

Why I Defaulted on My Student Loans - mapleoin
http://www.nytimes.com/2015/06/07/opinion/sunday/why-i-defaulted-on-my-student-loans.html

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leereeves
Repost from yesterday:

[https://news.ycombinator.com/item?id=9674606](https://news.ycombinator.com/item?id=9674606)

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ben336
As somebody who is currently struggling with a huge amount of student debt,
this strikes me as quite... self-righteous?

I can understand the idea that the government should give free education, or
that they should support education with grants instead of loans, or that
college tuition should be cheaper. I'm all for people advocating for those
causes.

But if you take a loan, you've entered a contract. Breaking that contract
isn't something to be proud of. Saying that his options were boring career
with debt and soul crushing career without debt is disingenuous. If you took
$60k (or whatever) of somebody elses money, be willing to put in the work to
pay it off, then you get to do what you want. If you aren't willing to do
that, then find a way to subvert the system that doesn't involve you taking
large amounts of other peoples money, or at least admit that you made a poor
decision.

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JamisonM
Sometimes I wonder if the attachment of moral ideas to what are really just
business contracts is part of the way modern individuals are being played by
modern corporations. In my business experience breaking a contract _is_
something to be proud of if the penalties of breaking it are a better option
than the cost of fulfilling it. That was all laid out in the contract, the
morality of the thing was laid down in writing at the start when how the
contract might not be honoured was considered in the contract itself.

Entering into the contract might have been a poor decision but compounding
that poor decision by not breaking it when breaking it is the better option
doesn't seem like a move in a positive direction either.

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mariodiana
Moral sentiment evolved, more or less, on the plains of the Serengeti in
groups numbering around 150 individuals, people who knew one another by sight.
Compare that to the "sentiments" held by major corporations, corporations like
Goldman Sachs that walk away from real estate deals that have gone bad, and do
so without so much as a single qualm. When a major corporation defaults on a
loan that has financed an endeavor that has gone bad, that's "just business."
When an individual does such a thing, he's a "welcher."

I think the smart individual plays by two sets of rules. If you borrow from a
person, play by the rules that have existed from time immemorial. But if you
borrow from a corporation, play by the same rules they play by -- do what's
good for you. You have to realize that these are two very different
environments. To do otherwise makes you a sucker.

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leephillips
There is a reputational cost in breaking the contract that's not part of the
terms, if it becomes public knowledge (court case) or if you disclose it to
future partners, as you may be obligated to do. This should be part of the
calculation when deciding what's "good for you". And you may not even be aware
how this damage to your reputation is affecting your life. As a landlord, I
threw out one application from a tenant because he had defaulted on a student
loan, and he never knew that.

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mariodiana
It's a calculation, like any other. But my point is more to the idea of the
moral aspect.

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jfolkins
Your above description is excellent in helping explain the duality of our
current system (corpVShuman) which I've struggled articulating to friends.
Thanks!

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mariodiana
It's gratifying to hear that. Thank you.

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deedubaya
I understand why someone would do this....

but as someone who paid their student loans, pays their mortgage, and other
bills, I sure feel like I'm getting the raw end of the deal for honoring my
commitments.

Making it acceptable to default on or get bailed out of debt (whatever the
source) is a recipe for financial ruin for us AND our children.

In the end, your decision to take a loan commitment (under whatever pretenses
or promises) and then default, is fucking the honest American. Thanks!

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random28345
> Making it acceptable to default on or get bailed out of debt (whatever the
> source) is a recipe for financial ruin for us AND our children.

One can argue that those who pay off a $250k college loan to a small liberal
arts college are creating a moral hazard for loan issuers and college
adminstrators who keep jacking up tutition.

The article proposes that if everyone were to default, educational costs would
be returned to a more rational level.

Personally, I think that the cost of college education will continue to
increase to a significant fraction of the value of the college education, to
somewhere around half a million dollars. This is basic economic theory, and
will result in fewer students finishing college, and a continuing increase in
crushing debt.

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deedubaya
No. Not paying these outrageous rates, going to a cheaper school for a legit
degree is what will drive down the costs. Supply and demand.

Defaulting on the loans will likely just lead to another government bailout,
and sky high tuition will continue.

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ryandrake
Default is an option specifically written into any loan contract, the terms of
which (and the actions that happen upon default) presumably agreed to by all
parties. There is no reason to artificially bring morality into a debtor's
decision to default. The loan-writing industry, of course, loves that we
attach shame to the option that most hurts their business.

Saying it's immoral to default on a loan is like saying it's immoral to
exercise a put option that happens to bankrupt the option writer.

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nate_meurer
This bit is from comment on the NYT site:

> "Banks love it when people default on their government backed student loans.
> At the time of default they are paid in full by the government and then they
> are able to turn around and sell that debt to collection agencies."

Is this true?

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tomsun
I'm assuming the government gets the interest payments in this case. Or else
this "loan" is really just a subsidy for the banks.

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tomsun
The author of this piece is self-rightous. But the bigger problem isn't his
inability or his relent to honor the student loan debt. The bigger problem is
the detachment of the value of education, and prospective students'
understanding of which.

