Should Students Voluntarily Default On $1.3 Trillion In Debt?

Tyler Durden's picture

One week ago, we highlighted a NY Times op-ed by Lee Siegel, a writer who holds not one, not two, but three degrees from Columbia, including two graduate degrees. Long story short, Siegel accumulated quite a bit of student debt on the way to obtaining three degrees from one of the nation’s top schools, but apparently no one told him that writers (or at least the type of writer he planned on being) don’t generally make a lot of money, and so when Siegel found himself falling behind, he simply decided he would not be repaying his student loans.

(Lee Siegel)

You see for Siegel, student debt is part of a system that’s “legal but not moral.” It’s “absurd that one [can] amass crippling debt as a result, not of drug addiction or reckless borrowing and spending, but of going to college.”

Of course, one might easily argue that taking out three large loans to fund three degrees from Columbia, none of which promise high-paying jobs, is the very definition of “reckless borrowing and spending.”

Siegel also says it’s ridiculous that the education system “open[s] a new life beyond [people’s] modest origins [only to] call in its chits and prevent [these people] from pursuing that new life, simply because [they] had the misfortune of coming from modest origins.”

But is it then immoral for auto lenders to expect to get their money back from low-income borrowers who take out car loans? After all, car loans also “open a new life” for people of “modest origins.” Before the loan they had to walk or take public transportation. After the loan they are able to go wherever they want, whenever they want in an expedient fashion. Is it then wrong for auto lenders to “call in their chits” by expecting borrowers to make their monthly payments? Obviously not. The argument is nonsensical.

Siegel sums up the difficult decision he faced as follows:

“Years later, I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.”

So according to Siegel, because the free market doesn’t value (in monetary terms) writers as much as it does say, petroleum engineers, that means writers shouldn’t have to repay their loans.

But there’s no inherent injustice in the fact that writers are not, on average, paid as much as petroleum engineers. It is Siegel’s right to choose what he wants to study and thereby what vocation he wants to dedicate his life to. If that’s writing, so be it. That’s great.

It is however, society’s right to determine how much Siegel’s writing is worth. If that determination leaves Siegel unable to service his debt, he does not have the right to punish society for how they valued his work by forcing taxpayers to take a loss on his student loans.

We can of course argue over what it says about our society when writers and intellectuals can’t make enough to live a comfortable existence while white collar criminals on Wall Street rake in hundreds of millions every year, but that’s an entirely separate argument and probably shouldn’t have been included in Siegel’s op-ed because frankly, it has nothing to do with whether or not borrowers should be held accountable for their obligations to creditors.

The better argument may be that the student debt bubble is just one more example of easy credit and moral hazard conspiring to create a massive social inefficiency wherein it's impossible to compete for a job without having a $35,000 college degree, but depending on the major, these degrees don't often prepare graduates for the job market. What's left is a nation of waiters and bartenders laboring under tens, if not hundreds of thousands in student loans in an economy that still (BLS and BEA "adjustments" notwithstanding) hasn't recovered from a crisis caused by the very same type of easy credit and moral hazard that has now spawned the student debt bubble.

In other words, it's not that Siegel is wrong to criticize the student debt bubble, it's just that the issue isn't whether or not student borrowers somehow deserve to be treated differently by creditors simply because their debt went towards an education while someone else's debt went towards a Honda Civic. 

 

Moving on, you'll recall that Siegel also has some concrete recommendations for graduates struggling under a mountain of student debt. As a reminder, here they are:

You might want to follow these steps: Get as many credit cards as you can before your credit is ruined. Find a stable housing situation. Pay your rent on time so that you have a good record in that area when you do have to move. Live with or marry someone with good credit (preferably someone who shares your desperate nihilism).

The NY Times has more on why some of these suggestions might turn out to be bad ideas:

Over the last couple of decades, we have been engaged in an enormous national experiment, taking impressionable and often ignorant teenagers and young adults and seeing just how much student loan debt they can handle.

 

Colleges and graduate schools flaunt their fancy amenities while making the case for their brand of degrees, loan papers in hand. Parents stand idly by and often co-sign for the debt. As a result, more than $1 trillion in student loans are outstanding, and people of all ages are struggling to repay them.

