I Can Afford to Pay My Private Student Loan But the Lender Won’t Let Me


Dear Steve,

My family and I are in California. When I went to college, my parents co-signed for my private student loans. I graduated, got a job, and made payments towards my student loans in a timely manner.

My parents made the decision to file for Chapter 13 bankruptcy in 2012. Unfortunately, their lawyers were ill-informed and said the bankruptcy would not affect my student loans or me as they would not be discharged. They were under the impression that I would still be able to make payments with no issues.

Shortly after the filing, my student loan account was disabled. I called the company and it was clarified that as a result of the bankruptcy filing they could no longer ask for payments because of the automatic stay. My parents called the lawyers, and again, ill-informed, they said not to worry about it as the student loan will “return to normal” once the bankruptcy closes.

Later, I read in the private student loan contract that bankruptcy resulted in automatic default. My credit report remained clear until the bankruptcy closed in 2015. The loans showed up as defaulted started when the bankruptcy closed in 2015. I started to received debt collection notices. Full repayment of the private student loans was demanded. I was advised not negotiate the debt and to wait until the four year statute of limitations for California runs out in the hopes that the debt collectors don’t attempt to sue beforehand.

I still cannot believe the situation that I am in. I was perfectly capable of making my monthly payments. If the private student loans cannot be discharged, why could I not make any payments? I knew they were not going to disappear. It seems absurd that while the private student loan could not be discharged with the bankruptcy, the loans would be defaulted as a result of the bankruptcy and that repayment of the private student loan in full would be demanded. I feel like I’m stuck in a loop. At this point, the only light I see is waiting for the statute of limitations to run its course.

Is there anything in my situation that I am missing that would help rectify my situation in any way?

For California, does the 4 year statute of limitations start when the bankruptcy closed (2015) or when the bankruptcy was initiated and the student loan company stopped accepting my payments (2012)?

See also  The Department of Education Is Cooking the Books: Federal Reserve Bank Says $166 Billion in Student Debt is Delinquent

Does it take 7 years for this default to roll off my credit report and if it does not at that point, can I contact the company to have my credit report corrected to remove it?



Dear Elizabeth,

I think you nailed the whole issue with your personal experience. Is it ridiculous, you bet it is.

But this is not a new situation. It’s been an insane reality for a long time.

So if we put this into perspective the reality is the private student loan lender required the co-signer because they didn’t feel you had the capacity to repay but then accelerated the note for the least likely person to pay from the very beginning.

This is yet another example of often times logic and creditor policies seem to live in different universes.

The Consumer Financial Protection Bureau said in 2014, “Students often rely on parents or grandparents to co-sign their private student loans to achieve the dream of higher education. When tragedy triggers an automatic default, responsible borrowers are thrown into financial distress with demands of immediate repayment.” At that time CFPB Director Richard Cordray said, “Lenders should have clear and accessible processes in place to enable borrowers to release co-signers from loans. A borrower should not have to go through an obstacle course.”

So the reality is you are facing an obstacle course. While you could send in a payment it would potentially impact the Statute of Limitations (SOL). And the SOL is a really boring but interesting topic. For example, in Nebraska, the SOL runs while in a Chapter 13 bankruptcy. It really depends on state law and there is no way I could even give you a good answer about what California says on this subject. You need a local expert who is also a licensed attorney in the state.

For something like this I would look at one of these resources to find an attorney who might be able to definitively answer the SOL issues in California. Consider contacting one of these attorneys in California, one of these student loan attorneys, or this group.

The situation you are facing is one created by a failed policy and procedure as a result of crummy terms from when the loan was originally offered and accepted.

See also  One of Every Four Student Loans is in Default. National Economic Crisis Boiling.

So to correct the situation now would require the private student loan lender to either convert the defaulted and accelerated note to a regular loan in good standing without the penalty rate and added collection fees, or a plan for you to wait out the SOL and then discharge the private student loan in a bankruptcy.

It’s a mess, it’s stupid, it’s been broken for a long time, and your ultimate course of action should be based on factual data and a well thought out plan of attack.

It’s unfortunate the bankruptcy attorneys in 2012 didn’t give better advice on this topic. But in their defense, it was an evolving topic and the lack of good information about this problem led many to give incorrect advice.

Now I know it is of absolutely little comfort but you are not along in this cesspool of the insane private student loan realities.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Do you have a question you'd like to ask me for free? Go ahead and click here.

Damon Day - Pro Debt Coach

Follow Me
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
Follow Me

4 thoughts on “I Can Afford to Pay My Private Student Loan But the Lender Won’t Let Me”

  1. Elizabeth, I heard from attorney Greg Fitzgerald from California about your situation. He said, “Unfortunately Elizabeth is/was caught in that space between a lender’s “policy & procedure” and the lender’s interpretation of the law (both BK law and contract interpretation). For example, the automatic stay did not apply to Elizabeth, and the lender could have pursued her for non-payment without violating the stay. They instead elected to take the more conservative approach and trigger the bankruptcy clause in the loan. I would like to see the contract language for this however, as I’m not sure I would agree the clause applied to her. If it does not and if she attempted to make her payment, she may not actually be in default. This distinction can certainly have ramifications in terms of what the amount they are now alleging is due because of the “default”.

    That all said, I generally advise clients that unless: 1) they can pay off the private student loan today or 2) can afford the payments AND know when it will be paid off (the AND is very important), they are better off defaulting. A lower payoff can usually be negotiated after default. If not, and they file suit, a better resolution can usually be obtained in court. Borrowers should not be afraid of court (so long as they get a good lawyer who knows these cases). In fact, many times we get better results in court. As a final point regarding litigation: if they do sue Elizabeth, she may have the defense that she did not actually default. It is only in this forum that her accurate assessment of “absurdity” can be determined (keep in mind that the law and court rulings are not immune from absurdity!).

    As to the statute, it is tolled during the bankruptcy proceeding, which means it does not run during that time. It is an interesting question that, since she did not file BK, was it tolled as to her? I think many courts would say it was tolled, but again, I’d love to make the argument that is was not tolled because she did not file.

    My suggest approach for her is if she can obtain a lump sum settlement she can afford, great. If not, wait and see if she gets sued and then defend it asserting (among other defenses) that she did not default and that the SOL was not tolled as to her. Interesting case.”

  2. Steve and Elizabeth, I am in a very similar situation, in fact, until I saw the signature I thought this was my story.
    Turns out that making “voluntary” payments along the way may or may not have helped the situation depending on both the lender’s and the servicer’s (predatory) practices. Upon my parents’ CH13 close, one of my servicers executed an automatic forbearance for the period of time the loans were under bankruptcy and have now restored the loans to good repayment status. Two other lenders and servicers, however, forced the loans into default and are now attempting to force collection and accelerated repayment.
    Aside from contacting bankruptcy attorneys (Steve, do you have any in Kentucky or New Hampshire?) have there been any larger movements to bring these situations to a broader audience? CFPB? Class Action? I’m confident there will be many others facing the burden this financial system has stacked against us!

    • Jason, Thank you for sharing. The CFPB has brought national attention to the problem in 2014. The underlying problem is these are terms put forward by non-government commercial lenders. Unlike a federal loan where the government can take action, it would actually take an act of Congress to force national private lenders to change the way they do business.

      Lending influencers are strong and as long as their is a Republican held Congress the chances of any change passing are nil. Private student loans last got a favorable gift under President Bush in 2005 when he signed the Bankruptcy Reform Act which made them less dischargeable in bankruptcy.

      Check http://bankruptcy.live-get-out-of-debt.pantheonsite.io/listings/category/kentucky



Leave a Comment