to report any debt to any credit bureau, and even if they did they might have only reported it to one bureau. It might be listed but you may not have looked at all of your credit reports.
Let’s say you did wind up settling the debt; because of the potential seven-year delinquency of the debt the account would potentially still not be reported on your credit report. Settling the debt would then have no impact on your credit report. Making a payment on the old debt does not restart the credit report clock.
More on Managing Debt:
- 5 Tips for Consolidating Credit Card Debt
- Understanding Your Debt Collection Rights
- The Best Way to Loan Money to Friends & Family