 

Whatever you may think of these results and the costs that produced them, there is also a practical question at hand for people who feel as if they are in over their heads: Is it ever a good idea to try to beat the system by openly defying it and refusing to repay the debt that you willingly took on?

 

The ramifications of defaulting and remaining in debt deliberately are usually real and lasting. After all, the federal government spends over $1 billion annually on collection agencies to get its money back on behalf of the taxpayers who pay for the loan programs.

 

Mr. Siegel suggested that others might want to consider his example and listed three steps that could help them cope..

 

First, he tells people to get as many credit cards as they can before they stop repaying their student loans. This way, presumably, you will have plenty of credit available once your credit report is ruined and you can’t get new cards. But card issuers are constantly checking the credit of existing cardholders to look for distress signals. If they see any, they may lower your limits or close your accounts.

 

You could use debit cards instead, as long as you don’t bounce checks or regularly overdraw. Once your credit is a mess, however, it becomes that much easier to justify all sorts of bad financial behavior. After all, your student loan default has already rendered you off limits for lending, so what’s a few more late payments or stiffed creditors?

 

The second piece of advice Mr. Siegel has for aspiring defaulters is to establish a good history of paying rent. This can work, as long as you rent from a landlord who never checks your credit or a new one who relies on your old landlord’s good word.

 

But many landlords do check and won’t be sympathetic, especially in tight markets. Besides, plenty of people don’t want to be tenants forever, given how hard it can be to find rentals in some good school districts. Others want to plant roots and build home equity.

 

Will those defaulters be able to qualify for a mortgage? A judgment resulting from a default may stay on your credit report for up to 10 years. But we’re talking about the credit reporting agencies here. Mistakes happen, black marks may linger, and they aren’t always easy to fix quickly when your home purchase hangs in the balance..

 

Which brings us to Mr. Siegel’s third piece of advice: Marry well, or at least have a creditworthy partner. Then, that person can be the sole mortgage applicant. Mr. Siegel’s wife bought the home where they live, according to public records.

 

There are a number of problems with this approach. Some lenders may not allow it, since certain low down-payment loans in community property states require both spouses to apply, according to Wells Fargo. Of course, you’ll need to talk someone into coupling up with you in the first place, after explaining that you’re not so big on financial obligations but that you really, truly intend to honor marital ones.

In the final analysis, the entire debate may well end up being irrelevant because the larger the student debt bubble grows, the louder the "forgive all student debt" calls become and because, in Bill Ackman's words, "there's no way students are going to pay it back," it may not be long before the Lee Siegels of the world have their debt cancelled before they have a chance to make a publicity stunt out of their defaults.

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NoDebt's picture

Just the involuntary defaults should suffice.

HenryHall's picture

No need to default. Just emigrate and exclude the first $98k pa from income, hence annual payment = zero without default.

The Rolling Thunder's picture
The Rolling Thunder (not verified) HenryHall Jun 14, 2015 8:54 PM

Start working at home with Google! It’s by-far the best job Ive had. Last Monday I got a new Alfa Romeo from bringing in $7778. I started this 9 months ago and practically straight away started making more than $83 per hour. I work through this link... www.earnmore9.com

Philo Beddoe's picture

Alfa Romeo? Nice low profile ride, Fredo. 

MonetaryApostate's picture

Are the elite rethinking the Debt Burdens they laid on the #1 consumers in the world???

(Nah, greed overcomes logic 999 times out of a thousand...)

0b1knob's picture

He can't default.  He can just stop paying.   It's not the same thing.

Three degrees from a prestigious university and he doesn't know that they will come after him forever?  They will take his social security and estate when he dies?  It was all there in the papers he voluntarily signed to get the loans.  

Manthong's picture

Then everyone should voluntarily default on their mortgages and credit cards.

If everyone did it, we would be rid of the banks for good.

 

Seek_Truth's picture

No, not quite:

First, make sure all of your secured debts are paid in full- (Mortgages, cars, etc.)

