Can the Student Loan Statute of Limitations End My Private Loans? (2024)

If you stop paying back your private student loans, a lender can bring you to court to demand repayment. But they only have a certain amount of time to do so. Once your loan’s statute of limitations is up, the lender has no legal recourse to collect the money from you.

Before you think you can walk away from your student loans, though, it’s important to understand the harmful consequences of default.

Let’s try to answer some key questions about the statute of limitations on private student loans, including exactly what happens to unpaid debt and how your finances can be impacted:

What’s the student loan statute of limitations?

Defaulting on student loans is a risky financial move that’s not recommended. When the student loan statute of limitations runs out, however, there’s not much lenders can do to collect.

Although collection agencies can still call you, they won’t be able to win against you in court.

The statute of limitations on private student loans varies by state, from as few as three years in certain states to as many as 10 years in others. State laws also have different statutes for written contracts, oral agreements and promissory notes.

The legal time limit begins from the date of your last payment. If you stop repaying your debt but then resume payments at any time, the statute of limitations resets. Sometimes even admitting that a debt is yours in writing can restart the statute.

In fact, debt collectors can take advantage of borrowers’ ignorance of the laws to restart the statute of an old loan, as the National Consumer Law Center notes in this 2015 report on “zombie debt.”

The statute typically applies to your state of residency when you borrowed the loan, rather than your current state of residency. However, the waters can get murky there, so expect debt collectors to look for loopholes on this issue.

To clarify your situation, you should speak with a lawyer or call up your state’s attorney general’s office. When it comes to your options and rights, listen to a lawyer, not a debt collector. If you don’t have the money for legal fees, know that there are low-cost and free options out there.

Besides the statute of limitations, there’s a second limit on the repercussions of defaulting on private student loans, and it has to do with your credit score.

When does private student loan debt fall off your credit report?

You may be relieved to hear that most private student loan debt will fall off your credit report after seven years. It will no longer drag down your credit score, and you can start to rebuild your credit from the ground up.

That said, all those years of default on student loans would have completely tanked your credit score. And a poor credit score can make your life pretty difficult. It can prevent you from qualifying for a mortgage, an auto loan or even an apartment rental.

A bad credit score may not feel significant right after graduating college, but it can become a serious burden as you move into your late 20s and 30s.

How do debt collectors, capitalized interest affect student loans?

If you have a huge amount of private student loan debt at high interest rates, you may be tempted to stop paying altogether. There are a rare few out there who advocate this approach.

But before treading down this risky path, you should know everything that can happen.

First off, if you miss payments, your loans will keep growing thanks to capitalized interest. Your debt will become more and more insurmountable the longer you avoid it.

Secondly, your original lender will likely sell your loan to a debt collector, and third-party collection agencies tend to pursue repayment aggressively. They may call you several times a day, send letters and even try to contact you while you’re at work.

There are limits to when a debt collector can contact you, so make sure you know your rights under the Fair Debt Collection Practices Act.

What happens if you default on student loans?

The biggest consequence of defaulting on your private student loans, overshadowing all the rest, is the possibility of a lawsuit.

Although collection agencies can’t sue you when the statute of limitations on the private student loan expires, they certainly can do so before that time. An agency can summon you to court for defaulting on one, several or all of your private student loans.

If this happens, then you’ll very likely want to consult a financial attorney to discuss your options. If you lose in court, then you’ll have to start repaying your loans again — and if you still don’t pay at that point, the debt collector could be granted permission to garnish your wages or seize your assets.

Can you discharge student loans through bankruptcy?

As you can see, defaulting on your private student loans can severely weigh you down in life just as you’re trying to move up.

But if you feel like there’s no way you can afford to pay your loans, yet you want to avoid default, what are your options? If your financial situation is truly dire, you may qualify to discharge private student loans through bankruptcy. Note that this process is currently very difficult to do, but it does happen.

Still, bankruptcy can wreck your credit and cause headaches for some time to come. However, if you can manage to pay your loans back (but don’t know how to start), then you’re better off coming up with a different plan of attack.

What’s next for your private student loan debt?

If you’re looking for a more stable financial future, there are better ways to get out of private student loan debt than defaulting and trying to stall for time.

Although private debt doesn’t have the same options as federal debt (such as income-driven repayment plans), you can often work with your lender to find a manageable solution for repayment.

And private loans are usually good candidates for refinancing — if you or a cosigner can qualify — since this comes with the opportunity to adjust your monthly payments and possibly even lower your interest rate. This method can be a game changer if you can get the right deal on your refinanced loan.

Even better, you might be eligible for student loan repayment assistance and not know it.

Student loans can feel like a huge burden, but there’s always light at the end of the tunnel. If you’re proactive about finding the right repayment strategy, then you can steadily work your way toward financial freedom.