If the private student loan lender waits too long to sue you, it could be out of luck. But how long is too long?
Private student loans are no different than any other loan given by a bank. They aren’t covered by the federal laws regarding student loans and are afforded no extra protections.
So let’s be clear:
A private student loan is no different than a regular loan. Period.
That means there’s a limited amount of time during which the lender can sue you for nonpayment. This statute of limitations may make the difference between payment and getting off free and clear.
Here’s the rule on statute of limitations for people who live in California.
Four Years From The Date Of Accrual
California Code of Civil Procedure Section 337 (1) spells out the basic statute of limitations for contracts. It states that an action upon any contract, obligation or liability founded upon an instrument in writing must be brought within four (4) years of the date on which the claim accrues.
The claim accrues when the contract for payment is breached – in other words, once the first payment is not made under the contract.
So … they have a four year statute of limitations. Right?
Make That Six Years
California Commercial Code Section 3118(a) provides a different statute of limitations for promissory notes. This law states:
an action to enforce the obligation of a party to pay a note payable at a definite time shall be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.
This may be a problem, and not only because the private student loan lender gets an additional four years to sue you for nonpayment.
If you read the law carefully, it says that the lender gets a statute of limitations of six years from the due date or dates stated in the note.
That means each month represents a new beginning to the six year clock. If you’ve got a 30 year Note, theoretically the lender may be able to sue you for 36 years (for at least the last payment due, that is).
The saving grace, however, is in the acceleration portion of the law. If the private student loan lender calls the entire debt due, they get six years from that date as the applicable statute of limitations.
Do You Use The California Statute of Limitations?
When you sign the promissory note for the private student loan, it may state that a different state’s statute of limitations applies to disputes.
If you’re in California, that’s good news.
California courts will apply another state’s statute of limitations only if it is shorter than the one being applied under California law.
For example, Idaho apparently has a statute of limitations of five years on promissory notes – this is in contrast to California’s six year time limitation. If your private student loan says that Idaho law applies, then your lender gives up one year.
If You’re Sued, A Phone Call Gives Peace Of Mind
You don’t want to get sued for a private student loan and make a decision based on false information.
Maybe the debt’s not enforceable anymore.
Maybe the amount being claimed is incorrect.
Maybe you’re being sued by an entity that doesn’t have the legal right to collect.
The lawsuit is probably for a large enough amount of money that it makes sense to talk with a lawyer. After all, you could end up spending a lot of money on a settlement that is completely unnecessary.