Then, default on your unsecured debts- (Credit cards, etc.)

greenskeeper carl's picture

Im not advocating or condoning this behaviour, but...

Id stay current in one of those income based repayment plans for now. That which cant be paid back won't be. And since evern with 'the markets hitting new all time highs' the underlying economy sucks, there is NO WAY most of this is going to get repaid, ever. And it looks bad, politically, to keep pursueing these people forever, especially for the left, who think everything should be 'free' anyway.

Eventually one of these feckless politicians who manages to get themselves crowded emporer is going to get all this debt wiped out, Id say within the next 5 years. Since its obvious they won't get their money back anyway, might as well appear magnanimous and benevolent to the plebs by writing it all off. Think of it as another LBJ/civil rights moment "if you help me get this bill through, Ill have those niggers voting democrat for the next 50 years" except this time 'those niggers' will be all the dumbass millenials. Afterall, it just monopoly money anyway, and if you are a keynesian type economist, this is great, because since those young people will now have most of their debt written off, thy can now go into more debt, buying moar stupid shit they dont need from china, thereby "stimulating the economy"

I think the first people who will get it written off will be those who at least appear to have been making an honest effort over the years. Defaulting before that happens won't get your student loan debt wiped out, but it will fuck up your finances for a long time. Best just sit back and see how this plays out.

Manthong's picture

I don't have squat for a mortgage, but after the MERS scam, I doubt that the money center bank I pay every month even has any legal documents anymore on my house.

What I was getting at is that is that if everybody stiffs them, they are helpless but to try to set a few examples and their synthetic paper will spontaneously combust if the revenue STOPS.

Maybe we should crowd fund protection for the examples.

Non violent protest.. Ghandi and MLK would be proud.

Seek_Truth's picture

What "they" lend is a fraud.

It is "money" (debt) conjured out of thin air.

I don't mean to speak in riddles, but this is, after all, ZH.

"Are you not entertained?"- Maximus Decimus Meridius

https://www.youtube.com/watch?v=FsqJFIJ5lLs

cookie nookie's picture

Why not free university?  I'm also for free health care.  And while you're at it, can you throw in a free FEMA trailer.  Sounds sweet to me.

chumbawamba's picture

My friend did it the right way: he financed his three degrees on credit cards and then defaulted on the credit cards, which are of course uncollaterized consumer loans, and so when they couldn't collect they were sold off to the junk debt buyers.  He ultimately declared bankruptcy and seven years later, after building a business in the meantime, he came out smelling like roses.

I am Chumbawamba.

Seek_Truth's picture

You got it, Chumba.

Or, hypothetically speaking, if one were to get a student loan, and then pay it off with credit cards, well, you'd have to follow the link I posted a few comments above.

PS-Not being too cryptic here, for those who are paying attention. Look to the right of my comment for the link.

New England Patriot's picture

To me, it says the most about how the federal government shouldn't be involved in student lending in the first place.

yellowsub's picture

They shouldn't be lending period.  Look at the housing which is even more massive.

yellowsub's picture

Credit must be very easy today.  Having a job paying $20k/yr while in college, my first CC had only a $2000 limit.  I would have needed 12+ cards to do that and I'm sure back 15 years ago I wouldn't have been able to qualify for that many.

 

 

 

americhinaman's picture

What "they" lend is a fraud.

It is "money" (debt) conjured out of thin air.

---

it is money created and lent with the backing of the savings of the last few americans responsible enough to actually save.  if reserve requirements were 0 or if no good folks actually saved money in banks, then your statement would be more accurate.  bankrupting a bank would cause only a tiny fraction of the losses to be borne by bank stockholders, and no costs would be borne by execs (as we saw after the 2008 GFC).  going further would wipe out savers in excess of FDIC limits...

i suspect you are going to ridicule anyone who has saved that much and holds the cash at a bank, but believe it or not there are some good, responsible americans who have managed to do so.  there aren't many, but together they form a large part of the american banking system's depositor base. 

Seek_Truth's picture

I see you are still under her spell.

The spell of Babylon the Great Whore (the global financial system).

"By your magic spell all the nations were led astray." - Revelation 18:23

Well- stick around, keep reading.

