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Is It Moral To Default On Your Student Loans?
Lee Siegel, a prominent culture writer and graduate of Columbia, seems to think so:
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.
Naturally, Siegel was the best judge of his “particular usefulness to society.” But he then goes onto mock those poor suckers who, rather than shirking their legally contracted debts, go out and get real jobs that might be beneath their talents and ambitions.
Not satisfied with deriding the productive middle class, he goes onto make a Robin Hood style argument to justify his behaviour. The rich, after all, often get away with far more than the poor. So why shouldn’t he get away with defaulting on debts accumulated while acquiring three degrees at one of America’s top schools?
This sort of casual arrogance was too much even for the reliably Left-leaning Slate, which gave a thorough take down of Lee’s financial misadventures. Reactions — at least outside the radical Left — have been strongly negative, variously describing Lee as a “sociopath” to being “silly” and just plain downright foolish.
In his piece, Siegel flamboyantly dismisses many of the basic assumptions of middle class life; paying your own way, honouring commitments and the importance of doing even unpleasant work. That doesn’t mean that Siegel hasn’t got a point, though he’s a terrible example of an underlying truth. Born in 1957 the author of such books as Against the Machine: Being Human in the Age of the Electronic Mob was part of a privileged generation. Arriving a bit more than half way through the Baby Boom Siegel obtained a top-flight education at what, in inflation adjustment terms, was a rock bottom price.
Pretty much anyone under the age of forty must look upon Siegel with envy and hatred. Over the last two decades millions of Americans borrowed themselves into deep financial holes, all in exchange for job opportunities and educational qualifications that are but a pale shadow of what their boomer predecessors took for granted. In a very basic way Lee Siegel won the lottery and then balked at the price of the ticket.
But for those not so lucky the situation is very different. Many of the young are now saddled with debt for life and with little prospect of repaying. They may have chosen their path but they were also sold a false bill of goods by their elders. At least three generations have been taught that the BA was the guaranteed route to the middle class, that studying any subject was of equal value and that pursuing your dreams doesn’t come with a cost.
As is clear to pretty much everyone not working in the educational system, this is a blatant lie.
The venerable liberal arts degree has been debased by lowered academic standards, while being yoked to a collection of pseudo-fields ending with that dreaded word: Studies. The easier it is to get something the less it’s worth. Today the modern BA is essentially worthless, a negative ROI proposition for most of those studying outside the Ivy League. Even for students who do acquire a solid traditional liberal arts degree at a school like Hillsdale, the very term liberal arts is now tarnished by association with inferior products sold elsewhere. Gresham’s Law applies to university degrees just as much as to copper coins.
A species of fraud has been committed against the young of America. Those entrusted with their care, educators in particular, have placed their personal interests above those to whom they owed a duty of care. For many educators the repeated chant of “go to college” was a form of advertising, inducing demand for a product they often knew from personal experience was sub-standard. A business engaging in such practices would find itself under investigation.
Keeping all this in mind, is it surprising or unreasonable than some of the young would refuse to keep up their end of a phoney bargain?
Published in Education
It also doesn’t help that those debts are owned by a government which apparently can print as much money as it wants.
Great post-thank you!
No, someone should pay his debts. However, someone should always be able to go bankrupt.
It’s immoral (and more so) to collect interest on a loan when the loan cannot be defaulted on. What, then, is the usury for? Interest rates are at historic lows. If anything my student loan rates should 0 just like the banks’. The enrichment, given to both schools in the form of credit expansion and banks in the form of interest on loans, is unjust.
Student loans should be no different than any other kind of loan. Default should be possible. In every other area of debt, bankruptcy is a last recourse. It sucks, but sometimes a person has just made bad financial decisions and needs to be able to hit the reset button. Loans need to reflect risk, otherwise they aren’t really loans, they’re a species of debt-slavery.
Simply allowing student loans to be discharged in bankruptcy would actually fix the education bubble outright, and somewhat quickly. It would be painful for the creditors, but whatever, they can cash some of the welfare checks they never cashed.
Thanks for bringing this up as it is an important subject. I am not one to defend Mr. Siegel’s positions, but in the case of student loans, I think it is difficult to tell where the morality begins and ends….and, yes my wife and I make our loan payments every month for our graduate school debts.
