Stories like this make me very glad of the system we have in Australia. You can choose to have your Univertity fees just automatically paid by an interest free loan from the government (it's like a five minute online form to sign up for), and then you just pay back 4% of the loan on each tax return if your salary is over $51,000 (you can choose to make voluntary payments over the compulsory rate, or if you make less than $51,000 - you even get a 5% bonus if you pay over $500 - for example, make a $1000 voluntary contribution and they take off a bonus $50 off the loan).
Pretty good scheme to allow people to be educated (which is generally a net win for the economy) without being shackled by ever-growing debt from the start of their working life.
There's a plan here in Oregon to try and work up a viable system to do this. The idea is called "Pay it Forward" and you would essentially pay a 3% tax for 20 years after you graduate. I'm not entirely sure it will ever come to pass, but it's not a terrible idea IMO. It may not save money, but it does mean you get an automatic income based repayment plan, you can never be in default and you get an automatic deferral when unemployed.
That said, it doesn't really do anything to fix the problem of skyrocketing education costs which is less than idea...
I don't see how this can make financial sense. 3% for 20 years totals 60% of one year's salary (or the average salary over your first 20 years in career). Average salary is $48k, so that's paying back $29k.
... however it's actually even worse than this meager sum:
- Salary increases over your lifetime, and the highest earning decades are 40s and 50s, so I the average salary over the first two decades is probably lower than $48k. Maybe this is mitigated by restricting to only people who at least attempt college?
- Oregon has a slightly lower-than-average income.
- People are more likely to sign up for this program the less they think they'll earn.
- Once someone has graduated, they are not incentivized quite as strongly to pursue high salary positions.
- Some loss due to deaths, defaults, emigration, black market off-the-books income, etc.
- Depending on how it's set up, this may cut into the tax revenue to the state.
- It doesn't take into account inflation or the time value of money.
I understand the point of the program is a social benefit to the state, but I think it's useful to examine the reasonableness of the proposition in a market context. If someone offered you a bond to take the other side of this deal, how much would you pay for 3% of the first 2 decades of income of a hypothetical freshman entering college this year? What about a 1/1000 share of a portfolio of a thousand freshman?
Or the system we have in Mexico: You can choose between several very good public University (costing around $200 USD per year) or some really expensive $8,000 per semester.
Both of them will teach you exactly the same, but enrolling in the expensive ones will give you "social status".
> Grandmother: “Why did you borrow money you could not repay?”
> Her: “I thought I could repay it until the bailouts happened.”
> Grandmother: “That is no excuse. You need to repay them.”
For some reason, a lot of people my age lack any sense of personal responsibility. It's not the author's fault she couldn't repay her loans. It's everyone else's. Lately I hear more and more people blame all of their problems on everyone but themselves and it's starting to get really annoying. My (recent) ex-girlfriend was (is?) failing her history class and blamed it on the professor for not making the attendance policy more prominent in the syllabus. It wasn't her fault she was skipping class and getting points deducted.
You know what the author could have done? Not gone to college. Get a vocational position and save up until you have enough to go if that's really what you want. Apply for scholarships. There's plenty of options.
I agree that those things are part of the problem. People take too cavalier of an attitude toward college and its expense, and they over value the education they receive as well. I agree that more people should consider vocational training, it's a shame that our culture denigrates such jobs so much that people are discouraged from pursuing them.
But on the other hand college costs are becoming more and more unsustainable even as college is becoming more and more a requirement for well paying jobs. It's easier for her grandmother to say that one shouldn't borrow money that can't be paid back with utter certainty, she lived in a different era in every way. An era where it was not only possible but easy to find well paying work if one was reasonably smart, capable of being educated on the job, and a hard worker. Even two decades ago it was reasonable for a middle class family to pay college tuition for their children out of pocket without going into debt.
Calling family members and telling them you owe money is illegal under the Fair Debt Collection Practices Act, and the collection agency knows it. The author however is probably mistaken that no interest is accruing.
But having interest accrue was part of the original agreement she made. The fact that she has exploited a loophole in the system to avoid paying that interest does not make it right. If nobody paid interest on loans, there would be no loans, and she would not have been able to get one to pay for her education.
No one promised her a job (as in, no actual employer told her "I've got that job here, as soon as you show me your diploma you come and work for us"), but she did promise to pay the loans.
Ok, it's easy for me (or for any non-US) to look down on her because of the ridiculous loans that go with US education, but she still is in the wrong to me.
