My PJ Tatler post from yesterday on the student loan/higher education bubble got a wide variety of compelling responses in the comments. (In my experience it’s rare to see such a high percentage of smart commenters anywhere online.)
There’s one in particular that I’m going to have to vigorously dissent with to such a degree that a new post is warranted.
“Bobby b” wrote in response to me outlining the wide variety of options available to borrowers to prevent their default by writing:
About 99% of this problem goes away if we can change one rather venal aspect of the current equation:
In an act of unbelievable cruelty and viciousness, student loan debt was made to be undischargeable in bankruptcy. Thus, these supposed uncollectable accounts continue to build up interest for decades until some asset or income stream is discovered that is reachable through the debtor’s name.
What other debt do we protect so zealously? Other than tax debts, the answer is, none. So, who paid off who in order to go against constitutionally-established bankruptcy concepts to call out this one form of debt as an exception to the idea that everyone deserves a chance to start over?
And, to make matters worse, think about who it is – what group in general – that is getting massacred by this “your debt is forever” outrage? It’s mostly very young people with little available cash who are looking to improve themselves and their lot in life by going to college.
And who benefits from this new slavery? It’s those very colleges, all of whom seemed to double and triple in price in a relatively short period of time.
There’s a new slave trade, and it’s run by academia. Kill it.
There’s a reason why federally-insured student loans cannot — and SHOULD NOT — be discharged in bankruptcy. Would you like to guess what happened when they could? People who were perfectly capable of making the money to pay back their loans — like doctors and lawyers — would just declare bankruptcy to clear the huge debts they had accumulated going through law or medical school. Who cares if their credit is trashed for a few years? They’re making more than enough money with the skills and credentials that they have just effectively stolen.
Education is not like other investments. If a bank loans someone money to buy a house, business, or a car and the borrower cannot pay the loan then there are means for at least recovering some value: repossess the car, foreclose on the house, liquidate the business assets. But what to do when millions of people decide they don’t want to pay for the education and the life experiences they’ve just had over the course of (in some cases) a decade? We’re not exactly at Total Recall-level technology yet where we can erase people’s memories. (Not that I’m arguing that’s a solution here!)
Here’s the straight dope: everyone who takes out their student loans is capable of making some kind of payments. Maybe not as large a payment as the banks want but that’s why income-based repayment programs exist. (And don’t bring up the already-granted exceptions of those who become disabled. The one correct exception to the rule is that yes, federal student loans can be discharged due to disability.) The many, many options to prevent default that I lined out in my previous post are RIDICULOUSLY generous. All the various options added up together make it entirely possible for especially “hard luck” individuals to delay paying their loans for more than ten years (5 years forbearance + 3 years economic hardship deferment + 2-3 years unemployment deferment + 3 years Title IV administrative forbearance.) But of course you’re not supposed to do that. The options are supposed to just be used here and there and you’re supposed to be making payments and trying to pay off one’s debt, instead of finding creative ways to avoid it. Anyone who “cannot” make payments is really just choosing to spend their money on other things — just as our federal government is debating raising the debt ceiling because it refuses to talk seriously about CHOOSING to end destructive entitlement programs (like this very one) that actually hurt far more than they help.
Given the way our culture from the President and leaders of both political parties regards dealing with paying debts at the government levels it’s not surprising that plenty of people are going to not take seriously paying their personal debt.
Everything has a cost. And the personal cost (never mind the costs spread out across the taxpayers) of the federally-insured student loan is that they can’t be discharged during bankruptcy. It’s just a different way of paying for the perks. Students who want to be able to discharge their loans in bankruptcy do have an option! The private student loans were serviced on the other side of the call center where I worked. Those collectors do a very different job than the paper-pushing I managed. They didn’t offer a decade of delayed payments. Private student loans aren’t much different than credit cards — they have much higher interest rates and no get-out-of-jail-free cards when you’re unemployed.
And seriously: a defaulted student loan at its worst is hardly slavery. At the very worst a borrower is going to have their wages garnished some, their income tax rebate check withheld, and at the ABSOLUTE worst state licenses taken away. (Hence a doctor, lawyer, or teacher who makes NO EFFORT to try and repay their loans could have their licenses to practice those professions revoked so they can no longer profit from the education they’ve stolen.) So really just stop whining. You couldn’t handle the big boy task of paying your bills yourself so now the taxpayer — who you stole from — is going to recover our money from you. Deal with it. You’re not going to starve or live out on the streets. In fact I bet you’ll still be able to afford to spend time putting up websites and tweeting to try and raise money for other people to pay your loan for you.
We’re always so focused on the down side of having debt — the anxiety it creates — that we forget about the positive things it provokes. If one does not have debts then one does not have obligations. If one does not have obligations then one is never FORCED to work. Why is it that so many don’t realize that having debt pushes people to try and make more money by creating businesses, art, and products that benefit all of us? Perhaps because it’s an unpleasant truth that vast numbers of people will only work if they have to? Another lesson I learned from my time in the student loan business (this one in management): far too many employees would only be motivated to work as hard as they were supposed to when they were on their final written warning for poor production. The consequence of being fired is the same as the consequence of having one’s wages garnished from unpaid debt. It can FORCE people to actually create value and wealth for the society as a whole. Take away the consequence and you’re hurting the person you intend to help by depriving them of the motivation they require to be a productive citizen.
A final thought on this matter: we need to remember that anytime anyone defrauds the government they are stealing YOUR money and your unborn grand-children’s money. (And when people default on their federally-insured student loans that’s exactly what they’re doing — they’re breaking the agreement they chose to make.) Perhaps if more citizens remembered that there’d be more interest in disassembling this financial blackhole we euphemistically dub the “welfare state.”