Student Loan Default a Growing Trend?

By John Lawrence

With over a trillion dollars in outstanding student loans, young college graduates are being forced to take jobs they hate in order to pay them back. Their futures consist of debt peonage for as far as the eye can see.

Some are opting out of a lifetime of death-in-debtorhood and choosing instead to start over living the life that they foresaw when they enrolled in college in the first place. Such a one is Lee Siegle whose June 6 opinion piece in the New York Times laid out his rational for defaulting on his student loan.

His decision was made based on choosing life over death:

[T]he Federal Government is actually making money off of student loan debt. … instead of subsidizing students, the government is profiting off them.

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.

Student loan debt is the only form of debt that can’t be discharged in bankruptcy. It will follow one for the rest of his or her life. Miss a couple of payments and penalties can add up to the point of doubling or tripling the amount owed. This debt is relentless and unforgiving. It is a trap unanticipated by the young person trying to better him or herself by getting a college education. A whole generation of debtors has already been created – debtors who will not be able to get married, take out a mortgage or have any freedom in their lives. Their freedom has evaporated by virtue of having signed on the dotted line. They have effectively sold their souls to the devil, the devil being the big Wall Street banks and/or the US government.

Siegle goes on to say

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.

What is little known is that the Federal Government is actually making money off of student loan debt. They are as culpable as any Wall Street loan shark or payday lender. The Congressional Budget Office has projected that the federal government would earn roughly $127 billion from student lending during the next decade. That’s right – instead of subsidizing students, the government is profiting off them. This infuriates liberals like Sen. Elizabeth Warren, who tend to regard the idea of a profitable student loan program as fundamentally indecent. “It’s billionaires or students. Where do we want to make our investment?” Warren asked a Washington audience recently.

Siegle has some advice to give to those who decide as he did to default on their student loans. For one thing their credit will be ruined so it’s smart to anticipate that in advance and take some defensive measures. He recommends getting as many credit cards as you can. Since credit card debt is dischargable in bankruptcy, it might make sense to get as many cash advances on those credit cards as possible, pay off your student loan and then go bankrupt which would get you out of paying off the credit cards.

Just because one defaults on a student loan does not mean that the creditor will stop trying to collect on it. For one thing they can garnish your paycheck. Since Congress controls how much your paycheck can be garnished there’s nothing to prevent them from raising the legal limit up to around 100% which would turn the worker into an actual debt slave. So the defaulter would probably have to go to an all cash personal economy and get paid under the table. Otherwise, the IRS could give you problems. They are even garnishing the social security checks of people in their 80s.

Siegle concludes:

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.

Most European countries guarantee a free college education up through graduate school. The US has a better idea: turn students into debt slaves. But don’t be a dummkopf. As a foreigner you can go to college in Germany for free and take all your courses in English. Check out this article in the Washington Post: 7 countries where Americans can study at universities, in English, for free (or almost free):

Since 1985, U.S. college costs have surged by about 500 percent, and tuition fees keep rising. In Germany, they’ve done the opposite.

The country’s universities have been tuition-free since the beginning of October, when Lower Saxony became the last state to scrap the fees. Tuition rates were always low in Germany, but now the German government fully funds the education of its citizens — and even of foreigners.

Since 1985, U.S. college costs have surged by about 500 percent, and tuition fees keep rising. In Germany, they’ve done the opposite. The country’s universities have been tuition-free since the beginning of October …

What’s more, Americans can earn a German undergraduate or graduate degree without speaking a word of German and without having to pay a single dollar of tuition fees: About 900 undergraduate or graduate degrees are offered exclusively in English, with courses ranging from engineering to social sciences.

Some other countries that also offer free or almost free college educations in English: Finland, Norway, Sweden, France, Brazil and Slovenia.

Siegle makes an interesting point though. The conventional wisdom is that a college education will elevate your position in society. That combined with the temptation of easy money and a “that’s the way it’s done” mentality combine to lead young people down the primrose path, promising them that if they only mind their own business and work hard, they will have a wonderful future. But this is really snake oil and bullcrap. Instead of a rosy future, student loan debtors are finding out that the only ones with the rosy future are the Wall Street bankers they owe their money to.