>No one promised her a job (as in, no actual employer told her "I've got that job here, as soon as you show me your diploma you come and work for us"),
Actually, high schools in the US often hold events where employers and college recruiters show up and give motivational talks where they do precisely that. No contracts are ever signed of course, but young minds somehow wind up with the impression that the way to achieve success in life is to get a college degree at practically any cost.
People in better circumstances can squeal all they want to about "responsibility" but, if you are a businessman whose profit is predicated upon convincing 18 yr-olds to mortgage their lives for a chance at the job-lottery don't expect a lot of sympathy from me when it all goes south. The failure of this student-loan scheme shouldn't surprise any one. It is dependent upon having a supply of well-paying jobs waiting for graduates. If the jobs aren't there, the students won't get (gainful) employment, and without gainful employment, what method do you propose that students repay their loans?
You missed Xcelerate's point. They're complaining about her attitude. Of course she's paying off her loans, she has to. Student loans typically can't even be wiped away by bankruptcy. If she could I'm quite sure she would.
This is just dumb. One of the great freedoms of our country is that we can default on debt. Any moral grandstanding that tries to prevent people from doing so is shortsighted and counter productive.
Consider, where was the responsibility of the lending office that gave out the loan? Do you honestly think they should have guaranteed returns on all loans? That there should not be some expectation that some will go belly up?
Don't get me wrong, I don't encourage people to just look for a chance to default. But to try and claim it is a lack of personal responsibility is an attitude that causes far more problems than a healthy number of people defaulting.
Doing something merely because of a sense of "personal responsibility" is irrational, especially if it makes more financial sense to do otherwise. Suggestions that the author go back in time to make different decisions are also ridiculous.
Basically the author defaulted on their student loan instead of deferring and makes an argument as to why it was a good decision for them.
The reason I say it doesn't make much sense is that, imo, it really glosses over just how big a deal defaulting on a loan is. While the author is talking about themself, a naive individual might get the idea that this is the right choice for them, when it almost certainly is not.
Trashing your credit and not being able to take out a house/car loan is a pretty huge deal for most people...
Just keep in mind defaulting on a loan isn't something that you just _do_ and then _undo_ with no consequences(other than saving on that interest lel)...
That shit stays with you for at least 7 years and if you're trying to get a loan for anything having defaulted on your only loan ever... Good luck.
The point, which was a bit buried, was that by defaulting and having her wages garnished, resulted in much better progress in paying the debt off ... because there is no interest, and probably because of inflation as well.
I'm not sure that's accurate, but it's what the piece implies.
Yeah, I grokked the point, and I strongly disagree with the conclusion.
For anyone with a graduate degree that's competent in their field the chances of going 4+years jobless is pretty low. And I would assert that if you get a (well-paying)job earlier than 4 years out of college its worth it to not default on your loans.
Why? By the end of the second year of a salaried job I would be highly surprised if that shitty credit score hasn't fucked up your life in at least one major way.
It's really about how much you think you're worth. If you don't think you'll need a loan in the next 7 years then save yourself some money I guess?? Don't forget if you get ANY job at all in the meantime, because they can just garnish your wages if they do.
It seems to be implied that life with bad credit isn't so bad(and it isn't), but we live in a material world. People want to buy shit, often-times shit that's more expensive then they can currently afford, it's why loans exist. I just think anyone acting on this advice without REALLY thinking about it, will regret it more often than not.
If you don't need to buy a house or finance a car, living with bad credit isn't super horrible. It can be quite inconvenient, and more expensive overall though.
Cell phone plane? Yeah, you're on pre-paid. Have fun paying double (although this has been getting better!).
Electric/gas/internet hookup? Well, in most (all?) places in the US, the gas/electric/phone company are required to serve you but probably will require a deposit of a few hundred bucks each. Cable might be a crapshoot - probably the same deposit deal though.
The real issues are finding a place to rent and getting a decent job. Almost all decent jobs require credit checks now, and that's a travesty.
So yeah, if you have money it's not too bad. I lived with horrible credit (defaulted on some small credit cards and a lease after I lost a job) for quite some time, but I also happened to be in a career that after a couple tough years I was making enough that the lack of credit wasn't really something that I worried about.
Now I have good credit, and really the only major difference so far is I qualify for credit cards with perks. I have yet to buy a house, and I buy my cars cash.
I'm not in favor of defaulting on loans. But having bad credit doesn't necessarily destroy your life. I've never taken out a loan in the past 17 years, yet I've bought several cars (including one new). The only thing I would need a loan for would be a house, but being single and with property tax in my area at 2%, I'd rather not.
