Do Private Student Loans Expire? 5 Things Lenders Don’t Want You to Know

statute of limitations on private student loans

Have you ever wondered what would happen if you just stopped paying back your private student loans?

While defaulting on student loans can cause you a world of trouble, there is a statute of limitations on private student loans. This means that after this statute is up, lenders can’t take any legal action against you.

But what exactly happens to unpaid private student loans? And how do they affect your credit score? Here’s how the following rules affect you and your finances.

1. There’s a statute of limitations on private student loans

Even though defaulting on student loans is a risky financial move not usually recommended, when the statute of limitations runs out 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. Keep in mind though that the statute of limitations varies by state and begins from the date of your last payment.

What’s more, if you resume payments at any time, then the statute of limitation resets. Sometimes even admitting that debt is yours in writing can restart the statute.

Debt collectors can take advantage of borrowers’ ignorance of the laws to restart the statute of an old loan. To learn more about their tactics, check out this 2015 report on “zombie debt” by the National Consumer Law Center.

The statute of limitations on private student loans varies 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 statute typically applies to your current state of residency, rather than the state you took out the loan in. 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.

Besides the statute of limitations, there’s a second limit on the repercussions of private student loan default. It has to do with your credit score.

2. Private student loan debt falls off your credit report

You may be relieved to hear that most private student loan debt, like other private 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 being said, all those years of default on student loans will have completely tanked your credit score. And a poor credit score can make your life pretty miserable. 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.

3. Your student loan could be sold to a debt collector

If you have a huge amount of private student loan debt and high-interest rates, you may be tempted to stop paying altogether. There are a rare few out there who preach this approach, like writer Lee Siegel in his widely discussed New York Times editorial.

Before treading down this controversial path, you should know everything that can happen.

First off, if you miss payments, your loans will keep growing thanks to compound interest rates. 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 pursue repayment aggressively.

They may call you several times a day, send letters, even try and contact you while you’re at work. Debt collectors could also contact your family, friends, or neighbors. And you probably don’t want your boss or inner circle learning all about your financial troubles without your consent.

To learn more about your rights against harassment from debt collectors, check out the Fair Debt Collections Practices Act.

4. Defaulting on student loans could get you sued

The biggest consequence of defaulting on your private student loans that overshadows all the rest is that you could get sued.

Although collection agencies can’t sue you once the statute of limitations on a private student loan expires, they certainly can 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 have to consult a financial attorney to discuss your options, which could cost you a pretty penny. And if you lose in court, then you’ll have to start repaying your loans again.

If you still don’t pay, then the debt collector could garnish your wages or make direct withdrawals from your bank account. The collector isn’t allowed to touch your federal benefits, though, like your Social Security.

5. You could (potentially) discharge your 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 dire, then you may qualify to discharge private student loans through bankruptcy.

Or, if you can manage to pay your loans back (but don’t know how to start) then you should come up with a plan of attack.

Gather all of your loans, interest rates, and repayment plans in one place. The Student Loan Hero dashboard can help you collect your loans and figure out your target repayment dates.

If you’re able to make more than the minimum payments toward your loans, then you should do so ASAP. The faster you pay off your loans, the less you’ll pay in interest in the long run. Consider earning some extra money on the side or apply any raises directly toward your loans as well.

Finally, consolidating and refinancing student loans is one of the best ways to simplify monthly payments, get a lower interest rate, and save money. People with a solid record of repayment qualify for the best refinancing offers — another reason to avoid going into default.

Student loan debt 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 plan, then you can steadily work your way towards financial freedom.

What’s next for my private student loan debt?

If refinancing your student loans is a potential solution, then check out this guide on how to get started on the process. And if you’re looking to pay off your loans as fast as possible, these six easy tips can help you make a serious dent in your student loan debt.

You might even be eligible for student loan forgiveness and not know it. This full list of loan forgiveness programs could get you on the right path towards lightening your debt load.

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