Student loans and moral outrage
This week I’m fascinated by the issue of where student loans live on the spectrum of moral outrage versus sympathy, which I’ve been discussing with my friend Martha Poon recently. It’s also a very timely issue.
Let’s start on the sympathy side of things. The Corinthian 100 students, who were largely sympathetic figures organized by the group Strike Debt, decided to refuse to pay back student debt they accrued from going to Corinthian College, which was charged with all kinds of false advertising and fraud by, among others, the California Attorney General. I wrote about these protesters back when the group was only 15 large.
Just yesterday Education Secretary Arne Duncan announced that their debt would be forgiven, with certain caveats, that the organizers complained about. Indeed the forgiveness is not automatic, and the paperwork looks to be onerous, or even undoable, for the ex-Corinthian students. Even so, what’s interesting to me is Arne Duncan’s comments to the New York Times:
“You’d have to be made of stone not to feel for these students,” he said. “Some of these schools have brought the ethics of payday lending into higher education.”
On the other side of the spectrum, we have Lee Siegel’s recent New York Times opinion piece, where he explains his decision to default on his student debts. My Slate Money co-host Jordan Weissmann called him an “unrepentant leech” on his Slate response piece, noting that Siegel got a B.A., an M.A., and a masters of philosophy from Columbia University before deciding that his goal of being a writer didn’t jibe with his student debt, so why not just default.
This is a general trend when you talk to most people about student debt: the moral obligation is generally there, you need to pay it back or be considered a bad person, unless the circumstances are extreme, which means you can give evidence that the debt itself is fraudulent.
But there’s a third way of thinking about these things, which I picked up from finance (where, I like to say, you “learn to think like an asshole”). Namely, that there’s no morality attached to debt at all. I saw bankers and hedge funders defaulting and “renegotiating” debt contracts – especially things like long-term rental agreements – when things changed. It wouldn’t even be fair to say that they did it when they “couldn’t” pay the money they owed, because the accounting is so slippery in large companies. It was more like, they knew their lawyers were good, and they knew the other side knew that, and therefore they simply wouldn’t pay more than a certain amount that the other side would get in a dirty lawsuit that everyone wanted to avoid.
In other words, debt contracts, in the context of high finance, have been entirely removed from their moral roots. By contrast, the moral weight that individual consumers attach to what are tiny little contracts in comparison seem kind of random and quaint. Or are they?
It makes me want to conduct a thought experiment. Namely, what would it look like if we consumers thought of our debt in non-moralistic terms, like they do in finance? Would we even be able to do that? A test case is this guy, a failed condo developer profiled by the New York Times. Here are a couple of critical details:
The lender, Bank of America, had tried to foreclose after Mr. Rath stopped paying, but amid the craziness of the mortgage meltdown, it could not prove it was entitled to the property. Despite the bank’s pleas that Mr. Rath was seeking a “windfall,” a judge nullified the debt last year.
Mr. Rath has been renting out the condo for $10,000 a month since moving his family in 2010 to Connecticut, where they have taken up sailing full time. After spending this past winter in the Caribbean, the family is planning to sail to Europe this summer on a 55-foot Hanse 545 racing cruiser, before circumnavigating the globe.
Yeah, so, in other words, I’m not sure we can do it.
Even so, I’m interested in pushing ourselves to take a few steps towards it. I think it would be interesting to consider the effects of a widespread student debt strike, even if a bunch of those who would be involved are less than perfectly sympathetic. As Lee suggested, such a movement could result in more affordable college tuitions, a much more skeptical Department of Education, and a less commodified concept of social mobility.
Moreover, I think burdening young people with extreme debt is bad for the country, and especially bad for their ability to make good decisions about what to do with their lives. I’m all for a national discussion on this with the debt morality taken out.