A better alternative is to forgo college altogether and learn a marketable trade, something that produces revenue based on work in the local economy, something that is useful to society unlike many of the vocations that a college education prepares you for which are, supposedly, to “compete in the global economy”. In fact the only reliable job market for college graduates is in financial services, fossil fuel production and the military-industrial complex. All of these jobs could be considered unethical in terms of their ultimate goals of predation, destruction of the environment and murder of innocent civilians. If you want an ethical profession, become a carpenter or a plumber (Albert Einstein’s choice if he had a do-over) or an electrician. At least you would be creating and servicing something that addresses valid human needs.

In March Republican Senators blocked Elizabeth Warren’s plan to lower interest rates on student loans:

Warren’s amendment would have allowed people with college loan debt to refinance at interest rates from the 2013-2014 academic year. The Massachusetts Democrat … said the move would allow undergraduates to refinance their loans to a 3.9 percent interest rate, with a “slightly higher” rate for graduate students.

“Millions of borrowers are still stuck paying interest rates at 6 percent, 8 percent, 10 percent and even higher,” she said.

Her plan would have been paid for by requiring millionaires to pay at least a 30 percent effective federal tax rate.

“The amendment would save borrowers hundreds, if not thousands,” Warren said. “We have a choice: protect a tax loophole for billionaires or give millions of middle class people a chance to build some real economic security. … Congress has worked too long for the billionaires”

For those seriously considering defaulting on their student loan, it might be provident to consider the implications of default. Youth should want to know: what happens when you default on a student loan?

A college diploma does not guarantee you a job. It’s a ticket of admission only.

VICE recently talked to Heather Jarvis, a self-proclaimed student-loan expert who graduated from Duke Law School with $125,000 of debt and has been an advocate for borrowers ever since.

According to Jarvis, if you decide one day to stop paying your federal student loans, after 270 days the loan will default, at which point the government will start garnishing your wages, seizing tax refunds, and intercepting government benefits (like social security) without a court order. The government may also sue if they think it will give them access to your assets.

“They can and do — literally do — pursue debtors to their graves,” Jarvis said.

Ouch. It might not be a good idea to be on the Federal Government’s shit list for the rest of your life. It would entail going to an all cash economy and risk being jailed for tax evasion. Having your social security check garnished would not be fun, but you wouldn’t even have a social security check if you never paid into it.

The only rational solution to this problem is to not go into debt in the first place. If that means that you don’t go to college, so be it. Tons of successful people never graduated from college including high tech billionaire Jack Dorsey, co-founder of Twitter and inventor of the Square, a mobile credit card payment tool. In the tradition of other computer science billionaire entrepreneurs such as Bill Gates, Larry Ellison, Steve Jobs and Mark Zuckerberg, Dorsey dropped out of college before receiving his degree.

I did a blog once on 10 Reasons Not to Go to College. A college diploma does not guarantee you a job. It’s a ticket of admission only. You’re putting your economic future in the hands of some corporation which is only interested in you if you can add value to that corporation. When more recent college graduates can add more value, you’re gone. How does that feel if you’re 50 years old and nobody wants to hire you?

If you’re going to go into debt, you’re better off doing it in order to start a business rather than in pursuit of a college degree which in the long run is just a worthless piece of paper. At least, if the business doesn’t go well, that debt is dischargeable in bankruptcy and you can start over again debt free.

Be the first in your family not to go to college at least not in the US. That doesn’t mean that you shouldn’t have a plan: a plan for remunerative work and a plan for improving your mind. In fact I maintain college will obstruct and obfuscate both of those things. You will be better educated than most college graduates if you just read one good book every month. In fact the debt based college solution is a will-o’-the-wisp, a phantasmagoria, a mirage. Don’t fall down the rabbit hole.