Eventually, you'll get it.

PS- There is no spoon.

 

americhinaman's picture

if everyone chose to default on all their loans, banks would not go bankrupt nor would bank executives bear a cent of the burden.  the cost would be borne by regular folks who have savings accounts at said banks in excess of 250k (or whatever the fdic threshold is now) and taxpayers who would be forced to bail out the banks for whatever the remainder of the negative balance is.

 by the tone of your post it seems perhaps you don't know it, but you are just advocating a typical american's favorite thing to do.  you are implicitly suggesting that to borrow as much as your credit profile allows to buy car/education/home/i-goods/etc. and then force the burden onto the silly responsible people who actually work AND save.  what you are advocating is the financial destruction of the last few responsible americans left amongst us.

if you actually had a mechanism by which you could force the costs of predatory lending back onto the specific predatory lenders and the individuals who benefitted from it, then i'd be all in favor.

 

Antifaschistische's picture

Look around you...where are the investors who loaned these students the $1.3T?   You know no one so stupid.  Yet, it's all around you...because the FED's money via debt creation process is what fuels 100% of this nonsense.   Sure, default...but that's not the point.  The FED and their banksters must be stopped.   That will take care of insane college costs, mortgage boondoggles, car loans to the poor, etc.   It' all comes back to the FED.  (oh, along with our $18 Trill or so in .gov debt)

Philo Beddoe's picture

Put in on Janet's tab. 

Not only should they default...they should rack up as much credit as possible before doing so. Take that trip! Buy that car! Fuck...buy some silver too!  See kids...nobody fucking cares anymore. 

WestVillageIdiot's picture

Yes, we have become a sick nation.  No obligations are actually obligations.  How many of us know people who took out mortgages, HELOC'ed the house until it could not be HELOC'ed any more, then defaulted and lived for free for years?  After all of that they cried, "I'm a victim of predatory lending".  How many of us know people who have racked up massive credit card debt, all the while planning to default on as much of the debt as possible?  They, too, feel they are owed this largesse.

Now, we have the children of these "victims" crying that they should not have to pay their student loans.  These loans have paid for a generation to attend college, whether they had any business in an institution of higher learning, or not.  Those loans have also paid for trips, clothes, fun money, and a whole variety of other expenses.  But now we see an ethically deprived hack like this Siegel clown say that everybody is indeed a victim. 

And for all you people who have paid your mortgages, your tuition bills, your credit cards, just fuck off.  You do not fit in with this victim nation.  You are fools.  You are boobs.  Your neighbor with the new car, new boat, and personalized plate that reads "VICTIM" is the smart one.  He hasn't made a mortgage payment since 2011.  The victims know how the game is played.  Of course you peel back any of the layers from the great ocean of victim stories and almost never do you find an actual victim.  But we are now into a time when we have multi-generational families who have consumed the victimhood diet for decades.  Their hunger for the morsels of victimization is insatiable.  Freud allowed you to blame mommy.  Now, you get to blame EVERYBODY, everybody but yourself. 

Siegel is serving up the latest platter of victimization, and the dish will be devoured by the ravenous wolves to whom he panders.  Perhaps his wife will one day recognize just how morally deficient the person with whom she has chosen to share her life, and possibly even reproduce, truly is.  Perhaps she will have the courage to do to him what he hopes will not happen to his legions of victims.  Perhaps she will hold him accountable for the dross he is serving up.  Somehow, I doubt it.  We are too far down the victimization rabbit hole for such fantasies to come true. 

So, just default all you victims.  All you need after that is a law that makes it illegal to hold your default against you.  I am sure you can find more sympathy from panderers dying to get your vote. After all accountability is so 1956.  And this isn't 1956.

greenskeeper carl's picture

not sure why you got the downvotes, must have touched a nerve. Id say you are spot on

Anusocracy's picture

Most people think it okay to get ahead by stealing.

You can take a person out of the animal world, but you can't take the animal world out of a person.

PhoQ's picture

When you live in a world that is built on theft, you're an idiot not to play the game.

Sure a very MORAL idiot, but also a broken and abused idiot.

