Student loans: are you a sucker…or a deadbeat? Pick one.

I’m the king of being baffled by things I don’t understand…like, say, the student loan crisis. I *think* I understand how we got here; what baffles me is where we go next.

Hell, I don’t know. A village in the Indian jungle, maybe?

Certainly that’s what a guy named Chad Haag did. In a 5/25/19 CNBC article he spoke frankly about why, after struggling to pay off the $20K in loans he amassed earning his master’s degree in comparative literature,1 he fled into what let’s call “student debt exile” in an Indian jungle village that’s  as far beyond the reach of US debt collectors as, say, Cloud Cuckoo Land.

“I have a higher standard of living in a Third World country than I would in America, because of my student loans,” he said.

Setting aside the debate over whether India’s a third-world country, Haag’s decision baffled me because I couldn’t decide whether to admire him for emancipating himself from what I think of as indentured servitude in a corrupt system, or to condemn him for a liar and a thief and a deadbeat.

I mean…shit, Chad, you’re a grownup. You borrowed money from somebody else and gave your word you’d pay it back. Keep your word like any decent human being would.

But I mean…shit, Chad, you’re a grownup. You placed your faith in our educational system and it fucked you. Rise up and free yourself from your chains like any decent human being would.

So I don’t know. As I said, I’m baffled.


In my ongoing attempts to unscrew the inscrutable I ran across a subreddit dedicated to “strategic default” of student loans: /r/studentloandefaulters. As of this writing it has 8,100 subscribers. Here’s what’s on their minds. Take particular notice that these aren’t discussions of morality, but discussions of tactics. The morality of default is implied to be a given.

After spending an hour browsing the sub I found myself more torn than ever. Is it right to abdicate your student debt if it’s your only out from, quote, ruining your life?

As I’ve said many times, I’m a strong believer that the Wiccan Rede is the…oh God, what’s a good metaphor? The bedrock of FIRE? Anyway, the Rede says this: “An’ ye harm none, do what ye will.” Whenever I’m thinking about FIRE in the context of free will—which is pretty much all the time—that’s the principle I come back to.2 And an unspoken corollary to the Rede is: “Don’t desecrate your conscience.”

Trouble is, the ongoing formulation of one’s conscience leaves a hell of a lot of room for ambiguity. Sex trafficking is obviously evil, but what about resisting systemic exploitation in general? Remember that history is written by the winners.

Here’s some wisdom that surfaced recently in an /r/financialindepence discussion of the retirement ignorance of the average worker.

Subscriber denverpilot said:

The lack of retirement planning is just an extension of a much larger and deeply ingrained debt culture and an entitlement attitude.

That set another subscriber off. AnthonyMJohnson responded in part:

I’m not gonna lie, I absolutely hate this sentiment and think it is completely detached from reality.

It is 100% devoid of any mention of institutional structures that create this situation and makes it read like everything that is happening in the US is the result of individual decision making and personal moral failings[…]

He listed and discussed several such exploitative structures,3 and went on to say:

The fact of the matter is, in the US, you can do everything “right”, live in austerity and be full time employed (even several times over) and hell, contribute to your retirement accounts, and do everything we talk about in this subreddit [i.e., /r/financialindependence] and still end up totally and completely fucked and never able to experience retirement.

It’s easy for us to sit on pedestals here and make claims that pin every bit of outcome here on individual responsibility, but that is a gross oversimplification of reality, a convenient narrative that ignores the many millions of people who are not splurging on RVs and dining at fancy restaurants but instead can barely afford rising rent costs for their substandard apartment they commute 90 minutes from to their overly stressful job that they needed to put themselves $50k in student loan debt to obtain in the first place. [Emphasis mine.]

Damn, son. PREACH. I’ve been struggling to write a FIRE manifesto for lo these many years, and in 456 words and presumably just an hour or two, AnthonyMJohnson did it for me. I sent him a PM to thank him, and I’ll say it here again: strong work, my man. You didn’t specifically get into student debt exploitation as a corrupt institutional structure, but you didn’t have to.

And so after a lot of reading and soul-searching and dialogue with friends, I end up having a great deal of sympathy for student loan abdicators like Chad Haag. And I’ll tell you why by sniping at Navient.

Navient’s an easy target. The company services 25% of student loans in the US: $300 billion in loans spread across twelve million debtors.4 An average of $25K a head. And as a natural extension of its business activity the company makes a metric fuck-ton of money slicing these loans into tranches and bundling the tranches into loan-backed securities and selling those securities to investors.

