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June 08, 2015

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Just saying...

I read the piece and find the author to be far from a sympathetic figure. He/she chose to go to an expensive private college at the outset and graduate school (all on loans, it seems) and then becomes a writer (not a well-paying job in most circumstances). There are many ways to get an education without taking out excessive loans and then blaming others for it.

Go to a state school, the school that gives you the best deal, start at a community college and then transfer to a 4 year institution, work for a company with a tuition reimbursement program (as I did) and work through college and law school, going at night (as I did, too), work for a college or university with a generous tuition remission program (as I also did).

Jeff Redding

I'm sure we can find many unsympathetic and sympathetic qualities to anyone proposing the strategy that Lee Nielsen is proposing. I'll just note that in the op-ed he describes the upending of his family's personal and financial situation during the middle of college, so it seems unlikely that he was contemplating defaulting on student loans from the outset. In any event, back to my question: Is this something that readers have either done or contemplated? What caution or advice do you have for others?

Regional

Jeff, Are you sure this is a proper topic for a faculty blog? Shouldn't students be encouraged to live up to their commitments, not strategize about ways to avoid them? A better question is how schools can lower tuition, so this problem because less frequent.

Jeff Redding

Regional: Thanks for your observation. Many law faculty (especially junior faculty) have large outstanding law school debt of their own.

Enrique Luis-Garza

You want folks to offer "caution or advice" about this, Jeff?

Okay. Here's a caution: Lee Siegel's column is a triumph of selfish egotism, and his "advice" is almost criminally stupid. Don't follow it.

There's a lot to say about student debt and the oppressive financial burdens too many students take on these days. Lee Siegel says none of that. All he says, rather, is that he's special, a distinctive little snowflake who just decided for himself he didn't want to repay debts he knowingly and repeatedly took on. The little bit about family hardship is just self-expiating dreck.

It is irresponsible beyond measure for Siegel to write (and the Times to print) an op-ed like this -- a clickbait farce that doesn't even mention the word "garnishment." It's not quite as bad for you, Jeff, to blog about it so obtusely. But it's close.

[M][@][c][K]

There may be an argument for graduates in the last 5-10 years defaulting. But, this guy:

1. Let's suppose arguendo that I am right - the student loan system is pernicious - it has allowed tuition over the last 3 decades to run completely out of control. The problem is that Lee Siegel is now 58, so he in fact borrowed all of this money 30 years ago, before the consequences of the student loan system became manifest.

2. Siegel chose to attend Columbia for his BA (General Studies (which is what??) and his master's degree and M.Phil. So in the 80s, when fairly few were going to college, he collected 3 degrees from an Ivy League school. Good for him, but...

3. Its a pretty safe guess he rounded up the 3 degrees by the time he was 28-9. Tuition at Columbia in the 1980s was: (i) not horrifying; and (ii) would then have been supplemented for graduate students by generous TAs and other benefits.

We can add the colourful details of why Siegel was fired by The New Republic - because, well hey, if using sock puppets to praise your work, there are law professors well known here that .... better not go there, it true but you know, it gets posts deleted around here.

Nonetheless, apply dates, find out the actual debt involves, and Siegel will not turn out to be comparable to say a 2010 law graduate who failed to get a job.

Jeff Redding

ELG: Garnishment is definitely lurking here, but I think a couple of things are raised implicitly or explicitly by the op-ed: 1) Why hasn't Siegel suffered this; and is there away around it (e.g. by paying the nominal $100 so as to avoid going into technical default)?, and 2) Garnishment would, I would presume, depend on the bank being able to produce documentation that they actually own a student loan. Siegel suggests that many banks can't produce that documentation, just as in the housing crisis when it was shown that many, many banks did not keep proper documentation as mortgages they bought and sold... and judges, hence, refused to foreclose. Or am I not understanding something here? I find Siegel's op-ed intriguing, but also question-raising.

Observer

"I'll just note that in the op-ed he describes the upending of his family's personal and financial situation during the middle of college, so it seems unlikely that he was contemplating defaulting on student loans from the outset."

Except that after college, he went on to get a MA and M.Phil in philosophy from Columbia, a well-known cheap school, located in an area well-known for its low cost of living.

In his essay he states: "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". He mentioned that he got his first student loan at 17, so he was obviously still taking out student loans while in graduate school.

Jeff Redding

Observer et al.: This is not a post about the moral qualities of Siegel or anyone else who defaults on student loans, housing loans, or credit card loans. It's a post querying: Why should you (not) do this from a financial point of view; what works and doesn't work when doing this; and any other financial survival strategy. I'll be deleting comments that stray from answering this basic set of questions and concerns moving forward.

twbb

If you can't pay, you can't pay. Personally I wouldn't pay either if doing so would subject myself and my family to extreme hardship. I do wonder why he didn't declare bankruptcy back when student loans were dischargeable.

Anyway, whether it's a financially prudent thing to do would depend partly on the state in which he lives, which would determine the maximum amount of paycheck garnishment, the level of protection for non-ERISA-protected retirement accounts, whether creditors can reach spousal income, etc.

