Lee Siegel foolishly touts the virtues of student-loan default in a New York Times op ed essay

Lee Siegel, a successful writer, defaulted on his student loans;  and he bragged about it in the New York Times.

In a Times op ed essay, Siegel admitted that his loans paid for a valuable college experience. In fact, Siegel wrote, his education "opened a new life to me beyond my modest origins."

So why didn't Siegel pay off his loans? Apparently because meeting his financial obligations would have destroyed his "precious young life" by forcing him to take a job that would have stifled his creativity.

Siegel was vague about his loan obligations in his Times essay. He did not say where he attended college, how much he borrowed, or how much he now owes. Nor did he say how he manages to live comfortably with a huge debt hanging over his head, although he advised defaulters to marry or at least live with someone who has good credit. Thanks for the tip, Lee.

Siegel described his philosophy as one of "desperate nihilism," but I would be surprised if there is anything desperate about his lifestyle. He writes for the nation's most prestigious journals, he has written books, he appeared as a celebrity guest on CNBC. He has probably traveled overseas on numerous occasions. Perhaps he vacations in the Hamptons.

I think it was a mistake for Siegel to brag about defaulting on his student loans in the New York Times. He may think his essay displays his edginess, even his nobility. But basically he told the entire world he is a deadbeat.

Most student loan defaulters enter a world of pain.

Fortunately, Siegel stopped short of urging others to default on their student loans; it is a tort after all to interfere with others' contractual obligations. He did suggest, however, that a mass number of student-loan defaults might trigger wholesale reform of the way higher education is financed.

But Siegel is wrong about that. According to the Consumer Financial Protection Bureau, 7 million people are in default on their student loans and 9 million more are not making loan payments because they are in some form of deferral or forbearance.  Another million and half or so are in income-based repayment plans, and half of the people in those plans were kicked out for not reporting their income on an annual basis.Those are big numbers, but the massive meltdown of the federal student loan program has not prompted Congress to reform it.

It is totally irresponsible for a successful writer to tout student-loan default as a noble course of action. Most of the defaulting millions have had their lives wrecked by their failure to pay off their student loans. Their credit is shot, their wages are garnished, their income-tax refunds are levied, and they are hounded by debt collectors. And, if they are elderly, their Social Security checks are subject to garnishment.   Is there anything noble about that scenario?

Moreover, the New York Times acted irresponsibly when it published Siegel's essay. Siegel's self-serving defense of voluntary student-loan default may encourage other people to take the same reckless course of action; and most people who default on their student loans will enter a world of hurt.

It is true, of course, that millions of student-loan debtors are morally entitled to have their loans forgiven. People who were lured by fraud or misrepresentations into worthless for-profit college programs should have their loans wiped out. Many naive young people who borrowed money to enroll in mediocre programs at elite private colleges are also morally entitled to loan forgiveness.

But many people who borrowed money to attend college have done quite well; and apparently Lee Siegel is one of them. It is the height of arrogance for someone in Siegel's position to say, in essence, that the taxpayers should pay for his college education, an education he admits was valuable to him.

I have said, and I say again, that a reasonable bankruptcy process is the proper way to determine which people are legally entitled to have their student loans discharged. People who borrowed money for worthless college experiences; people who fell on hard times due to a job loss, illness, or divorce; people who tried to maximize their income but were unable to make enough money to pay on their student loans--all these people should be legally entitled to bankruptcy relief.

But simply walking away from student-loan debt is not an option. In fact, people who default on their student loans suffer catastrophic consequences. The Times would serve its readers better by editorializing in favor of bankruptcy relief for oppressed student-loan debtors, rather than publishing Siegel's very foolish essay.

References

David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html

Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.

Memo to Parents: For God's Sake, Don't Borrow Money to Pay For Your Kids' College Education

Are you a parent who is thinking about taking out a loan to pay for your child's college education? Before you do, read Murphy v. Educational Credit Management Corporation, a recent federal court decision.

In 2002, Robert Murphy lived in Duxbury, Massachusetts and was the president of a corporation. Unfortunately, he lost his job after the corporation was sold and its operations were moved overseas. Although he had diligently looked for a new job, he was still unemployed in 2014.

Between 2001 and 2007 Murphy took out 12 loans to finance a college education for each of his three children. This is remarkable, since he was unemployed during most of this six-year period. Apparently, Murphy had no difficulty borrowing money for his children's education even though he was out of a job. By May 2014, when a federal court issued its appellate opinion on his bankruptcy case, Murphy owed more than $240,000 on these loans.

By this time, Murphy was 63 years old, unemployed for almost 12 years, and in dire financial circumstances. He owed $700,000 on a home that was only worth $500,000, and his home was going into foreclosure. Although Murphy had once owned an IRA worth about a quarter of million dollars, he had cashed it out  to cover expenses. The court did not report on Murphy's family income in 2014, but it noted that Murphy and his wife had only earned about $13,000 in both 2010 and 2011, money his wife had earned as a teacher's aide.

Pretty sad story, you might think.  Nevertheless, a federal court upheld a bankruptcy court's decision to deny Murphy's request to have his children's student loans discharged.  Although the court admitted that Murphy had no current ability to pay off the loans, it noted that Murphy was in good health and might still find a high-earning job that would allow him to pay off his enormous debt.

Ending its opinion on a remarkably callous note, the court observed that Murphy had struck a bargain with the government when he borrowed money to pay for his children's college education.  "All bargains contain risks," the court pointed out, and Murphy's bargain was especially risky since he had been unemployed during the time he took out most of the loans. 

In short, the court ruled, Murphy's situation did not present "truly exceptional circumstances" that would permit him to shed his student-loan debt.  Thus, the federal court agreed with the bankruptcy court's  decision to deny Murphy relief in bankruptcy for his children's student loans.

The Murphy decision serves as a warning to all parents who are thinking about borrowing money to help their children get a college education. Whether the parent takes out a federal student loan or borrows money from a private bank, a college loan cannot be discharged in bankruptcy unless the parent can show "undue hardship."

Mr. Murphy was unable to show undue hardship in spite of the fact that he had been unemployed for 12 years, had liquidated his retirement account and was in the process of losing his house in foreclosure.

According to a recent article in the Huffington Post, parents currently owe an accumulated $62 billion in Parent Plus Loans, which are guaranteed by the federal government. And this figure doesn't include loans parents took out with private banks that are not federally guaranteed.  A  2012 Huffington Post article reported that about one million Parent Plus loans were taken out during 2011, totally more than $10 billion in just that one year.

Parents who guarantee their children's college loans or who take out loans to pay for their children's education put their financial futures at grave risk.  Before borrowing to pay for your children to go to college, you should think about Mr. Murphy. Sixty-three years old, unemployed, and living on an income near the poverty level, Mr. Murphy is burdened by almost a quarter million dollars of student-loan debt.  That's a pretty scary story.

References

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Marian Wang,  Beckie Supiano, & Andrea Fuller. Parent Plus Loans: How the Government Is Saddling Parents With Loans They Can't Afford. Huffington Post, October 5, 2012. Available at: http://www.huffingtonpost.com/2012/10/05/parent-plus-loan-government-parents-student-debt_n_1942151.html

Marian Wang. As Parents Struggle to Repay College Loans for Their Children, Taxpayers Also Stand to Lose. Huffington Post, April 4, 2014.  Available at: http://www.huffingtonpost.com/2014/04/04/parent-plus-loans_n_5094931.html