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Not Paying Off Student Loans: A Dangerous Protest

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

I read a recent article about how student loan recipients are not paying off their student loans. Normally I would not be surprised. A million people are defaulting on their student loans every year. Almost half are expected to be in default by 2023. The best course of action would be to educate the people, teach them how to shop for colleges, receive scholarships, and to address how to pay off the loan over time. That’s not the movement that is happening though. Instead, people are gathering together and entering strategic default as a form of protest by not paying off their student loans. A subreddit called student loan defaulters post about how they are “fighting against student loan slavery.”

This is one of the movements that really irk me. The movement hurting people by suggesting that a ludicrous move could actually be wise. Also, “slavery?” I know debts can weigh you down and make you feel trapped, but student loans are completely voluntary, literally the opposite of slavery. I cannot believe I am saying this, but please stop comparing the student loan crisis to one of the worst systematic injustices committed in history.

Problems With Not Paying Off Student Loans

There are many issues with using “strategic” defaults:

  1. Government could garnish wages and tax refunds. The government can take 15% of your disposable wages and your tax refund. Legally speaking this is treating your income like it is not your own.
  2. Your credit will suffer. Why shouldn’t it? If you cannot show that you can pay off your loan, your credit should reflect that. It will be hard for you to win approval for loans, financing, utilities, and even employment.
  3. The lender could sue.
  4. Collection agencies will take over. Collection agencies can call you up and add fees to your loan making them more expensive.
  5. Cosigners will suffer too.

There are repayment plans for government subsidized loans in which can bring people out of default, but the damage from not paying off student loans can be drastic.

It Gets Worse

On top of groups of people refusing to pay off their student loans, there is a smaller group fleeing the US. One story is of a graduate who went to college less than an hour from my home town. He left the US to flee his student debt. He is not the only one. I hear of people who fled to India and say they ate food that made them have to go to a hospital. Some of them say it is tough, but that the standard of living is higher in a third world country than in the US.

That was from a reddit post, economists show that most people in America live off more than $50/day, almost half of the world lives off less than $5. I think people would be surprised of the invisible forces behind the infrastructure of a first world country and how much they actually progressed society.

I like the people protesting by defaulting on their loans more than the people who left. At least the government can step in take care of the defaulted loans by forcing wage garnishments, or even better, teach citizens how to pay off student loans and even minimize the debts of student loans. The government can almost do nothing legally to those who leave. I am comparing a person who does not want to take care of their problem, but at least stands by their problem to let the world know it exists to a person who runs away from their problem.

How We Got To Now

Student loans have almost always been issues to some people, but with the rise of education costs, the debts climbed. That is not an abnormal cycle when it comes to economics. It is just like a house or a stock. At first, not many have it, but then those who have it seem to advance, people want better lives and try to get what others have, and suddenly the value of the object decreases. Then the cycle repeats.

Let’s go through a little history. When student loans started in the 1950s only so many people went to college because the market did not demand it. Then the Cold War happened and the US was scared that it was falling behind in technology. At first scholarships were developed to have more students go to school, but that was not enough.

Student Loan Versus Scholarship

There is a problem with the student loan setup. The student loans are not scholarships. Scholarships usually work as a reserve in which is either granted to upstanding students, students who engage in some school activities such as work or athletics, and/or disadvantaged students. At first the reserve was proposed to provide higher education to all. That was a fantasy, the reserve would A) require too much money to be raised even if you squeeze blood from the stone of everyone, not just the rich, B) everyone in higher education including well educated professors to teach the students and the contractors who built the buildings for universities would have to work for free and provide all resources for free. Frankly it was a ridiculous idea when applied to literally everyone.

Instead, the government told banks and lenders that if they loaned out money for students to receive higher education the government would back, or bail them out. For a while that was exactly what lenders did. As recent as the student debt crisis sounds, there were signs of people having issues paying off loans since the 70s. The issue kept growing and growing to a point that the student debt is now $1.6 trillion throughout the nation and should easily exceed $2 trillion within the upcoming decade.

Lenders Did Exactly What They Were Supposed To

Ignoring how backwards student loan collectors are compared to other modern debt collectors, the debt loaners and collectors are doing exactly what they were supposed to. They lent out more money to students, especially those less fortunate, and more than likely those who should not have received such loans. To be willing to lend out more, the government continued promising the lenders that they will help get their money back. I explained this in more detail in a previous post.

People condemn the loaners and government for this, but they would have condemned them the same if the loaners and government refused to give out these loans. People complain about how loaners and collectors use wage garnishments and other “predatory methods” to pay back these loans. If loaners could not do this, the loans would be higher risk, and not many student loans would be produced. Remember, a degree is not a universal asset and has no face value.

Alternatives Are Not That Good

Some suggest other systems such as finding investors who would pay for their education and receive a percentage of their beneficiary’s income for a fixed number of years. I support this system. I do not think people understand that this system is supposed to be a win win. If the investor does not think you will be smart enough to graduate with a degree, or get a higher paying job they will not invest in a student loan because they will not make much if any returns.

For a post-graduate education, there are no federal subsidized loans. There are plenty of graduate student scholarships and fellowships, which I used. I am a very lucky one with these scholarships and fellowships. Some others are not as lucky. One of my colleagues was paid by their company, had to work for years. After they graduated, they kept working for the company with a promise that they would not leave the company for a certain number of years. Based off what I have heard they had no complaints about the company or their work. If someone offered some other job before their agreement was up, they could not accept it, even if it was their dream job.

Another came from Saudi Arabia. When they graduate, they must return to Saudi Arabia to teach. The number of years seems to change every time I talk to them, but it ranges from 6 – 12 years. Ultimately, many countries do provide excellent scholarships for their students, but at the price of restricting their near future. There are few students in the US who have to stay in the nation for work after a student loan. If that was a thing I do not believe people could “flee student loans” in India, China, or Japan.

Regardless The Government Is Not Doing Enough

When the missus and I were paying off our student loans we had to call the agencies behind them. These agencies never produced a site or anything where we could see the balance. Furthermore, they have issues with putting down the correct address. When me and the missus called them to receive some information, they said they sent us this information… to the wrong address. I was with my wife when they received the information, she did not give an incorrect address. Something similar happened four times to us.

The government has an issue with transparency. This could be solved by having a user-friendly website.

There Will Be A Change In Education In The Future

I do not think it is likely the government will truly forgive student loans, especially not the ones in default. Regardless, the government will see the effects of the payments for student loans (or lack thereof) and will try to change policies. This may include better payment plans and maybe even some aid, but they will also change the student loan process. Fewer people will receive student loans for higher education, whether they would be worthy of one or not. Regardless, we should expect a change in the number of people receiving a higher education and how they receive it. They may require people to even stay within this nation or their states.

Final Thoughts

Student loans are debts. Debts are legal obligations to pay some lender back the money they lent to you, most of the time with interest. No one would lend out money if these loans could be broken. These loans can be renegotiated, and frankly they should. Some simple changes in the system could improve the payment process. As the beneficiary of a student loan, you have an obligation to pay off this debt and that will only change under extreme circumstances such as fighting for our nation and being disabled somewhere along the line.

You should do everything you can to pay off your student loan. I know it sucks, but it is also a rewarding process. Not paying off your student loan is not a wise option. You could lose many benefits including social security. You could lose your wages. But more importantly, if the government provides some student loan forgiveness, they may not provide you with it if your loan is defaulted. Removing default of a student loan is not simple so not paying off your student loan could be the worst mistake of your life.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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