Sound familiar? I instinctively abhor this practice because it was at the gangrenous stinking God-cursed heart of the housing crisis and the subsequent Great Recession. The practice has been historically proven to lead to a whole gut-cart’s worth of rot, including:

-Ratings agency fraud.

-Over-extension of credit.

-Over-leverage.

-Over-complicated derivatives.

-Perverse legislation designed to prop up the entire structure.

-Increased exploitation of those who graduate concurrent to the economic fallout.

-&ct. &ct.

But an important distinction this time around is: the consumer debt that led to the housing bubble was dischargeable in bankruptcy court. The consumer debt leading to the student loan crisis isn’t, or at least not without great difficulty.5 What does that mean, exactly?

It means telling Millennials, “We’re entitled to everything you’re due us, but you’re entitled to nothing we’re due you.”6 That’s the essence of, among other things, “Privatize the gains and socialize the losses,” which as I’m sure you know is a particularly noxious flavor of bullshit.

Look at the problem like this: the future earning ability of student debt consumers acts as a sort of natural backstop to the means by which they’re being exploited in the first place. Which further goes to show how skewed towards the corporation and away from the individual the system is. After all, if it’s so difficult for YOU to discharge your student loans in bankruptcy, why should it be easier for your lender?

That’s a violation of the first principal of fairness.

The only thought I’m left with is this: when the system fucks you, fuck the system right back. That’s to my way of thinking the essence of FIRE—we call it “fuck you money,” after all. And even though I’m a strong advocate of taking responsibility for your decisions and actions, I’m still extremely sympathetic to strategic defaulters like Chad Hagg. I don’t suggest you yourself go into student loan exile, but I invite you to consider that with the exception of a Perkins loan, defaulting on private debt can roll off your credit report in seven years or less…

…whereas you’ll likely be paying off your student loans for far longer than that. Tough one, eh?

Footnotes

  1. I’m not EVEN gonna get into whether the size of that loan is egregious relative to the average; or whether paying six years of your life and God knows how much $ in total for a commercially worthless master’s degree is wise. Note, though, that I use the adjective “commercially.” Knowledge, after all, is power.
  2. Which is why the early retirement police can kiss my sunburned ass.
  3. -The enormous industrial shift from pension plans to individual retirement accounts (which have only been in vogue since the 70s), which shifted the cognitive burden of retirement planning completely to millions of people overnight who had never received any education whatsoever on retirement accounts. Do you think this was done with the best interests of employees in mind?

    -The stagnating wages that have been propped up by credit because, believe it or not, more people than you think are using that to get by, not for boats or RVs but for food and rent and yes, cars that they need to literally get to work to survive. This is also why most people don’t contribute to 401Ks. They need the money to survive now.

    -The murder and disempowerment of collective bargaining efforts (unions) and the serious reduction in negotiating power of regular workers, which affects every part of the employment agreement – income, health care, retirement options.

    -The combination of massive population growth plus large jump in life expectancy plus broad health epidemics (obesity, drug addiction) plus lack of a comprehensive universal healthcare system, altogether resulting in increased collective costs and just flat out many more people who can’t save for retirement.

    -The gutting of regulatory bodies created to protect employees and consumers.

    -The continued campaign of misinformation perpetuated by particular political parties intended to disenfranchise the people and prevent them from even beginning to turn the very slow wheels of structural change that could begin to address any of this.

  4. See: https://www.forbes.com/sites/zackfriedman/2018/12/13/navient-student-loans-audit/#7af4ca1bb520
  5. See this explanation of the Brunner Test.
  6. Other generations are affected, of course, but I say Millennials because I think they’re at the moment mainly afflicted by this situation.

Author: ER Dude

Sick of your job? After a thirteen-year career, Early Retirement Dude fled corporate America for good. You can do it too! Visit http://EarlyRetirementDude.com or email EarlyRetirementDude@gmail.com.

9 thoughts

  1. “I mean…shit, Chad, you’re a grownup. You borrowed money from somebody else and gave your word you’d pay it back. Keep your word like any decent human being would.”

    I think you could’ve ended your post with that statement.

    It is that simple.

    There are so many ways of a person to not get into college debt that is is laughable.

    1st is to not go to college. You have a choice to go or not to go. IF you cannot afford to go then don’t. Simple. You can become a skilled trades person by learning on the job. Go into sales, just do something else.