This is a very rough sketch of how I look at it:
Companies used to be able to administer aptitude tests where they could gauge an applicant’s abilities without looking at dumb credentials
A few decades ago the geniuses at the federal government started looking for any bias in these tests making them guilty until proven innocent
Not wanting a Justice Department investigation, companies dropped the tests and used the BA/BS as an imperfect proxy
This increased college demand began driving up prices
In response to higher tuition costs the federal government made more and more subsidized loans available
When you subsidize something it gets even more expensive, and in response the government increased lending making the problem worse to the point in which many are now looking at a quarter million dollar price tag for a degree in basket weaving
My scenario is an oversimplification, but there is plenty of blame to go around which lead to a situation where more and more are considering defaulting
Show me someone who considers the answer to the question in the title to be anything but, “NO”, and I will show you someone who doesn’t understand what morals are.
It is immoral to choose default when one has other options.
It is *not* immoral to default when one has no other option.
In my case, as painful as it will be, I intend to pay back mine and only use income based repayment until we get Mr. Amy’s loans paid off. It’ll mean living on one income while the other goes to pay them off, but using income based repayment for the whole term is an incredibly dangerous gamble. 1) That the program will be around for the full 20 years, and 2) that I’ll be able to afford the income taxes when the forgiven debt is imputed as income. Though at least tax debts are actually dischargable in chapter 7 bankruptcy, unlike student loans.
I for one am glad this is happening. College loans have so much wrong with them I hardly know where to start. Public resentment against it is the only way to stop it. Also glad it is coming from the left.
According to the linked bio, he lives in Montclair, NJ. That’s one of the toniest zip codes in the suburbs of NYC.
I am not saying defaulting isn’t the best or most logical option. I can imagine many circumstances where I would default. Regardless of the reason, defaulting is not moral.
Don’t companies still give tests?
Blogger and programmer Jeff Atwood posted in 2007 the type of test question he administers to screen applicants to see if they are applying for a computer programming despite being unable to program. Apparently, quite a few applicants don’t have skills matching their resume.
PPF: You nailed it. Excellent summation.
The alternative being what? It’s blood from a stone at some point. Even in the bad old days of debt slavery there was a 5 or 7 year term on the servitude. Modern day debt slavery is arguably worse in some respects. At least back then I could sell myself into slavery (more like lease myself) and repay my debts in less than a decade.
Saying defaulting is immortal is a category error, morals simply don’t apply. Repaying debt isn’t a moral obligation. It’s a business decision. Creditors take risks, namely the risk of default, and charge interest to overcome this risk and earn a rate of return on top of it.
Borrowing monies you have no intention of repaying; that’s just fraud, but biting off more than you can chew because you’re young and foolish. Well, that’s just being young and foolish. Creditors should be exposed to that risk.
Why should their business be risk free? That seems to me to be the immoral part.
Anyone that defaults on a student loan should be forced to move to Argentina.
“Anyone that defaults on a student loan should be forced to move to Argentina.”
I’m curious, do you think the same should apply to folks who default on home loans or credit cards?
Except this young man is enjoying the fruits of other people’s “wasted lives.” We enjoy a high standard of living because people are willing to get dirty. Farmers aren’t unenlightened folk who lack the graces to be writers; they are would-be writers, artists, and men-about-town who need to make a living and pay their bills.
Siegal eats well, sleeps comfortably, and has working plumbing because people who need to pay their bills do uncomfortable jobs. It is revolting to enjoy the fruits of other people’s labour while declaring oneself too good for that type of labour.
As to the general discussion of what to do with those who can’t pay back their loans: can we please inject some sense into the discussion and distinguish between those who cannot pay and those who won’t pay?
Decades of bankruptcy law have been designed to fine-tune that distinction, to encourage debtors to pay as much as possible while still enabling them to, oh, not move to Argentina to eat. We have a system that has struck a balance between the rights of creditors and the realities of debtors who cannot dig themselves out.
Is there any serious argument that bankruptcy law cannot be tweaked to accommodate student loans (perhaps to extend a repayment period to 10 years, instead of the usual three to five), and that such a remedy would allow young people to make a life while still keeping them accountable for their decisions?
