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 That message easily could get lost in the controversy following a
recent New York Times opinion piece, "Why I Defaulted on My Student
Loans," in which writer Lee Siegel not only defended his decision to
ignore his education debt, but urged others to join him as a way of
changing the economics of paying for college.
"If people groaning under the weight of student loans simply said,
'Enough,' then all the pieties about debt that have become absorbed
into all the pieties about higher education might be brought into
alignment with reality," Siegel wrote. "Instead of guaranteeing
loans, the government would have to guarantee a college education."
Perhaps.
We now have some indication that debt strikes may work: The U.S.
Department of Education expanded its forgiveness program after some
former students of the Corinthian Colleges chain - which shut down
all its remaining campuses in late April - publicly refused to pay
their debt, saying they'd been defrauded.
Before the chain collapsed, it had been fined by the Education
Department for falsifying job placement claims and was the target of
numerous other investigations for predatory lending and deceptive
recruitment.
But the Education Department's willingness to reconsider likely was
less a response to the debt strike than to the intervention of state
attorneys general and consumer advocates who encouraged the feds to
be more generous with Corinthian victims.
In any case, Siegel's piece downplays the personal and lifelong
financial devastation that default can inflict, while ignoring the
fact that there are now plenty of options for dealing with most
student loan debt.
If debt collectors are sometimes likened to junkyard dogs, the
Department of Education would be the one who is not chained or
fenced. There is no statute of limitations on federal student loans,
which means its collectors can chase you to your grave.
Along the way, they can snatch your tax refunds and garnish your
wages without having to go to court. They can even take a bite out
of your Social Security checks, something other creditors cannot do.
Borrowers pursued by other collectors can escape into bankruptcy
court. Student loan borrowers are unlikely to find relief this way,
since few can meet the stringent "undue hardship" clause courts
require to erase this debt.
These powerful tools are among the reasons why the federal
government expects its collection efforts to recover enough money in
principal, interest and penalty fees to offset any defaults in its
student loan programs.
Even before collection actions start, though, the failure to pay
will take a heavy toll on a borrower's credit - and thus impair the
person's ability to get credit cards, apartments and jobs.
Bad credit can inflate the cost of insurance and the size of
deposits required for utilities and wireless phone service.
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All this pain is increasingly unnecessary, since improvements in
federal payment plans mean the vast majority of today's student
borrowers can find ways to avoid default.
The latest iteration of the Education Department's Pay As You Earn
program, for example, caps payments at 10 percent of discretionary
income - defined as the amount over 150 percent of the federal
poverty level for the borrower's household size and state of
residence. For some low-income borrowers, that can translate into
monthly payments of zero dollars.
Forgiveness of remaining balances is possible after 10 years for
those with public service jobs and after 20 years otherwise.
There are certainly some who will still struggle. Among them, for
example, are higher-income borrowers who have crushing levels of
other debt, who may have trouble staying current even under Pay As
You Earn.
People with older student loans are not eligible for the new
arrangement and may have to pay up to 15 percent of their
discretionary income with the other available income-based repayment
plan.
Parents who took out federal PLUS loans also are not eligible for
the more generous repayment options, although they may qualify for
an income-contingent plan that caps payments at 20 percent of
discretionary income.
Meanwhile, private student loans, which make up roughly 15 percent
of the $1 trillion or so currently owed in education debt, offer far
fewer repayment options and consumer protections than federal
student loan debt. That is why Congress should seriously consider
the Consumer Financial Protection Bureau's suggestion that these
loans - which involve no taxpayer funds or government guarantees -
be easier to discharge in bankruptcy court.
Other reforms, such as expanding grant aid, simplifying financial
aid forms and expanding Pay As You Earn to other borrowers, should
be considered as well. What is not worth discussing is default as
political protest. Today's graduates have much better options than
to make human sacrifices of themselves.
(The author is a Reuters columnist. The opinions expressed are her
own.)
(Editing by Beth Pinsker and Leslie Adler)
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