Ron Lieber of the New York Times published an antidote to Lee Siegel's poisionous essay about the virtues of student-loan default

An antidote is a substance given to counteract the effects of poisoning; and yesterday, Ron Lieber, a New York Times reporter, published the antidote for Lee Siegel's poisonous essay touting the virtues of student-loan default, which the Times had thoughtlessly published in its Sunday Review section on June 7.

In his reckless essay, Siegel had advised student-loan borrowers to do three things before defaulting on their student loans: 1) Take out a lot of credit cards to establish good credit before your credit is damaged by a student-loan default; 2) Establish a good history of paying rent to increase your chances that landlords will rent to you in spite of your default; and 3) marry or live with someone who has a good credit rating.

Lieber poked holes in all that advice, so anyone who reads Siegel's article and is tempted to default on student loans should read Lieber's article too.

Lieber wrote a good rebuttal to Siegel's essay, but he failed to convey some other important information. First, there is no statute of limitations on student-loan debt. A student-loan borrower may suffer no consequences of  default for a quarter century or more. But the government and its debt collectors can go after a defaulter right up to the moment of death. And that includes you, Mr. Siegel.

Second, defaulters face liability for more than just the amount of money they borrowed. They also face liability for accrued interest, fees, and penalties, which can total 25 percent of the amount borrowed plus accumulated interest. It is not uncommon for student-loan borrowers to stumble into bankruptcy court owing double, or even, triple the amount of money they borrowed. By that time, of course, they are in a world of hurt.

Also, Lieber understated the number of elderly people who have seen their Social Security checks garnished by the federal government for nonpayment of student loans. Lieber's article incorrectly stated that the number of people whose Social Security checks were garnished in 2013 was 33,000, but that is the approximate number  of people whose Social Security checks were garnished in 2002. By 2013, the number of people whose Social Security checks were garnished for nonpayment on student loans was 155,000, as reported by the General Accounting Office.  Between 2002 and 2013, the number of elderly people who were having their Social Security checks garnished grew by more than four fold!

Millions of people have defaulted on their student loans, at least 7 million, according to a report from the Consumer Financial Protection Bureau.  But most did not default in order to live more fulfilling lives, which was Siegel's reason for defaulting. Most defaulted because they simply could not make their student-loan payments and still have enough left over from their paychecks to eat and pay rent. And many have seen their loan balances balloon due to additional interest that accumulated during periods when they couldn't make their loan payments.

In short, most student-loan defaulters quit making loan payments out of a sense of hopelessness and despair, not to lead more creative lives. All these people deserve relief from their oppressive student-loan debt. Unfortunately, Siegel may have given Americans the erroneous impression that most student-loan defaulters are feckless deadbeats, when in fact most are honest individuals who wound up in default due to a variety of tragic life circumstances--job loss or failure to find a good job, divorce, or health issues.

References

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Lieber, Ron. The Downside of Defaulting on Student Loans. New York Times, June 13, 2015, p. B1.

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

Lee Siegel is not the poster child for the student loan crisis: Single mothers are more typical of defaulting student-loan borrowers than self-proclaimed cultural critics

It is unfortunate--truly unfortunate--that the New York Times chose to publishe Lee Siegel's op ed essay in which he defended his decision to default on his student loans. Siegel has received a lot of negative feedback on his essay, including several letters that were published in the New York Times, and some people may have gotten the impression that Siegel is a typical student-loan debtor.

But he is not typical, and it would be tragic if Siegel becomes the poster child for the student-loan crisdis.

Americans need to understand that most student-loan defaulters are not successful, self-employed professionals like Siegel. Rather, they are typically people in desperate circumstances due a a host of negative life events (job loss, divorce, illness) that left them unable to manage their student-loan debts.  

If Americans are looking for a poster child for the student loan crisis, I nominate Alethea Lamento. 

Arethea Lamento, Not Lee Siegel, is the Poster Child for the Student Loan Crisis

As explained by a sympathetic bankruptcy court, Alethea Lamento was a 35-year-old single mother of two when she filed for bankruptcy. She was working for a grocery store chain for $10.15 an hour, and she only made ends meet for herself and her two children by living rent-free with her mother and her step-father.

Lamento had accumulated $70,000 in student loan debt while trying to obtain an education that she hoped would open the door to a better life. Unfortuantely, she married a man who, according to the bankruptcy court, was "abusive in multiple ways," and her husband did not want her to go to college. She made several attempts to get training to increase her income but she was unsuccessful due in part to the fact that she was a mother of two and married to a man who discouraged her from obtaining an education. 