Earl Slaughter-- Truck Driver.'s picture

Very true. I'm a proud idiot who likes to tilt at windmills as well.

 

I believe that what you do is who you are. As another poster mentioned in an earlier forum, all good men go to the cross.

Anusocracy's picture

If everyone believed that we would still be in the animal world.

Oh, wait...

wendigo's picture
wendigo (not verified) Jun 14, 2015 8:59 PM

I've been selling shit and saving to get out of debt. If these fuckers can just walk away without penalty, then I want blood. 

NoDebt's picture

Hold that thought.  The benefits of getting out of debt may not result in the significant advantages they once did (vis a vis deadbeats getting theirs written off without effort), but the skills you learned along the way will ALWAYS stand you in good stead.  Learning scrifice may seem irrelevant in a world without consequence, but it's not.

Where debt is the primary measure of a person, you are no longer viewable using their technology.  The greatest thing I gained from going completely debt-free was not the financial advantages (which are numerous), but that my radar cross section became very small.  I'm a steath bomber with glider wings and a zero coefficient of drag.  I can stay aloft for YEARS on barely perceptible thermals of financial lift without ever cutting in the engines.  

You are new to this life (and should be congratulated for the progress you have made so far).  I have been living it for quite some time now.  Ground-dwellers (debt slaves) care about forward/backward/left/right.  You now have a third dimension to play in- ALTITUDE.  Which can be traded, when you see fit, for ANY of those other directions.  Choose wisely and keep a low profile.  And no, you don't have to be rich to maintain this kind of life.  Just smart and determined to stay aloft.  

Enjoy your new wings.  

greenskeeper carl's picture

+1. we may live in a world without consequences, as you say, right now. But that won't always be the case. Being debt free will pay pretty big in the coming years, IMO. Im not there yet, but Im pretty close. Paid the wifes car off 10 months early, should be done out completely by the beginning of next year.

I see friends and co workers of mine buying new cars, and Ill look at it, tell them its great, and laugh a little as  I walk out to my 11 year old tahoe i bought used 8 years ago, thats in great shape and been paid off for 6 years. Most of these guys don't save a dime. But Im sure the memories of driving that 50k truck when they were 30 will be totally worth it when they are 60 and realize they havent saved any money.

CHC's picture
CHC (not verified) Jun 14, 2015 8:59 PM

Gone are the days of personal integrity and responsibility.  FUCK IT!

americanreality's picture

Student loans are a racket.   Banks taking advantage of naive kids just starting out, trying to get ahead and do the right thing.  Its hanging a permanent yoke on their neck while the elite laugh all the way to the bank.  

Earl Slaughter-- Truck Driver.'s picture

Oh hell yeah. Fucking calling it as it is, while half these cocksuckers blame the victim for not knowing they were playing against loaded dice... I salute you.

Northern Lights's picture

Well, I guess if you don't have the job to earn the money to make that first payment, I guess you won't be making the payment and hence, will be in default.

The question should be reworded asking the question to those graduates who do have the means to make their payments whether or not they should make that first payment?

 

buzzsaw99's picture

a friend of mine went to a community college to give a lecture some years ago. After seeing all the fuck ups in there he said: The future is NOT bright. I have to agree with that assessment.

Philo Beddoe's picture

Funny, I thought the same thing when I entered graduate school 20 years ago.  Pathetic bunch of know it all assclowns and that was just the faculty. 

falconflight's picture

I sure wish that I could find out how much of this trillion plus since 2008, was to pay for living expenses, and how much of this taxpayer theft resulted in the completion of degree/certificate requirements. My guess is less than 50%.

suteibu's picture

Be of good cheer.  Your taxes were used to fund the true sciences.  You know, the science of climate change, the science of economics, and the sciences of gender identification, sexual orientation, triggering, white guilt.  This list is, of course, inclusive but not exhausted.

greenskeeper carl's picture

im not excusing these people and the fact that many if not most of them used a huge portion of that money for things other than tuition, but if you are going to get pissed, go to the source of the problem: the thieving government that took your money and lent it to these people in the first place. getting angry at the student debtors is no more productive than getting made at shaniqua buying filet mignon with her EBT card that you pay for. Once again, the thieving government that MAKES you pay for it

suteibu's picture

I don't think my comment talked about how the students spent the money at all.  And I am somewhat confused how you conflate sarcastic remarks about how the government and academia wastes these funds on political and social-driven agendas with Shaniqua buying anything with her EBT card (which reference seems unduly racial coming from someone who has such a forgiving heart for the FSA).

