Private student loans are the worst debt in America, bar none. Lenders have flocked to making private student loans, knowing there are few legal protections available to borrowers. I can get rid of IRS debt in a bankruptcy easier than I can student loan debt. One of my clients was told his payment would be $1500 per month even though the lender knew his total monthly take home pay was only $2,000. Living at home with his parents was the only way he could afford the student loan payments. He did not go to college only to find himself back at home again, finding this to be disheartening and overwhelming.
Sometimes a strategic default on private student loan payments is the only way to attempt to level the playing field. Unless someone is in default, a lender usually does not offer much help. One advantage of stopping payments is that unlike federal student loans, private student loans are governed by a statute of limitation but the statute of limitation only begins running once payments stop. Figuring out if you have a statute of limitations defense is not as simple as pulling a number off a chart though. Payments can restart the statute of limitation as they are an acknowledgement of the debt. Also, whether the statute of limitation runs on only the missed payments or on the entire balance is an important question that needs to be answered. State law and the terms of the promissory note control what state’s statute of limitation applies. In New Hampshire, there is a rule which says that if a private student lender wishes to collect a student loan using New Hampshire courts, the statutes of limitation in New Hampshire control. Luckily, in New Hampshire, unless a student loan promissory is deemed a negotiable instrument, a very unusual scenario, the statute of limitations for collection is three years. That means once the statute of limitation expires a private student loan collector can no longer sue a borrower in New Hampshire courts to collect the debt.
That does not extinguish the debt but once a debt is beyond the statute of limitation, collection action becomes essentially toothless because threats can longer be enforced through court action. Many student loan collectors collect on loans all over the United States so the collector is often unfamiliar with the nuances of the statute of limitations in any particular state. If you have a viable statute of limitation defense, it is important to get their attention before they sue you as it is sometimes possible to discourage further collection and avoid a lawsuit entirely. I have sent several “cease and desist” letters where that has been the result. It is much less expensive to hire a lawyer to file a “cease and desist” letter than it is to hire one to represent you in a lawsuit. There is no guarantee of a particular result, of course, but at best, this can make the entire debt uncollectable through a lawsuit, or at worst, it will help to level the playing field by creating leverage for a favorable settlement even if a lawsuit is filed.
This is not intended as legal advice for your particular situation. Before acting on any of the information in this article, you should consult a knowledgeable student loan lawyer in your state.