Do Private Student Loans Have a Statute of Limitations?
July 24, 2014

College graduates

If you’ve got private student loans but can’t afford to pay them, you may wonder if you have any defenses to get out of the debt. If you’re deeply underwater with debt and you’re not earning enough to cover them nor are your circumstances likely to change, here’s what you should know. First, while student loans aren’t automatically dischargeable in bankruptcy like they once were, you can still ask that they be partially relieved or discharged. Second, if you don’t pay your student loans, there is a statute of limitations that will eventually kick in to protect you from collections efforts.

What is a statute of limitations on debt?

A statute of limitations is the end of when a creditor can pursue legal options to collect the debt. Legal options include suing for a judgment and then using that to garnish wages or place a lien on your assets. Once the statute of limitations expires, the creditor can’t pursue you legally but can still ask you to voluntarily pay the debt.

How do I know what statute applies in my case?

Each state has a different statute of limitations. In California, for instance, it’s four years for written contracts, which private student loans should fall under. This is not from the time you sign the loan, but from the time you stop making payments. Once you make the last payment you can afford to make and then don’t make any more (as in not even a dollar of further payments), the statute starts ticking. Lawyers refer to this as “tolling.” So if you live in California and don’t make any payments after 12/31/2014, the four years would run out on 12/31/2018.

How does a statute of limitations work?

The statute starts tolling when you make the last payment on the account. If you make no other payments of any type or promises to make any payments after that date, the clock continues to run down until the private student loan (or other debt) is considered “time-barred.”

How do you mount a statute of limitations defense?

Often, creditors will keep track of the statute and will make a move to sue you over the debt before the statute expires. If the statute has expired, according to your records, and your creditor files a lawsuit, you’ll need to respond to the lawsuit explaining that the statute has expired and offer copies of your payment records to prove this out. Seeking attorney assistance in this case is prudent. If you can demonstrate that the statute has run out, the judge should dismiss the suit. However, if you don’t respond to the suit by the deadline and don’t show up in court, you will likely be slapped with a default judgment and then that’s a big deal to try and get it overturned.

Is a statute of limitations set in stone?

However, if you don’t make any payments for two years, then make a payment, the clock starts back over. For example, if you make no payments after 12/31/2014, the statute would expire on 12/31/2018. But if you make a partial payment on 7/15/2016, the clock starts over. If you make no payments after this one, your statute would expire on 7/15/2020.

What happens when the statute expires?

Once the statute expires, the creditor has no legal remedies to pursue you to collect the debt. However, it will be seven years from the date of your last payment for the loan to fall off your credit report. So, in the same California scenario, if your last payment was 12/31/2014, your statute expires on 12/31/2018 and the debt should fall off your credit report on 12/31/2021.

Ideally, any debt you take on should be paid off as agreed. That’s the promise you make to a creditor when they agree to give you money or extend you a line of credit. To keep track of all your student loans, both federal and private, try’s free student loan tool to see all your loans, no matter the type, in one simple dashboard so you can visualize your debts, monitor pay off dates and make sure all your payments are posted properly. Also, check our blog often for great money advice and tips on vanquishing student loans.

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