Tuesday, June 1, 2010

Angry Future Expat Explains Why You Should Run Away From Your Debt

Trolls who stop by our blog often blame students for taking out loans to get an education rather than the institutions and banks that allow 17-year-olds to take out hundreds of thousands in private loans without their parents' consent. I have already stated my opinion on this. Education should be low cost or free for academically gifted students. Citibank, Sallie Mae, Access Group, and the higher education scam are doing whatever they can to prevent this from ever happening. They use propaganda, cry foul, and play the blame game every time another tragic story surfaces to keep us from being united against fighting these companies. One of our readers said it perfectly:

Housing bubble crashes? Blame the poor folks who got scammed by the banks and are losing their homes.

Youth unemployment? Blame them for not having gone to college.

College grad underemployment and student indebtedness crisis? Blame them for
a) pursuing a major that you don't like,
b) going to a more expensive or higher-ranked school than the one you attended,
c) having the gall to believe they can achieve a higher material situation than their parents just by working hard and doing everything right (why do they feel so 'entitled' to be compensated for their efforts?).

Every time the mainstream media airs these very real problems, people jump to play the blame game.

For those of you who can no longer afford your loan payments or refuse to spend your entire life giving half of your salary to pay off your education expenses, The Angry Future Expat lays out a clear and compelling case against paying back your debt.

The simple fact is that, with the exception of a couple people who had their notes cancelled by the courts due to fraud, bad faith, a lack of standing, or other misconduct, no mortgage holder anywhere in the United States have ever received a government bailout. Period.

Rather, bailouts are all about protecting creditors, or the bondholders of creditors, by protecting their payment stream. For example, Fannie and Freddie’s exist to buy up so-called “conforming” mortgages, and then they securitize them and sell them to large institutional investors, such as pension funds, university endowments, etc. These investors are not, however, true investors because they are not adopting the risk of default. If a large group of mortgages in the securitization pool default, i.e. the people stop making the payment, the investors still get paid.

Now, the mortgage holder (homedebtor, “homeowner,” whatever you want to call them) still loses the house. Same with student loans, the securitized student loan is guaranteed by the government, so when the grad school grad can’t make the payments, it doesn’t matter to the “investor.” But the graduate still goes into default, has their wages garnished, gets hit with tens of thousands in fees and collection costs, and has to leave the county to have any chance of a normal life.

The bailouts are a one-way ratchet in favor of the creditors. They do not help the debtor at all – in fact because everything is guaranteed, it creates a perverse incentive for banks and finance companies to push ever-increasing levels of leverage (aka debt) onto those too stupid, too young, too desperate, or too optimistic to really understand what their getting themselves into.

Read the entire post here.


  1. oops - they're, not their (made the change on my site).

    Thanks for the shout out. But don't forget this suggestion!

    "Send Sallie Mae a photocopy of your ass and hop a flight to Brazil..."

  2. Posting from South American Internet CafeJune 1, 2010 at 5:33 PM

    Agree very much on all of these points. There is serious blaming of the victim going on. Granted we went into this willingly, but the road here has been paved with lies, misrepresentations, and platitudes. In law school, we call this kind of thing "fraud."

    If I were to not pay on my loans, what's the worst that would happen to me? I'm already unemployed, overeducated, and even if I played by the book, would have little chance of buying and house and other trappings of the "American Dream" that I was once sold. So what's the harm? Am I really going to be that much worse off? This is the question the millions of struggling people need to ask themselves. Who are you going to believe, your fellow struggling debtors, or the banks and institutions that got you here? Are you going to do what's ultimately best for you, or best for J.P. Banker's quarterlies?

  3. I don't know who this source is, and I'm unwilling to do the background research that is necessary to find out because, well, this is a comment on a blog. But it seems reputable enough for our purposes here.


    If you scroll down to the "Consequences of Default" bulleted list, there is a catalog of consequences. Most are either laughably irrelevant for law graduates (e.g., not being eligible for future financial aid, being ineligible for deferments) or pathetically tame (e.g., wage garnishment, which according to this list, is capped at 15% of your after tax, disposable income).

    I have to think you will lose your law license.

    That's not to say that mine is doing anything for me at the moment, but it sucked getting it, and so, if only for sentimental value, I'd like to keep it. That said, I'm willing to part with sentimentality considering the circumstances. At least I'll have a convincing way to assure a future non-legal employer that I will never leave them for a law job.

    Two things concern me, however. First, and it may only concern me because I'm uninformed, but, here it is: If wage garnishment is capped at 15%, does that apply even if there is a judgment entered against you? I have to think it must. But, obviously, if lenders can skirt the 15% cap by simply getting a judgment, then you're in for a world of hurt.

    I'm also concerned about a continuing default situation in which your credit is ruined beyond repair because the default persists year-on-year without coming to any sort of resolution, as you would in a normal bankruptcy situation.

    I'd like to point out, however, that I don't think the choice is necessarily "either/or". That is to say that I don't think the only options are repayment on the lender's schedule or some kind of income-based repayment plan on the one hand, and, on the other hand, default. Granted, you'll never be rid of these people, but as long as there is only so much water in the well and everyone has a bucket, if one takes it all, there's not going to be enough to go around. At some point, the lenders all just have to take what they can get, which means you can comply in a very technical way with monthly payments, even if you're only able to send each one of them a few yen a month.

    You might take a look at the link he provides on the same page to something he's written titled "The Horrors of Defaulting on Education Debt". Despite the title, which I scoffed at as well, he may (To repeat: "may".) be alright. Buried in the stories is this:

    "Judy’s got so few options that she’s drafted mock suicide notes as a form of dark humor: 'Hey mom & dad, I really love you, but life on this planet is so miserable as a slave to debt that I can no longer enjoy my time here. Every day is filled with hardship and misery and self-loathing. Therefore, I am choosing to leave this world. Thanks for trying, sorry I let you down.' Don’t worry, she’s joking. But it illustrates how oppressed many borrowers feel by their debt. They have no exit. Student loans effectively cannot be discharged in bankruptcy except for the most dire of circumstances. Even then the undue hardship test is applied in an arbitrary and capricious manner, and most borrowers who deserve a discharge do not get one. Most bankruptcy attorneys will no longer file an undue hardship petition because the chances of success are so slim."

    So . . . anyone want to start an awesome indie band?



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