As the court explained, Lamento was never able to make a voluntary payment on her student loans, and the federal government eventually began garnishing her paychecks to collect on the accumulated debt. Lamento then filed for bankruptcy.

In the bankruptcy proceedings, the U.S. Department of Education and Educational Credit Management Corporation appeared as creditors and opposed Lamento's request to have her student-loan debt discharged. They argued she should be put in a 25-year income-based repayment plan.

But a sympathetic and compassionate bankruptcy court rejected these arguments and discharged Lamento's student loans. First of all, the court pointed out, it was obvous that Arethea would not be able to maintain a minimal standard of living if she were forced to pay off her student loans.

 “At the age of 35, she has no money to pay rent or utilities for housing for herself and her two children,” the court wrote. “Without the generosity of her mother and stepfather, her family would have nowhere to live” (p. 676). Alethea’s salary did not allow her to pay rent or utilities, which the bankruptcy court considered to be basic needs. Nor did she have health insurance, which the court also considered to be a basic need. 

Alethea's creditors argued that her financial circumstances would improve, but the court did not agree.  “The evidence showed conclusively that Alethea’s financial situation is not temporary and that it is likely to persist for a significant part of the repayment period,” the court ruled.  

In the bankruptcy court's view, Alethea had filed for bankruptcy in good faith. It was true, the court acknowledged, that Alethea had made no voluntary payments on her student loans. Nevertheless, it was undisputed that with her limited income and tight budget, Alethea had never made enough money to make student-loan payments.

ECMC and the Department of Education tried to make much of the fact that Alethea had refused their offer to enter into a 25-year income-based repayment plan. In their view, her refusal to agree to a long-term repayment plan showed her lack of good faith.

But the court rejected this line of reasoning. As the court pointed out, the creditors’ position basically amounted to the argument that the only way a student-loan debtor can show good faith in a bankruptcy proceeding is to sign up for a long-term repayment plan.

The court ruled that Alethea’s reasons for rejecting a 25-year income-based repayment plan “to be credible, convincing, and offered in good faith” (p. 679). In the court’s opinion, it was clear that Alethea was not able to pay anything on her student loans and would be unable to do so in the foreseeable future. Thus her participation in an income-based repayment plan would be futile.

In addition, the court pointed out, there were burdens associated with such agreements. First, if Alethea agreed to a 25-year repayment plan, she would essentially be trading one nondischargeable debt for another. Second, signing up for such a repayment plan would require Alethea to report her income to her student-loan creditors for the next 25 years.

Finally, and perhaps most importantly, the court noted that the creditors’ insistence on a long-term repayment plan overlooked “the psychological effect” of having a significant debt obligation stretch out over a quarter of a century. “Given Alethea’s desperate circumstances, and her status as the proverbial honest but unfortunate debtor, she is entitled to sleep at night without these unpayable debts continuing to hang over her head for the next 25 years” (p. 679, emphasis supplied).

Conclusion: Millions of Student-Loan Defaulters are Entitled to Bankruptcy Relief

Perhaps Lee Siegel should have paid off his student loans, but millions of people who took our student loans in good faith don't make enough money from their jobs to pay back their loans. All these people are entitled to bankruptcy relief.

As Americans contemplate the growing student-loan disaster, they need to realize that Rober Siegel is not the typical student-loan debtor. More typical by far is Alethea Lamento, a single mother of two and an "an honest but unfortuante debtor," who deserves relief from oppressive student loans.

Note: Parts of this blog essay are taken from an article I co-authored with Robert C. Cloud and which appeared in Teachers College Record Online earlier this year. The opinions expressed in this blog are soley my own.

References

Delisle, J. & McCann, C. (2014, September 26). Who's Not Repaying Student Loans? More People Than You Think. Forbes.com. Retrieved from http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/

Fossey, R. & R. C. Cloud. (2013, November 22). "The Law Does Not Require a Party to Engage in Futile Acts”: Student Loans, Bankruptcy and a Compassionate Federal Court. Teachers College Record, http://www.tcrecord.org,  ID Number: 1733.

Fossey, R. & R. C. Cloud (2015, February 23). In Re Lamento: An Honest But Unfortunate Debtor Is Entitled To Sleep At Night Without Worrying About Unpayable Student-Loan Debt. Teachers College Record Online, http://www.tcrecord.org ID Number: 17871

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (6th Cir. 2013).

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.

Student borrowers and the economy (2014, June 10). New York Times. Retrieved from http://www.nytimes.com/2014/06/11/opinion/student-borrowers-and-the-economy.html?_r=0

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.