Although not a likely scenario, it is possible to get out of paying back your private student loans in full. It all comes down to your state’s statute of limitations on private student loans, and your willingness to accept risk.
When the statute of limitations expires, your lender can longer sue you for the unpaid debt, which means you might not have to pay it all back. Of course, banking on the statute of limitations isn’t a good idea. The pursuit could leave you with even more debt and ruin your credit score along the way.
Below, we’ll explain more about the statute of limitations on private student loans as well as helpful tips for avoiding or getting out of default.
What is the Statute of Limitations on Private Student Loans?
The statute of limitations represents the time period where you, the borrower, are legally responsible for repaying your private student debt. During that time, your lender can take legal action against you (a.k.a. sue you) should you fail to make payments. For example, you fall into default and stop making payments, so your lender takes you to court to request a wage garnishment.
When the statute of limitations is up, you are no longer legally accountable for repaying the debt. Your lender cannot sue you for the debt or garnish your wages. However, you still technically owe the debt. The defaulted loan will appear on your credit report for at least seven years, and debt collectors can continue to call.
When is the Statute of Limitations on My Private Student Loans?
Each state sets its own statute of limitations for private student loans (federal student loans do not have a statute of limitations). For example, in Pennsylvania, it’s four years. In Rhode Island, it’s a decade. You’ll need to look up your state’s individual statute of limitations laws.
In every state, the statute of limitations clock starts the day of your last payment.
The statute of limitations restarts if you do any of the following*:
- Make any payment at all
- Agree in writing that the debt is yours
- Agree verbally that the debt is yours
- Agree to repay the debt
So, in PA, if your last payment was on October 30, 2015, your statute of limitations is on October 30, 2019 so long as you don’t do anything that would cause it to restart.
*What restarts the statute of limitations can vary state to state, which is why it is crucial you look up your state’s individual statute of limitations laws
The Best Case Scenario for Waiting Out the Statute of Limitations
Really, waiting out the statute of limitations just gives you a small chance at having your total amount owed reduced. Since a lender is no longer able to sue you, they might be more willing to negotiate your debt.
Don’t expect to get off the hook for all your debt, but you might be able to negotiate some interest forgiveness, a reduced loan balance, and/or a new payment plan. This is especially true if the lender knows you have the means to back the agreed-upon amount. If you still don’t want to make payments, you can’t be sued, but you’ll face years and years of collections calls.
Of course, actually making it to the statute of limitations without a lawsuit is difficult and fairly unlikely. Relying on the statute of limitations to help reduce your student debt burden is also laden with risk.
Why the Statute of Limitations is Risky
The thought of making no loan payments for a few years and getting off the legal hook for your debt might sound appealing. But, waiting out the statute of limitations is a risky option for a number of reasons.
It can lower your credit score
When you default on your student loans (which happens if you stop making payments), your lender can report it to the three major credit reporting bureaus. A defaulted loan on your credit report will hurt your score, making it hard for you to get approved for credit cards, car loans, a mortgage, or even a spot in an apartment. In some instances, it could affect your ability to qualify for certain jobs.
You might face a lawsuit
Failing to make payments puts you at risk of a lawsuit as you approach the end of the statute of limitations. Your lender wants their money back, so suing you is one way to make that happen. As a result of the lawsuit, you could end up owing more than your loan amount after factoring in court fees and capitalized interest.
You might have your wages garnished
During the lawsuit, the court could order wage garnishment. This means a portion of your wages (up to 25% of your net pay) would go directly to your lender each month, taken out before you receive your paycheck. Depending on how much you earn, this could significantly affect your ability to afford everyday expenses. Not to mention that it means your employer would now know about your situation.
Your cosigner could get sued
If you have a cosigner, your lender could also take legal action against them. This likely won’t sit well with your cosigner, negatively affecting your personal relationship with that friend or relative.
You still owe the money anyways
Even if you’re okay risking all of that, you might be surprised to learn that even after the statute of limitations expires, your loan balance doesn’t disappear. That’s right, you still owe the money. You can try to negotiate a lower payment, but you’ll still owe something—you just can’t be sued over it.
