You may be able to avoid paying your private student loans if you wait long enough.
When I first started doing student loan law, it was because you couldn’t use bankruptcy to wipe out loans used in connection with your education (well, you could – but it’s so difficult that most people won’t qualify anyway).
For federal student loans, we’ve got tons of options. Income-dependent repayments and options for forgiveness abound for federal student loans.
The story is different when it comes to private student loans.
A private student loan is just another loan. Like a credit card or medical debt, private student loans are nothing more than funds given to you without requiring you to post a security interest.
It’s only when you file for bankruptcy that these private loans are treated differently.
That’s bad in bankruptcy, but good in the real world.
Out in the real world, there’s this thing called a statute of limitations when it comes to collection of debts. That’s nothing more than a time limitation for a creditor to take legal action against you for a debt.
The clock begins to run when you miss a payment, and resets if you are in default of your obligations and then get back on the payment horse.
When it comes to people who owe money and live in California, the general rule is that the California procedural law applies in lawsuits. In other words, when a collection action is filed in California state court, the applicable California statute of limitations will apply.
For written contracts such as private student loans, that statute of limitations is four (4) years.
We’re not home-free yet. If you used the private student loans in a state other than California, your lawyer is going to need to look at some other state laws (called the “borrowing statute”).
If you went to school outside of California and that state’s statute of limitations is shorter than four (4) years, the private student loan lender can’t sue you either.
There are some complications, so your student loan attorney is going to need to analyze the situation far more deeply to see if the California law applies or if the borrowing statute is going to work in your favor.
Remember that the statute of limitations is a defense to throw up in the face of a lawsuit brought by the lender. And the lender can sue you within the time permitted by law, so waiting it out isn’t always a great tactic.
One more reason to hire a lawyer rather than working with a student loan counselor.
Image credit: VeloBusDriver