When students enter university, they understand that it is a place that will
challenge their intellects, but what they don't understand is the amount of
financial value it will provide after they graduate. Unless they go into a
lucrative field, the return on investment in liberal arts (not picking on this
specific major) is not worth it.

Unless you're going into a top program in a top university (Engineering at Ivy
League, CS at Stanford, MIT, CalTech, etc), it's better to enroll into an STEM
program at a reputable in-state college. Otherwise it's almost not worth it.

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t0mbstone
The trick to getting around student loans is simple:

1\. Open lots of credit cards

2\. Take out cash advances on the cards

3\. Use the cash to pay off your student loans (or just pay for college
directly, using the cash)

4\. Pay on credit cards until the interest has ballooned out of control and
you can't pay them anymore

5\. Declare bankruptcy and default on all your debt

If someone should be able to buy a house and cars and toys and shoes and
designer clothes and then just declare bankruptcy and walk away from their
debt totally free, why shouldn't you be able to do the same for other types of
debt?

Why do we treat educational debt as the one type of debt that is able to
enslave you for the rest of your life, while it's ok to default and walk away
from debt caused by crazy consumer spending?

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kak9
No statement on whether this should be true or not.

But the reason it was started was because students didn't have the credit
history to get loans at all--especially since the thought was they had no
credit to lose so they would be incentivized to just default immediately after
graduating.

Which is why student loans were made non-defaultable, to make a market for
student loans possible.

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t0mbstone
True, but I don't think there is anything stopping someone from using this
technique later to cleanly default on their student loans later on in their
life, once they have built up credit history.

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acomjean
Student Loans are not like loans for tangible things (homes and cars). When
you default on your student loan they don't take your diploma back. You keep
your degree, the increased earning potential. You keep your experiences and
education.

Student loans are a complex web of federal guarantees, but if basic capitalism
works, by defaulting you are going to make it more expensive for the next
students, who have to pay more to cover the defaulters. Some students won't be
able to afford it with the added interest rates.

Seems his education helped him be successful. So why should he pay for it?

"Lee Siegel is the author of five books who is writing a memoir about money."

~~~
grecy
> _Student Loans are not like loans for tangible things (homes and cars)._

When they take your home or car back, they don't take back your experiences
and memories you gained while enjoying those items.

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acomjean
They can resell homes and cars and get monetary value from them. Diplomas not
so much.

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malka
>I am sharply aware of the strongest objection to my lapse into default. If
everyone acted as I did, chaos would result. The entire structure of American
higher education would change.

This is not an objection. This is an argument in favor.

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JonFish85
Well this is excellent. I look forward to the day when the responsible members
of society (people who pay their bills on time, who save for retirement, who
don't over-buy) are pushed even further to take care of the people who were
immature and planned incredibly poorly. Our society works fine when it's
assumed that a small portion of its members are irresponsible. But when it's
systemic, there isn't enough money to go around.

That's what happened with the housing bubble. Blaming banks is easy, and
certainly they did a lot of shady stuff. But nobody forced people to take on
mortgages they couldn't hope to pay. Nobody forced kids to take out $100k in
loans to go to a dream school instead of a state school.

The student loan debt burden is enormous. And I suspect that the people who
make out the worst in it will be the ones who actually PAY on time. And I'm
terrified of what will happen when it's time to start cashing out my 401k.
After years of saving, a person who has faithfully saved $5M should have a
nice retirement ahead of them. But I suspect that so many more people will
have nothing, and those people will still be voting, and cut themselves a
hefty slice of the pie from those who actually planned ahead. And because of
the way 401k's are set up, it's a multi-trillion dollar pot of money that can
be re-assigned from the "$5m retirement rich" people to those who didn't
bother to think ahead and save.

One person defaults on an irresponsible debt, no big deal. But the more people
do it and the more acceptable that becomes, the worse it is for everyone
(especially the responsible people that a society relies upon to keep the
money flowing).

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curiouscats
Student debt becoming unreliable will likely impact rates on student debt.
Though it is confused by government subsidies.

Those who would lose out are those forced to pay higher rates on student debt.

If the government bails out those financial institution then everyone paying
taxes suffers. If we continue to subsidies debt and have to do so at higher
subsidy levels to make up for risk of defaults then taxpayers again suffer.

Indirectly, if it became a significant macroeconomic factor those schools
would suffer if students refuse to take out high amounts of hight cost debt.
Frankly, this would be a good outcome as they would stop adding on huge admin
costs and ego boosting expensive buildings.

Student debt is tricky because credit histories likely haven't been built up.
For other debt largely those with good histories will get good rates. Those
with bad histories will get bad rates (for cars, houses, etc.). Startup small
business loans are pretty much always bad rates (if you can get them at all).

Given our track record the last few decades don't worry about the 1% ($5
million puts you way into the 1%). Congress has done nothing but bend over
backwards to give every possible favor to the 1%. The middle class (say those
with $100,000 to $400,000 in their retirement accounts) may suffer but the 1%
is very unlikely to suffer until we drastically change who we elect.

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JonFish85
For a generation currently in the 25-30 range, having ~$5 million in a
retirement account at age 65/70 will be "way into the 1%"? Putting 12-15% of
salary into a 401k plan for 40 years would seem to get you into that range.