    2nd get a job and save for college. Whoa, I know crazy but you can actually start saving for college when you get your first job as a teenager. You can even save for college during you summers off of school and working full time. You can even save for college after you graduate from high school, working and figuring out what you want to do with your life.

    2A)work full time and go to school part time. Sure it might take you a few more years to finish college but at least you won’t have student debt hanging over your head.

    2B) work full time and go to school full time. Yes it is a bit stressful, but it can be done. That is what I did and I’m almost normal.

    3rd use scholarships and grants.

    4th get a degree that will have a livable wage and allow you to pay for student loans i.e. engineering, medical, etc. NOT history, philosophy, etc. If you racked up $50k of student loan debt while getting your history degree, then you shouldn’t have been going to college to begin with because you’re an idiot. If you rack up $150k getting your medical degree specializing in neurosurgery, then you’ll be ok.

    Know what you can do with your degree. My 19 year old son is currently deciding on his major, he keeps mentioning if I get this degree I can make this much as a XXX . I of course tell him that he needs to get a degree in a field that he likes to do, cause ‘if you like what you do as a career you never work a day in your life’, ha ha. But that is really a conversation that the potential student has to have with themselves. “With my xxxxx degree I can expect to make $xx,xxx per year. CAN I LIVE ON THAT INCOME?” Google will give you quite a bit of information about how much salary different professions get paid.

    5th go to a college you can afford. Stay in state, go to a community college, stay at home while you go. I read about students that feel it is their right to go to the expensive private school, to live on campus, to experience the college life….no it isn’t do what you can afford.

    I know there is a counter point to these statements like:
    “The financial aid office just throws this money at us and tells us not to worry about it, they make it too easy to get the money”
    “I didn’t know the balance would get this high by the time I graduated.”
    “I didn’t know my basket-weaving degree wouldn’t get me a 6 figure a year salary.”

    If the student and their parent(s) don’t know about these things then maybe they shouldn’t be going to college as it is.

    1. Yeah. Impossible, or at least very difficult, to argue with what you’ve said.

      I struggle with moral relativism in this context. For instance: I’m teaching my daughter how to…well, there’s no other word for this…steal college textbooks. Mind you, though, I’m not telling her it’s the right thing to do. The lesson is that she has to recognize how/when she’s being ripped off in order to take the appropriate course of action, but she also has to recognize that actions have consequences and she has to accept them even when fighting back against injustice.

      Baby steps, right? But she’s becoming a crusader for LGBTQ rights and has participated in several protests around town. If at some point she calls me and tells me she’s in jail because she violated some kind of nuisance city ordinance designed to chill free speech, I’m gonna bail her right out and have her mugshot framed and hang it up in my house as a badge of honor. But if she gets a DUI? Sorry, my love…you’re gonna be drying out for a couple of days.

      Anyway…to cut it short, I have to believe that out there on the horizon is a point at which the seemingly parallel lines of “personal responsibility” and “fuck the system” converge. Certainly MLK would’ve agreed with that. Finding that point is the trick. Again, history is written by the winners.

  2. Great post.
    I agree student loans are for suckers, and end up being a financial anchor on the next generation.

    I was very lucky to avoid the promise of free money (everyone was willing to hand money out to students who didn’t fully understand the long term impact). I attended a local college and paid my own way by working part time. This ended up being a good on two fronts coming out of school without debt and job experience.

    Schooling costs have gone up faster than inflation since my time at college. There are a number of my collogues that have student loans on top of their mortgages and car loans. I can see how many people see debt as a way of life and maybe don’t have a choice.

    For my kids I have put some money aside in RESP’s (Registered Education Saving Plans) the Canadian version of a “529 plan”. I will also be directing them to avoid debt as much as possible. Of course I am not 100% against all student loans, if there is a high probability of a good rate of return like becoming a doctor or something I could get behind that.

    1. Good on you for getting ahead of the problem by saving for your kids.

      >f there is a high probability of a good rate of return like becoming a doctor or something I could get behind that.

      Tricky to teach a kid values without imposing values on them, eh? I say that because “good rate of return” obviously veers towards $. There was a line in Good Will Hunting something like, “Why would you pay a quarter million bucks for a Harvard education that you could get for fifty cents in overdue library fines?”

