What’s the statute of limitations on private student loans?

If you fail to make your payments on your private student loans, you can be considered in default — and your lender may be able to sue you for payment. But their window for taking legal action is finite.

If your lender waits too long, they lose the ability to sue. This concept is called a statute of limitations. 

Let’s look at how the statute of limitations works with regard to private student loans and what you need to know about it.

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• What’s the statute of limitations on private student loans?
• When does the statute of limitations start?
• What happens if you default on student loans?
• Can you discharge student loans through bankruptcy?
• Can wages be garnished for private student loans?
• Refinancing your student loans can save you money in the long run

What’s the statute of limitations on private student loans?

Every state has its own guidelines for the statute of limitations on private student loans. They generally fall between three and six years, though some states may have longer time frames. This means that a lender typically has three to six years after you go into default on your private student loan to sue you for payment.

Because the statute of limitations often measures time from your last loan payment, you can "restart the clock" by making a payment — even a partial payment. In other cases, the time period begins when you go into default.

It’s important to know that federal student loans have no statute of limitations, and the government can seek repayment at any time. 

HOW TO DECIDE WHICH STUDENT LOANS TO PAY OFF FIRST

What happens when the statute of limitations expires?

When your state’s statute of limitations expires, your lender can no longer successfully sue you for repayment of your loan. This doesn’t mean you can’t be sued, however. 

If your lender decides to sue you, you’ll have to go to court and use the expiration of the statute of limitations as a defense. If you fail to show up and raise this defense, a judge may enter a judgment against you.

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Are private student loans forgiven after 20 years?

No, private student loans are generally not forgiven after any length of time. Federal student loans can become eligible for forgiveness if you work in public service, or spend 20 years on an income-driven repayment plan. Private student loans generally don’t have such provisions.

When does the statute of limitations start?

You’re at risk of being sued for non-payment on your private student loans as soon as you miss a payment. This is different from federal loans, which typically require you to be at least 270 days (9 months) late on payment before you’re in default. But some private lenders wait until you miss at least three monthly payments before declaring you in default on your loan.

In some states, the statute of limitations period begins on the day you go into default on your loans. In other states, it’s measured from the date you made your last payment. This date begins the (generally) three- to six-year period after which you can’t be successfully sued for payment.

What happens if you default on student loans?

Defaulting on private student loans begins a long process that can have devastating effects on your credit score and finances. 

You may be considered in default as soon as you miss a monthly payment, or after three consecutive missed payments, depending on your private lender’s policy. At that point, the lender will typically report your delinquency to the credit bureaus, which will lower your credit score. Your lender may then seek payment directly, or send your debt to a collections agency to try to recover payment. Your lender may also take you to court to ask for a judgment requiring you to pay your debt.

During this time, you may be able to negotiate with your lender or their collections agency about a payment plan to get you back up to speed on your loan. 

Can you discharge student loans through bankruptcy?

It’s often difficult to discharge a private student loan through bankruptcy, but it can be done. In general, bankruptcy proceedings don’t cancel education loans. But you may be able to have your loans discharged if you can prove the loan causes you "undue hardship." You’ll have to go through extra legal steps during the bankruptcy to prove this, and a judge will have to rule in your favor.

In limited circumstances, private student loans can be discharged in bankruptcy without this extra step. This can include when loans were issued directly to you, rather than to your school, or you took your loans to attend a non-accredited college or university. An attorney may be able to help you determine the best course of action.

Can wages be garnished for private student loans?

Yes, your wages may be garnished to repay your private student loans. Wage garnishment is when the courts direct your employer to withhold a portion of your paycheck and send the money directly to your creditors. 

Your lender will generally need a court order to begin garnishing your wages. Under federal law, the amount that can be garnished depends on how much you earn and how much disposable income you have. Your wages may be garnished until the debt is fully paid. State laws usually dictate how garnishment works.

With private student loans, a lender can’t garnish Social Security benefits or federal tax refunds to collect payment.

WHEN IS THE BEST TIME TO REFINANCE YOUR STUDENT LOANS?

Refinancing your student loans can save you money in the long run

If you’re having trouble paying off your private student loan, going into default and hoping to make it to the statute of limitations is not a wise course of action. 

A better plan is to get in touch with your lender. Let them know how much you can pay each month, and see if your lender will work with you. You may also ask about a modified or extended payment plan or a temporary forbearance of your payments until you can get on more solid financial footing.

You may also consider refinancing your private student loans to reduce your monthly payment. When you refinance a private student loan, you take out a new loan that pays off and replaces the one you currently have. You may also be able to consolidate multiple student loans into one loan by refinancing, leaving you with a single monthly payment.

Depending on your credit score, you may qualify for a lower interest rate than the one you currently have on your loans. In this case, refinancing to a lower interest rate may lower your monthly payment and make it easier for you to make your payments. 

But keep in mind that you may incur extra costs when refinancing student loans, such as origination fees. It may also be difficult to refinance student loans with bad credit. And, you may not want to refinance your federal student loans into a private loan. This causes you to lose federal student loan benefits like income-based repayment plans and forgiveness eligibility.

Before refinancing your student loans, take an inventory of the loans you currently have, both federal and private. Note the amounts and interest rates for each loan. A student loan refinance calculator may be able to help you determine how much you can save by refinancing.

Credible makes it easy to see your personalized student loan refinance rates from multiple lenders in just minutes. And it doesn’t affect your credit score.