> Why? By the end of the second year of a salaried job I would be highly surprised if that shitty credit score hasn't fucked up your life in at least one major way.
She was having trouble getting a job as a waitress, I think she did not see the scenario of the salaried job you speak of as being relevant to her.
> People want to buy shit, often-times shit that's more expensive then they can currently afford, it's why loans exist.
I know it's not popular these days, but one can actually limit oneself to things you can afford. If you do that, you don't need a loan, and hence, bad credit is irrelevant. And if you have a habit of buying things you can't afford, bad credit is in your future...
Completely agree, for the proportion of the population that doesn't take loans ever this certainly seems to make some sense.
I'm just saying that, imo, for the vast majority of Americans the ability to get a loan is more important then she implies. Not to mention the fact that Phone-Carriers/Recruitment-Agencies/Utilities-Vendors check credit scores as well.
It's effectively coming to terms with the fact that you won't be getting a new car/home for 7 years unless you can afford to buy it with liquid assets... So, unless your income is so great that you can save up for a car/house on TOP of affording rent + food/clothes/etc + student loans, you won't be getting one until your credit recovers.
You last paragraph is basically my point, limiting oneself is _not_ popular these days, that's exactly why most American's would regret this decision because eventually they would find themselves limited. Perhaps they should be.
I feel like I should state down here that:
a.) I hope I never have to borrow money in my life, but I probably will. I don't think it's the "right" way to live or anything.
b.) I think this does make some sense for certain people.
c.)I don't think bad credit ruins your life, but I do think it has a bigger impact than was implied.
>It seems to be implied that life with bad credit isn't so bad(and it isn't), but we live in a material world. People want to buy shit, often-times shit that's more expensive then they can currently afford, it's why loans exist. I just think anyone acting on this advice without REALLY thinking about it, will regret it more often than not.
That is the mainstream culture you see in the USA. Other countries do not have that culture (in Mexico some people call it the "USAnd-throw"... and enjoy getting used stuff thrown away by Americans, in Germany [at least in the east] people do not value "stuff" as much as in the US).
If 7 years is less than it'd take to pay back the loan without being broke the entire time, default is a viable option.
> It seems to be implied that life with bad credit isn't so bad(and it isn't), but we live in a material world.
Not everyone is material.
> People want to buy shit, often-times shit that's more expensive then they can currently afford, it's why loans exist.
Many don't, many like to live within their means and shun such material excess or attempts to keep up with the Jone's. Many laugh at the ignorance of wasting money on shiny rocks and expensive habits and life events. You presume too much about other people.
I hope I never take a loan in my life, doesn't mean I can't comprehend that the vast majority of Americans with an income greater than 50K a year rely on loans for their cars/housing.
A bad credit score also affects future jobs/utilities/cellphone/etc...
>If 7 years is less than it'd take to pay back the loan without being broke the entire time, default is a viable option.
Explain this logic please.
>Not everyone is material.
Ok
>Many don't, many like to live within their means and shun such material excess or attempts to keep up with the Jone's. Many laugh at the ignorance of wasting money on shiny rocks and expensive habits and life events.
Pain of bad credit vs pain of paying back loan, choose lesser pain. Debt can and should be walked away from when that's the better option than paying it back.
I'm clearly talking about defaulting on loans in general; default generally means you don't pay it back. If this isn't such a case then obviously it doesn't apply.
I mean if you can weather the storm of bad credit and have a decent shot at digging yourself out of it in the future, being able to pay no interest on that debt is a huge benefit
as usual it is all about the cost-benefit analysis. the author maybe should have put that disclaimer at the end there.
Stupid question, if everyone does this do we expect that these loans will still be available?
Maybe it was the "best Decision of (YOUR) Life" but every time this happens it hurts these programs even more.
Congratulations on a perfectly self-centered Millennial decision that was the best decision of your life that most likely made these programs one step closer to being discontinued.
I guess I'm old fashioned, I've never signed something I've not read and I always honor my commitments to the best of my ability and with honor and respect for everyone involved.
Tragedy of the commons. A poorly designed scheme that may be at its breaking point. I do expect that as a country we will recognize the value of education (at least to the economy, if nothing else), and will find a way to educate young people. It may not always look like the current system, and IMO that's a good thing.
>Congratulations on a perfectly self-centered Millennial decision
Congratulations on your job! (and lack of empathy) Send yourself a nice greeting card "Congratulations kator, on your wise choice of [birthplace/parents/nationality/etc]." There are so many people who fail to realize the degree to which their personal success is dependent upon circumstances over which they had no control.