      At some point the people who have been at ground zero of the student loan crisis are gonna be the ones doing the hiring, and I’m hopeful that’ll finally be the end of the diploma requirement–i.e., when ability will finally trump pedigree.

  3. great post. I have some anecdotes below, but more importantly, have you looked into any of the policy proposals for “free college tuition for all”? I consider myself, based on my voting record, fairly liberal, but the idea of free college is so backwards I can’t even stand it. Why go and tell the most price-inflated industry known to man that the US government wants to give them a blank check? They need to fix the system before they start to literally fund the whole damn thing… but I’d love to see some more thoughts and analysis on that topic in the future.

    For my two cents: I think college (and student loan debt) is one of those things that has to be decided on a person-to-person basis. Not everyone needs to go, and not everyone should, but a lot of careers require that extra time learning specialty stuff. Not to mention, in some industries, college is the only current way to signal your human capital, so its pay-to-play. Is that fair, no… but until someone is smart enough to disrupt that industry and make a shit-ton of money offering an alternative, its the only game in town. Until then, ask yourself what are your strengths/weaknesses, interests, and how much more leverage does a degree give you, etc.

    I took on so much student debt it would probably make your head spin… but I was betting on myself, and what I paid for was not only a good education (i actually learned shit and didn’t just buy a diploma) but a great alumni network in my professional field (I couldn’t personally rely on daddy making a call to get an internship for me, so I found a college that would act as a step-dad in that regard).

    I refinanced/consolidated my student debt after building my salary, and I paid off my loans early, limiting interest paid. I have a great job in a field I enjoy, and I believe it required a degree from a known institution to get my foot in the door in the first place.

    That said, if this wasn’t the path I was on, I could have done it different. And that’s ok. But everyone should understand what qualifications they need for the work they want to do and what the true trade-off will be in real-life dollars.

    1. >have you looked into any of the policy proposals for “free college tuition for all”?

      Not as such, or at least not on the national level, but we live in a state where two years of community college has just been made free via lottery funding. My kid also goes to a STEM school where her senior year will be something like 75% college courses for credit. I support these models as components of broader policy.

      Sounds you took a very level-headed approach to building your career foundation. Congrats. You should teach that in a seminar. I’m serious.

      1. I like that your child’s school can provide college-level credit – furthermore that they can focus on STEM early, if they enjoy it and have an aptitude… Making progress through school before you even start it is a great way to arbitrage the system (I graduated a semester early, buy taking more classes at a time than my peers, which is a similar concept)…

        The the system that allows of 2 years at CC and then 2 years at state university with a 4-year BS/BA from the university is a fantastic value. I wish I knew about that when I was going to school.

        As far as seminars go – I’m not sure having lived this one existence for under 30 years (which includes reasonable levels of luck and privilege baked into the results). I reached out to my HS to see if they wanted me to do a personal finance seminar for the students, but a current teacher has already undertaken this… so good on them for that. (however, he happens to be a hardcore libertarian – so I fear a bit for the balance of information he will provide… oh well, I suppose some information is better than none).

        1. >I reached out to my HS to see if they wanted me to do a personal finance seminar for the students

          Awesome that you’d volunteer to take that on. I think everybody in the country oughtta be thankful to anybody who tries to increase our financial literacy.

  4. Interesting thoughts and comments, there is a lot to discuss. For me, this really comes back down to a few simple things:

    1) Too many people are absolutely clueless about finances, return on investment (ROI), compounding. Maybe its that they’re terrible at math. This leads them to make terrible decisions, like the $200k in debt for a comparative literature degree. So how do we give people freedom, yet also protect them from themselves? I’ve got a libertarian streak in me, and just don’t know.

    2) Perhaps if student loan originators had to keep their loans they would provide some sense and sanity to lending money. At least then, they’d want to make sure they got the return of the principle, not just origination fees (before selling off to Sally Mae or some other entity.)

    3) AMJohnson is right. People can do all the right things and still end up on the south side of the tracks–the system isn’t fair or forgiving. Other than picking the right parents, I don’t know how to fix this. If you want to make a difference, break the model and work to help level the field by hiring the kid with the slightly different background (academic, or other). The other thing we can do is teach our kids what is right and just, I echo your comment to Ed69 on when you’ll bail your daughter out of the pokey.

    Lastly, I googled the Wiccan Rede that you mentioned, and thought the second line summed up the dilemma on what to think about strategic default: ” Live an’ let live – Fairly take an’ fairly give”

    Keep up the strong work.

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