Wednesday, April 1, 2015

Student Loan Repayment Strike

I went to college in the Pleistocene epoch when colleges did not cost as much as they do today. I was fortunate enough to have an almost full academic scholarship, some money saved from summer jobs, access to Pell grants and finally a supportive and demanding father who would and did move heaven and earth to ensure that I graduated on time with no excuses and no debts. The idea of taking out massive loans just to obtain an undergraduate degree was completely foreign to me. The world has changed since the days of yore. It's much more difficult to obtain scholarships and grants. The cost of private and public colleges has skyrocketed. Free money has dried up. If you want to go to college and are not a child of either the 1% or parents who are obsessive savers, loans will likely be a large part of how you pay for your schooling. The obvious problem with loans, as opposed to scholarships, personal savings, grants and money from Mom and Dad, is that you have to pay the loans back. Nobody lends money with any other expectation. That's why they're called loans and not gifts. Although a college degree has increasingly become a requirement for a chance to enter the precarious middle class, it is also more important than ever to get the proper college degree from a respectable university. Just having the B.S. or B.A. behind your name isn't at all a guarantee of finding a good job, particularly if you are of visible/undeniable African descent , but that is a different post. Getting a BS degree from a BS university may only net you a BS job. Many people find this out the hard way when they graduate only to discover that their current skill sets and newly minted alleged education will get them a job that barely allows them to make rent and loan payments each month, if they're lucky. It is a financial pain in the tuchus to pay back student loans. Generally speaking, the loan can't be discharged in bankruptcy. Some former students or actual dropouts have decided that their best plan of action is to refuse to pay back their loans.

WASHINGTON (AP) -- Sarah Dieffenbacher is on a debt strike. She's refusing to make payments on the more than $100,000 in federal and private loans she says she owes for studies at a for-profit college that she now considers so worthless she doesn't include it on her resume. The "debt strike" sentiment is catching on. Calling themselves the "Corinthian 100" — named for the troubled Corinthian Colleges, Inc., which operated Everest College, Heald College and WyoTech before agreeing last summer to sell or close its 100-plus campuses — about 100 current and former students are refusing to pay back their loans, according to the Debt Collective group behind the strike.

They're meeting Tuesday with officials from the Consumer Financial Protection Bureau, an independent government agency that already has asked the courts to grant relief to Corinthian students who collectively have taken out more than $500 million in private student loans. The Education Department is the group's primary target, because they want the department to discharge their loans. A senior department official is scheduled to attend the meeting.

Dieffenbacher said she received an associate's degree in paralegal studies from Everest College in Ontario, California, and later went back for a bachelor's in criminal justice before later dropping out. She said she left school with about $80,000 in federal loans and $30,000 in private loans, but when she went to apply for jobs at law firms she was told her studies didn't count for anything.

Dieffenbacher, who works in collections for a property management company, said she was allowed at first to defer her loan payments, but now should be paying about $1,500 a month that she can't afford. Makenzie Vasquez, of Santa Cruz, California, said she left an eight-month program to become a medical assistant at Everest College in San Jose after six months because she couldn't afford the monthly fees. She said she owes about $31,000 and went into default in November because she hasn't started repayment.

I've been around for a while now. I have financial obligations that can be tiresome. Sometimes people advised me to take or avoid a certain course of action. Sometimes I listened. Sometimes I didn't. Although not every decision I made worked well I can say that ultimately all of the decisions were mine. Once you're over 18 and certainly once you're over 21, you're an adult. You get to make your own choices. If you decided to attend a sketchy college and overpay for coursework of dubious value that's your fault. If you are wise you will learn from that choice and not do anything that foolish again. I'm not sure you should get a do-over. Although there are a few cases where they are arguably warranted, bailouts almost by definition come with a huge moral hazard problem. The people who get bailed out don't pay the costs of their foolish behavior and thus are more likely to repeat such bad behavior in the future. Additionally other people who are playing by the rules of the game start to feel like suckers. Rationally it may also make sense for them to ignore the rules and default on their debt if the consequences for doing so are no longer punitive. If too many people start to do this the interest rates and fees for loans will increase. Institutions will be less likely to make loans. In extreme situations the market will grind to a halt. But maybe that is the wrong way to look at this. Maybe we should examine this situation not through the lens of loan repayment but rather through consumer protection. If someone sells me something I didn't ask for or is totally worthless then I should have the ability to complain to a consumer protection agency and get some sort of relief. That is the argument the Corinthian 100 are making. If the education was fraudulent should they pay?

I am not 100% unsympathetic to this argument, just 90% unsympathetic. There is no guarantee that a college education will provide any particular individual a path to a well paid career. It's an important factor but ultimately just one among many. Connections, career interest, personal drive, intelligence and the larger economy all play a role. A college or graduate school may boast about its alumni salaries and income but all they are really selling you is an education. What you do with that education is up to you. Still, if someone just doesn't have the money they don't have the money. I would be willing to allow student debt to be discharged in bankruptcy, which is currently not the case. That requires a change in the law. But I would not be willing to allow someone to default just because they entered the real world and learned that they weren't a special snowflake. We do need to rethink how we finance higher education in this country. The structure of loan based financial aid may have done little more than give colleges incentives to raise tuition and salary packages.  There is more than $1 trillion in student debt. We can't keep on in this way. We will see more stories like this.

How do you see this story?

Should the Corinthian 100 be able to walk away from their debt?

Should everyone else be able to walk away from their mortgages or auto loans?

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