>I guess I'm old fashioned, I've never signed something I've not read and I always honor my commitments to the best of my ability and with honor and respect for everyone involved.
Is that because you're such a great guy, or because you've never experienced significant adversity?
The student loan system in the United States has all kinds of negative effects, including being partly responsible for two decades of out of control cost growth in higher education. If a high default rates pushes the government to go back to the drawing board, that's a good thing.
Don't vote by defaulting, vote by voting. To default on a loan after you signed it because you have some sort of agenda is not voting, it's just defaulting on a commitment.
I'm not defaulting, nor am I even suggesting anyone else default. I'm countering your incorrect argument that undermining the US student loan programs is a negative consequenece of default.
In any event, I don't share your simplistic views about the morality of doing so. Anglo-American law actually favors breaching contracts when it is efficient to do so. Also these particular contracts are made in a predatory fashion, they are contracts of adhesion between the most powerful entity on the planet (the US government) and naive 18 year olds.
Try to worry a little less about your sacred honor and a little more about your fellow human beings. That's what's morality should be about.
I'm Indian and sometimes pieces like this are a very strong reminder of how bad the student loan situation is in US. I went to a central university (i.e. funded by the central/federal government of India) and basically paid less than INR 1000 per year in tution fees and what not (I was a day scholar so no hostel expenses but they were low as well). For three years of full time university education, that is less than USD 50. I don't have a foreign university degree to compare quality of education with but I certainly got FAR better education than I paid for.
Public universities are funded by government, which in turn is funded by taxes. The choice here isn't between "university for a loan" versus "university for free"; the latter choice is actually "university in exchange for an extra 3-5% of taxes for the rest of your life" (I'm guessing that percentage, it might be higher or lower). You have to look at it as "do I want to pay a loan for the next 10 years" versus "do I want to pay 5% more of my salary for the rest of my life". There are up- and down-sides to both options.
Why would you get drowned in interest? You would have to make regular payments as usual, which is something you know from the beginning, and are supposed to plan for.
Also, if this is a problem, you could try to ask for a clause against this when you sign the loan contract (if you lose your job, you stop having to make payments until you get a job again). Not sure they'd go for it, but it's worth asking for (I think many student loans come from the government anyway, they might accept this clause).
I totally understand someone who can't pay back the student loans. But please--try to do it right. Right now student loans are not subject to discharge in bankruptcy court. Before you ruin your credit: obtain as many credit cards
as possible. It might take a few years to obtain the amount of credit you need. Then pay off you student loans
with their money. Wait awhile--then do your own bankruptcy.
(I have no sympathy for credit card companies. They have
a lot in common with Loan Sharks.) (One other thing--If you pull off this caper, remember just how terrible you
felt when you were in trouble.)
The idea of the default is to stop additional interest from being charged.
But interest being charged was part of the original agreement she made. The fact that she was able to exploit a loophole in the system to avoid paying interest does not make it right.
Right, exactly. The lender is basically sucking it up and taking a loss (which will be spread to the rest of us who -do- maintain our agreements) in the hope that will allow them to recoup any of their money.
Hey you can make the "fiscal obligation" argument here. You don't get to have your cake and eat it too. Choose :
1) defaulting as a strategy is not okay, but neither is giving out these loans without social responsability. In other words, she has zero obligation to respect the agreement she made, she only needs a socially acceptable option (let's call it the European strategy, the law as it applies to a sovereign government)
2) She has to follow the agreement, because it's an agreement, and so does the debtor. In other words, any loophole is perfectly ok, and if it benefits her, it's not just OK for her to use it, but it's morally good by virtue of being part of the agreement, and we should compliment her on being smart about her obligations.
This sort of discussion is the fundamental conflict between the people working in justice and congress. Laws often are written by morons in congress. They write stuff like "it is illegal to", or "you can't" or ... Without any guidance whatsoever about what happens in the alternate case
The problem with that is that that is not how the world works. A violation of the law is not resolved by God stopping the whole planet, smiting anyone who needs smiting, fixing any consequences and restarting the whole thing. So saying that something is illegal is almost completely beside the point, what you really should say is "if you do X, then Y happens". The world keeps turning after any and all crimes and we're left with attempting to puzzle together an incomplete mess and figuring out what would be a "fair" way to attempt to do what congress expects God to do.