I don’t know why people bring up morality into the question of default. This is a purely amoral decision. The question is which consequences are more financially sound. Incurring the penalties to credit that default brings or taking the jobs that will allow one to fulfill their current debt obligations at the loss of future prospects in more desirable careers. Both are perfectly moral decisions with different benefits and downsides. There is no honor in creating a makeshift debtors prison for yourself in a job and career you can not abide. The lender looses money, and tough nuts to him. Let them charge higher rates in the future. Default is the market letting you know you have made bad loan. I think its better for people to start defaulting now end this education bubble we have been creating for all these years.
You absolutely nailed it, thank you!
I’m 50/50 on this. It all comes down to you intent when you entered the agreement. Keeping your word is an element of morality. A person should always make the effort to do so. If a person’s spends excessively and this leads to them not being able to repay past debts, their behavior should be viewed as immoral. Keeping your word must be a priority
Conversely, any agreement which includes interest payments assumes some level of repayment risk. If, having tried your best to repay, you are ultimately driven to default, I see no shame in that. Nor do I see it as immoral.
When we start underwriting [and denying!] student loans like “any other kind of loan” and charge interest rates commensurate with risk of default “like any other kind of loan” you’ll have a valid point.
But in that case there will be a lot fewer loans given out, at a much higher interest rate.
And then they’ll complain about that.
I think the headline asks the wrong question, which is causing a series of misdirected arguments.
In the abstract, default is a morally neutral financial concept.
The article that prompts the post, though, is something a great deal more than just an abstract default. It’s a guy who openly embraces the idea that he is entitled to have his Ivy League education X3 paid for by others, not because he cannot pay the loans back, but because he will not do what that requires. That is not far short of outright theft, and as such is plainly immoral.
What’s worse, the argument that Siegel implicitly makes is that not only is his choice not immoral, it’s actually morally superior to the alternative. This is repugnant by any sane analysis.
That is absolutely the case. If we disturb the current regime it will pop the education bubble outright. Universities will fold, lots of them.
Still though, I think it’s just the right thing to do. The longer this madness goes on the worse it will get.
If that were the case, contracted commitments must be discounted, because the contract will be kept only as long as it’s desirable for the borrower. Maybe you’re right, but if so, all debts should be considered option contracts. That will make all debts more expensive, because lenders will have to add in the cost of the option.
Personally, I consider contracts to be moral as well as legal and financial. Perhaps you can get away with breaking a contract with a single-instance transaction, but if I know you’ve broken a contract with anyone (myself included), I’m not going to enter into a new contract with you unless you’ve got a strong case for having changed.
Stealing is immoral. Borrowing money and not making every effort to pay it back is stealing.
It is interesting to me that the question of whether it is moral for our major universities to have raised tuitions so aggressively that students find themselves in this position doesn’t seem to have occured to Siegel. This bubble has not always existed.
Of course, that might lead to the next question, which is whether the aggressive government backing of loans that the market would never support might have led to the correspondingly aggressive tuition increases.
At this point, of course, things start to get uncomfortable for the likes of this guy, since notwithstanding all the borrowed money, thoughts like these probably weren’t presented to him.
Does anyone really think there is any question about that?
If the contract for the loan offers a no-risk method for the debtor to default, then that’s on the creditor for agreeing to such a foolish contract. It’s perfectly “moral” for the debtor to take advantage of any option which the creditor made available.
The fact that the creditor is a government is immaterial, IMHO. Any party to a contract that relies on the good will of the other party to not make use of an agreed-upon provision of the contract is just plain foolish.
If the contract for the loan includes provisions for not paying back the loan, then it’s not stealing.
No contract can ever be airtight and reflect all possible circumstances. At a certain level, contracts rely on the good faith of the parties to abide by their terms.
And as far as I’m concerned, if you swindle someone through a loophole in the contract, that’s immoral, regardless of the legality. Taking advantage of another’s stupidity is not moral. There is a sliding scale here, depending on whether the contract is truly bilateral or whether it was a take-it-or-leave-it document drafted by an army of lawyers — but I’m not going to celebrate anyone who violates the spirit of his signed commitment.
I like your suggestion that we focus on those who cannot pay versus those who simply prefer not to. People need to realize that actions have consequences. Did it never occur to Siegel that Columbia was expensive and he would be expected to repay his massive debt before he borrowed the money? He now has buyer’s remorse but that alone is not enough reason to default on the debt.
I read somewhere else that in some cases the lender can garnish up to 15% of the debtors pay. I favor some kind of payment plan that forces people to pay without consuming their entire paycheck.