Unlike federal student loans, private student loans have a statute of limitation. Some student lenders attempt to extend the statute of limitation to as long as 20 years by inserting language in student loan contract claiming it is one being executed under seal. A contract under seal is an arcane concept derived from colonial times when individuals would seal a document with a wax imprint of a ring in lieu of a handwriteen signature. They were regarded as more trustworthy and were given a special status not accorded to simple contract. Although contracts are no longer signed using a wax seal, some lenders have inserted language in student loan contracts attempting to create the illusion the contract qualifies as one. It is not cost effective for national lenders like Bank of America to draft contracts to comply with the law of all 50 states, so borrowers should not assume that merely because a contract references being signed under seal that is sufficient to meet the requirements of your state’s law. Although many states have abolished the distinction between a simple contract and a contract under seal, about half of the states still recognize their existence. In New Hampshire, the statute of limitation for a contract under seal is 20 years, however, a simple contract only has a statute of limitation of 3 years. Since student lenders often hold onto their defaulted student loan debt for longer than 3 years, figuring out if your student loan contract is under seal or not might spell the difference between having a large judgment against you or being immune from that outcome.
Bank of America in October, 2017 sold defaulted student loan debt to Student Loan Solutions, LLC. Much of this debt had not been paid for years. Student Loan Solutions sued one borrower in New Hampshire more than 9 years after the last payment and more than 3 years after the loan was charged off by Bank of America. Bank of America had inserted language buried in the fine print of the contract claiming the contract qualified as a contract under seal. Even though there was no seal near the signature line, Student Loan Solutions still attempted to sidestep the obvious statute of limitation problem by claiming it was a contract under seal. Other than this unsubstantiated allegation, there was no attempt to indicate Student Loan Solutions had undertaken a study of New Hampshire law to see if that was in fact true. After a painstaking review of the history of contracts under seal, the Court had no problem in rejecting the characterization this was a contract under seal, and dismissed the lawsuit.
Figuring out if your case has a statute of limitation issue or not is not like pulling a number off a chart. A statute of limitation analysis involves examining the contract, any choice of law clauses, relevant state caselaw, and a payment history. Even then, it may not be susceptible to a black and white answer. In the above case, it was not immediately apparent that the language Bank of America inserted into the contract was inadequate to qualify as a contract under seal. Private student lenders sometimes count on borrowers accepting things at face value. The law governing student loans is drastically tilted in favor of student lenders. This encourages a certain amount of arrogance and explains why one borrower was told he would need to pay $1500 per month even though his take home pay was only $2000. There’s not a lot of incentive for private student loan collectors to work with borrowers. Sometimes the solution can be buried in the fine print.