Michelle Meyer

From Jordan Weissmann's take(down) in Slate:

"Astoundingly, Siegel never mentions, nor demonstrates that he understands, the fact that in most cases of default the government can simply start garnishing up to 15 percent of borrowers’ disposable wages directly from their paychecks. That’s more than the 10 percent they would owe if they simply signed up for the newest income-based repayment plan that the Department of Education offers. In other words, unless you’re making a political statement like the debt strikers, there is virtually no rational reason to default. And telling anybody that they should consider doing so is gross journalistic malpractice, even in an opinion piece. If anybody actually takes Siegel’s advice for a road test, the Times will have succeeded at making the world a slightly crappier place, and nothing more.

I’m not sure why Siegel doesn’t seem to recognize these issues—the word “garnish” appears nowhere in his piece—but I assume it may be because, since he’s a freelance writer, the government may have a harder time tracking down his employers and taking his pay. If so, lucky him. He found a loophole."

Steven Freedman

While I've never considered such a path, I've semi-jokingly suggested to friends in their early twenties with no plans to go to college that they should build up their credit, obtain a large line of credit, and then just spend it all. You'll have a couple of years of living normally building credit. Two or three years living like a rock star. And then five years under Ch. 13 probably living the same life (roommates and ramen) they would have if they had never done this. As a variation, I advise they build the credit, then use it all on one massive roulette bet (cue Wesley Snipes).

So far, none of my advisees have taken this advice. Possibly because the people attracted to such a plan probably aren't the type of people who would have the patience to see it through. Or possibly because it's a stupid plan.

ConcernTroll

According to Slate.com, if you default on your loans you can be garnished 15% of your wages.

If you sign up for Income Based Repayment, you pay 10% of wages.

Can you guess why default rates are so low? Virtually everyone is in soft default.

Justin

There are so many programs that help those with student loans stay afloat, that I don't think default is ever really a good option. Even if you will never pay your loans in your lifetime, you are still better off applying for some type of income based repayment plan, rather than risk garnishnment and a default on your record. I'm sure there are exceptions, but most students shouldn't default. Also, law school is way too expensive.

anon

Well, the Corinthian debt strike certainly seems to have worked.

http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html

The DOE estimates "that if all 350,000 Corinthian students over the last five years applied for and received the debt relief, that cost for them alone could be as much as $3.5 billion."

Jeff Redding

Michelle: Thanks for posting that excerpt from the Jordan Weissmann piece. I hope Siegel finds some way to reply, because, yeah, the question of how he avoided garnishment is super intriguing. I'd also imagine that there are analogs to writing/freelance work in much of the short-term lawyering work that many recent J.D. graduates are doing. I continue to wonder, however, why a better strategy altogether isn't to simply make a nominal payment for many years, avoiding default and also the tax-bomb that will come when the IRS taxes any loan forgiveness that comes from a formal government program.

Anon123

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.

Comment: -- nope if you go into default, they can revoke cards or raise interest rate.


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.


Comment -- OK, this is good advice

Live with or marry someone with good credit (preferably someone who shares your desperate nihilism)."

Comment -- Right. Like someone with good credit is going to want to marry or live with you. Or that they will share your desperate nihilism and still have good credit.

John Thompson

Siegel is not an ideal spokesman for this, or indeed anything.

However, some thought should be given to the following:

(a) Default's consequences are in fact terrible for most people, considering how much of the comfortable middle-class existence desired by most JDs depends on availability of credit.

(b) Student loan debt so high that someone would risk those consequences is no longer an outlier among graduate or even undergraduate outcomes; hence, the NYT publishing a piece about it.

(c) If a statistically significant number of people did as Siegel advised, the Department of Education's overall margin on student loans would diminish because of retrieval costs in the wake of a smarter deadbeat class, perhaps to a point where change in access to student loans became politically feasible.

(d) If Congress changed its policy on student loans in such a way as to discourage people from attending programs where the ROI measured against the first 10 years of salary was dubious, how would that affect your school?

Chelsea

I'm leaving a comment to follow the thread rather than because I have any super substantive commentary, but part of the problem with this genre of student-loan horrors and comment-thread discussion is that it tries to lump student loans into simplistic categories which do not reflect the numerous types of student loans and the accompanying repayment options. Not everybody has Dept. of Ed loans that qualify for IBR (I'm guessing this is true for the author of the original op-ed since his loans were generated before I was born). Even if you do have Dept of Ed loans, depending on when those loans were issued affects which repayment options are available to you. Even if you are relatively advantaged by having recently-issued, exclusively Dept of Ed loans with the income base repayment and forgiveness options, managing those loans is a part-time job in and of itself because the loan-servicers are bloated and can't (or won't) keep the aforementioned complexities straight for millions of customers. The student loan system is a mess, and it is tempting for people ensnared in it to explore the ramifications of options such as default. Is it wise to advise thousands of people to default on their loans? No, but it is an option that should be explored as fully as other options on a borrower-by-borrower basis.

Jeff Redding

Chelsea: Thanks for moving the conversation forward; this is helpful.

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