Mostly, I don't need a lecture about taxes or what I should or should not be pissed about.   I'm actually just an casual observer of the decline of America, my real interest held in abeyance until a feasible movement for change appears (no reason to get one's blood boiling over things about which one has no control).

But thanks for your concern anyway.

Elliott Eldrich's picture

"I sure wish that I could find out how much of this trillion plus since 2008, was to pay for living expenses, and how much of this taxpayer theft resulted in the completion of degree/certificate requirements. My guess is less than 50%."

I understand your outrage, but I believe your anger is misplaced, and here's why: The problem is that we have a debt-based fiat currency system in place, meaning that money is only created when loans are issued; new money is backed by new debt instruments. When you have a debt-based fiat currency the ONLY way to increase the amount of money in circulation is by issuing loans, in the aftermath of a massive deflationary financial implosion the obvious response is try to find ways to create as many loans as possible, and the bigger the better. 

This is why our economy has been based on the so-called "serial bubble blowing" scheme for so long now. The answer is not to "crack down on deadbeats," the answer is to get rid of the Fed, get rid of debt-based fiat currency, and issue a new national currency backed by the faith, credit and productive capacity of the American nation. Unfortunately, America has a tradition where politicians who make too much noise about doing such a thing end up suddenly deceased.

When you really think about it, we've been conditioned to hate "deadbeats" and complain about the "taxpayer being ripped off" by the very same bankers who create money out of thin air, depending entirely upon our credit-score rated ability to repay it, and then in their magnanimity graciously loan it to us. They are quite literally making it on our backs, based on our expected productive ability and likelihood of repaying, and then loaning it to us with the expectation that we not only repay it in full, but with interest on top; gosh, what wonderful people they are. Perhaps it's time to re-think who it is we've been conditioned to hate, and who it is we've been conditioned to look up to? 

PoasterToaster's picture
PoasterToaster (not verified) Elliott Eldrich Jun 15, 2015 12:03 AM

Federal Reserve "money" isn't backed by anything but a gun.  The process of its printing does not create convertibility to US Treasuries, as was the case with the gold backed money where theoretically you could present your dollar and get that much gold.  If you present a dollar (assuming you could find an office to do so) you would not receive a dollar's worth of US Debt.

heisenberg991's picture

16 trillion in the hole, what is another 1.3 trillion. Don't pay back Uncle Sammy.

Savyindallas's picture

Yes  -wipe out the debt and as fair compensation for other Americans, give every other American a check for $3,000 to compensate. So the debt goes to $20 trillion. Free handouts to the banksters, the military industrial complex and other beneficiaries of our system of crony capitalism  will result in the national debt hitting $25 trillion in just a few years anyway. Why should the banksters and rich fucks be the only ones benefitting from the looting and destruction of America? Let us all participate in the orgy before it all collapses.  

Ignatius's picture

Default!!

The banksters have created a society of debt servitude.  Give the middle finger.

Pancho de Villa's picture
Pancho de Villa (not verified) Jun 14, 2015 9:14 PM

The peoples, they rant and rave about illegal immigrants and welfare mothers but irresponsible fuckers like this? Not much to say, eh?

 

Pinche huevon! Throw him in the billionaires bunker!

Bemused Observer's picture

Pancho, the illegal immigrants and welfare mothers are fighting the battle with what they got. They may seem like they are just leeching off the system. But sometimes the strategy of going limp and making them drag you makes them waste more energy than it would take to put you in a choke-hold. Some of us DO understand that.

i_call_you_my_base's picture

There is no reason to make excuses. That's the imposition of morality on debt and it's a game. Default is part of the contract. If it is worth it, do it.