“It’s not immoral or unethical to default on your debts, file for personal bankruptcy, etc., as long as you went into these debts with the strong intention of full repayment and did everything within your control to repay them, and as long as you follow the terms of your loan contracts and the law…
…Defaulting, re-negotiating the terms of your debts with your creditors, and/or filing bankruptcy is something that our society has made hard and painful and it probably needs to be, otherwise everyone would do it. But sometimes it is a necessary act and companies, not-for-profits, and even local governments (and foreign countries) do this all the time and no one ever talks about their morals or ethics. If you incurred your debts without intending to repay them or don’t do everything in your power to realistically repay them (Mr. Siegel makes clear in his OpEd he did not), then it is unethical and immoral and as Mr. Siegel himself points out, if a lot of people followed his example, it would destroy the ability of others to obtain credit on reasonable terms. And Mr. Siegel is wrong. None of us have a right to an advanced education or the education of our choosing, it depends on our finances and our educational achievements, to-date. I went to state college, worked during school, and lived at home rather than attend U.C. Berkeley (where I was accepted), because I could not afford to attend and my non-college graduate parents were not prepared to give up their hard earned savings (and safety net) to fund it. For a time, I also wanted to be a doctor, but my parents felt that was too much time in school, the implication being it would be too much of a burden on their finances. So I majored in business/accounting and worked very hard, graduated in four years with near-perfect grades, mostly paid my own way through school, passed the CPA exam my final semester, and had $6,000 in the bank, no student debt, and a full-time job with Peat, Marwick, Mitchell, and Co (KPMG today). I think Mr. Siegel is a self-righteous whiner and complainer (see the article I attached below about his NY Times OpEd). About the only thing I agree with Mr. Siegel on is the fact that well-intended government student loans have unintentionally caused college costs to escalate out of control. (If the government funds 100% of whatever everyone wants to study, without regard to repayment ability, that’s what happens.) So a kid today realistically can’t do what I did, even if they live at home and go to state college. That’s wrong.”, Mike Perry, former Chairman and CEO, IndyMac Bank
SundayReview | Opinion
Why I Defaulted on My Student Loans
By LEE SIEGEL
Credit Brian Stauffer
ONE late summer afternoon when I was 17, I went with my mother to the local bank, a long-defunct institution whose name I cannot remember, to apply for my first student loan. My mother co-signed. When we finished, the banker, a balding man in his late 50s, congratulated us, as if I had just won some kind of award rather than signed away my young life.
By the end of my sophomore year at a small private liberal arts college, my mother and I had taken out a second loan, my father had declared bankruptcy and my parents had divorced. My mother could no longer afford the tuition that the student loans weren’t covering. I transferred to a state college in New Jersey, closer to home.
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.
I chose life. That is to say, I defaulted on my student loans.
As difficult as it has been, I’ve never looked back. The millions of young people today, who collectively owe over $1 trillion in loans, may want to consider my example.
It struck me as absurd that one could amass crippling debt as a result, not of drug addiction or reckless borrowing and spending, but of going to college. Having opened a new life to me beyond my modest origins, the education system was now going to call in its chits and prevent me from pursuing that new life, simply because I had the misfortune of coming from modest origins.
Am I a deadbeat? In the eyes of the law I am. Indifferent to the claim that repaying student loans is the road to character? Yes. Blind to the reality of countless numbers of people struggling to repay their debts, no matter their circumstances, many worse than mine? My heart goes out to them. To my mind, they have learned to live with a social arrangement that is legal, but not moral.
Maybe the problem was that I had reached beyond my lower-middle-class origins and taken out loans to attend a small private college to begin with. Maybe I should have stayed at a store called The Wild Pair, where I once had a nice stable job selling shoes after dropping out of the state college because I thought I deserved better, and naïvely tried to turn myself into a professional reader and writer on my own, without a college degree. I’d probably be district manager by now.
Or maybe, after going back to school, I should have gone into finance, or some other lucrative career. Self-disgust and lifelong unhappiness, destroying a precious young life — all this is a small price to pay for meeting your student loan obligations.
Some people will maintain that a bankrupt father, an impecunious background and impractical dreams are just the luck of the draw. Someone with character would have paid off those loans and let the chips fall where they may. But I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.
Moneyed stumbles never seem to have much consequence. Tax fraud, insider trading, almost criminal nepotism — these won’t knock you off the straight and narrow. But if you’re poor and miss a child-support payment, or if you’re middle class and default on your student loans, then God help you.
Forty years after I took out my first student loan, and 30 years after getting my last, the Department of Education is still pursuing the unpaid balance. My mother, who co-signed some of the loans, is dead. The banks that made them have all gone under. I doubt that anyone can even find the promissory notes. The accrued interest, combined with the collection agencies’ opulent fees, is now several times the principal.
Even the Internal Revenue Service understands the irrationality of pursuing someone with an unmanageable economic burden. It has a program called Offer in Compromise that allows struggling people who have fallen behind in their taxes to settle their tax debt.
The Department of Education makes it hard for you, and ugly. But it is possible to survive the life of default. 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).
When the fateful day comes, and your credit looks like a war zone, don’t be afraid. The reported consequences of having no credit are scare talk, to some extent. The reliably predatory nature of American life guarantees that there will always be somebody to help you, from credit card companies charging stratospheric interest rates to subprime loans for houses and cars. Our economic system ensures that so long as you are willing to sink deeper and deeper into debt, you will keep being enthusiastically invited to play the economic game.
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.
The collection agencies retained by the Department of Education would be exposed as the greedy vultures that they are. The government would get out of the loan-making and the loan-enforcement business. Congress might even explore a special, universal education tax that would make higher education affordable.
There would be a national shaming of colleges and universities for charging soaring tuition rates that are reaching lunatic levels. The rapacity of American colleges and universities is turning social mobility, the keystone of American freedom, into a commodified farce.
If people groaning under the weight of student loans simply said, “Enough,” then all the pieties about debt that have become absorbed into all the pieties about higher education might be brought into alignment with reality. Instead of guaranteeing loans, the government would have to guarantee a college education. There are a lot of people who could learn to live with that, too.
Lee Siegel is the author of five books who is writing a memoir about money.
A version of this op-ed appears in print on June 7, 2015, on page SR4 of the New York edition with the headline: Why I Defaulted on My Student Loans.