What Happens if I’m in Default or Headed There?
If you’re curious about the statute of limitations, it’s likely that you’re already in default or worried about making your loan payments. You aren’t alone. Millions of Americans default on their federal and/or private student loans each year.
Learning about what default looks like can make it a little less intimidating.
Private student loans typically enter default after your payment is overdue for 120 days or three months. Your loan agreement will lay out a specific time frame, so be sure to read through it. For example, some lenders move a loan into default after a single missed payment.
Once you enter default, a few things happen:
- Your now owe your loan balance in full
- The default appears on your credit report and your cosigner’s credit report and stays there for seven years
- Your defaulted loan gets sent to collections, which means you can expect frequent phone calls and mail notifications
- You now also owe large collections fees
- Your debtor can sue you for immediate repayment (plus court fees), which could result in wage garnishment or non-wage garnishment (seizing your assets)
Options If You’re in Default or Headed There
If you’re in default or headed there, you aren’t without options. Just make sure you read through your loan agreement to learn the specific options you have.
In general, borrowers struggling to make their payments or borrowers in default have the following options:
Filing bankruptcy isn’t an ideal solution if you’re struggling to afford your student loan payments. Sure, it’ll stop collections calls for a bit, but the odds of having your loans discharged in bankruptcy are slim. This is because you legally cannot have your student loans discharged through traditional bankruptcy proceedings.
You must prove undue financial hardship if you want to have your private student loans discharged in bankruptcy. It requires several extra steps. In the end, it could result in full or partial discharge of your student loans.
Learn more about bankruptcy and undue financial hardship here.
Negotiating a payment plan with your lender
When you enter default, the total loan balance is now due in full. Talk to your lender about setting up a payment plan. Depending on your payment history and income, the lender might consider resuming a monthly payment plan. Again, this is all up to the lender, but you have nothing to lose and a lot to gain by asking.
Paying off the full loan balance
If the loan is repaid, you’re no longer in default. Some borrowers secure personal loans from family and friends to pay off their remaining loan balance
Reach out to your lender to discuss your options if you’re in a period of unemployment or economic hardship. Many private lenders let borrowers defer payments for those reasons, which means you won’t owe money for an agreed upon number of months. However, the interest will continue to accumulate.
The best private student loan lenders offer 12 to 24 months of forbearance.
Building your credit & then refinancing
If you’re not yet in default, student loan refinancing is an option. Refinancing involves securing a new loan to pay off your current loans. Refinancing to a lower interest rate could reduce how much you’d owe over the life of the loan. Refinancing and extending the loan term would make your monthly payments more manageable.
Build credit before refinancing to give yourself the best approval odds. If you plan to refinance, it’s crucial that you keep your loans out of default. Default will tank your credit score and make it harder (perhaps impossible) to qualify for a refinanced loan.
Learn more about building your credit score here.
Earning extra money on the side
One job doesn’t always cut it when you account for student loan debt on top of your everyday living expenses. Starting a side hustle to earn some extra cash each month could very well make the difference between staying current on your loans and falling into default. You could walk dogs, babysit, freelance write, drive for a ridesharing service, deliver food, or offer home repair services.
Final Thoughts on the Statute of Limitations on Private Student Loans
A chance at owing less than the full balance of your student loans might sound appealing, but waiting out the statute of limitations on your private student loans is full of risks.
Before trying to outlast the statute of limitations, talk to your cosigner, a lawyer, and/or a student loan advisor. Make sure you know all your options. Look up your loan agreement and your state’s laws regarding the statute of limitations too.
In nearly all cases, applying for forbearance from your lender, picking up some side work, refinancing, or negotiating a payment plan with your lender are much better options.
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College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. (2)$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. (3)This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 1/27/2021. Variable interest rates may increase after consummation.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
Ascent: Ascent’s undergraduate and graduate student are funded by Bank of Lake Mills or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 9/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs require interest-only payments, the shortest loan term, and a cosigner, and are only available to our most creditworthy applicants and cosigners with the highest average credit scores.
*The minimum amount is $2,001 except for the state of Massachusetts. Minimum loan amount for borrowers with a Massachusetts permanent address is $6,001.