In practice, you obviously can default on a loan, and the legal system does what the legal system does : "okaaaaayyyy, congress said A can't do X, who obviously just did do X, so now we do Y to her, because that worked well in this other case". In this case Y is nothing.
Thanks to the fact that congress can't be bothered to actually specify what happens if you do violate the law, there are huge holes in what they think the law is. As the author of the article illustrated, this makes violating the law a strategy. And please don't think only poor students use it as a strategy.
giving out these loans without social responsability
In other words, you think student loans should only be given out by entities who will guarantee a job to the student after graduation? Then there would be a lot fewer such loans. That might not necessarily be a bad thing; but I don't think you can say it's a requirement for giving out such loans.
saying that something is illegal is almost completely beside the point
I didn't say what she did was illegal. I just said it wasn't right.
In this case Y is nothing.
No, it isn't. She's suffering a number of consequences, as others in this thread have pointed out. But those consequences aren't being imposed by the legal system; they're being imposed by private entities.
this makes violating the law a strategy.
I would say it makes exploiting loopholes in the law a strategy. But again, I wasn't talking about legality; I was talking about whether what she did was right. You would appear to agree that those are not the same thing.
And please don't think only poor students use it as a strategy.
It's not necessarily a loophole given that her credit score is dinged. It's like fouling in soccer, she broke the rules got a yellow card, was it worth it?
It really irritates me when someone says they have to get $200,000 in loans for a worthless degree from a 'big' school. Both the people who advised them that this was a good plan in the first place, and the people who loaned them the money.
Arkansas Tech University - 09, Judging by her skills on linked in, I would say Journalism or something in the English department.
The University is $8k-11k depending on in/out of state. So thats a top of 88k. But from her linked in profile it looks like she's in state so, worst case, we're looking at $65,000 for the 4 years. So her monthly payments at a whopping 10% apr (which is the highest I've ever seen student loans go) would be $860, had she not defaulted. But since she did shes looking at a monthly payment of $545. I don't know her details but I'm going to say that $860 would be more than she made after taxes.
So, no big name school here. No loan sharks. And a pretty reasonably priced university. And I'm sure that everyone expected her to graduate and make at least $12/hr which would allow her to split rent and still pay her loans (with some food money). Based off that I would say its pretty reasonable to say she got shafted by the economy. Finding work as a journalist after the collapse would be quite hard. But before that it seemed like a genuinely decent field. Sure, its not comp sci or petrol eng but it was a good way to go.
You default and they stop adding any money to your debt? That doesn't sound right. If I tried that I'm sure they'd be adding some 30% late fee every month.
This is basically a form of strategic default. Because the debtor hasn't renegotiated their loan(deferred) and has stopped paying for their loan, they defaulted(breached contract, failed to meet obligations, w/e).
Because there's no contract, they don't charge interest, but they do hit your credit score and go after the money other ways. In the USA your credit score determines your eligibility for future lines of credit, loans, etc....
In addition defaulting on a loan allows the debtor to garnish wages, tax refunds, etc...
It is EXTREMELY RARE that a situation would arise in which the cost of interest on your loan would exceed the cost of a defaulted loan on your credit report.
"Deadbeat" American student loan debtor here. During the economic meltdown, I defaulted on my private student loans in 2009. The defaulted loans were picked up by two different debt collectors. One of them, Sunrise Credit Services, is charging me interest as I pay down the loans. The other debt collector, Williams and Fudge, charges me no interest.
How does it work that you stay in default while paying on the loans? Doesn't the loan become current at some point thus you're no longer defaulted? Or is that the point, the default comes from not paying the contractual payment of, let's say, $700/month and you're sending "only" $350/month?
(Casting no judgment; I have mountains of student loans that I'm managing to pay every month so I sympathize with how you got into that position.)
I guess with the no interest company that they make enough given the discount they purchase them for and the no additional interest helps get more of them paid back.
These collection agencies purchased the loan for a fraction of their value (if paid according to the terms).
I'm guessing each collection agency has their own strategy for collecting on the loans. One of them says "we'll end up with more in the end if we don't charge interest" and the other said "we're owed interest, let's collect it".
I would imagine the first strategy (no interest) has the benefit that the person making payments can actually watch the debt decrease over time. It might make them more interested in actually paying the whole thing back.
If a collection agency says "you owe us $100K and next year it'll be $110K" you might just not bother paying anything since you'll never be able to get ahead of the interest.
Pretty good scheme to allow people to be educated (which is generally a net win for the economy) without being shackled by ever-growing debt from the start of their working life.