Yesterday morning I got an email from a young aspiring journalist who wanted to know if a master's degree was worth it. His plight was pretty familiar: Go deeper into debt in a gamble to give your career a push, or keep on the same path, working a job while trying to cobble together a real-world education equivalent to an advanced degree.
I gave him the usual spiel I trot out when I get emails like that: Go back to school, take a chance! Then, as soon as I'd finished patting myself on the back for taking time out of my day to dole out life advice to a stranger, I was hiding in the back of the office, whispering to a representative from FedLoan Servicing through my cell. My payments had just inexplicably increased from $70 to $1,100 a month, and I was only able to talk them down to $186—an amount I still can't really afford considering the insane cost of living in New York City, where you basically have to pay for every breath you take.
I usually try to forget that I'm almost $100,000 in debt as a result of my education (which is difficult when you have to dodge calls from creditors), but in truth, I don't have any regrets. If I hadn't gone to school, I'd still be an Office Depot employee living at her parents' house in Central Florida. Sure, I'd be financially solvent, but at what cost? Access to higher education might be criminally expensive in America, but if you're a kid from redneck country with blue-collar parents and no trust fund, these loans can offer a path to a new city and a life outside of what you were born into.
I'm far from the first person to make that mental calculation. Over the weekend, the New York Times published an op-ed that essentially advised people to default on their student loans. In it, Lee Siegel, a writer and cultural critic with three degrees from Columbia, argues that having poor credit isn't really a big deal, and imagines a rosy future where everyone followed his example:
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. Instead of guaranteeing loans, the government would have to guarantee a college education.
This essay got hit with a fair amount of backlash, probably most notably from a Slate piece that called it "deeply irresponsible" and suggested the Times apologize for telling readers to "pickpocket the government." Writer Jordan Weissmann went on: "Astoundingly, Siegel never mentions, nor demonstrates that he understands, the fact that in most cases of default the government can simply start garnishing up to 15 percent of borrowers' disposable wages directly from their paychecks."
Not knowing what to think after that, I did what my young journalist friend did and sent off a missive to someone I thought might have an answer about what I should (or shouldn't) do with my life.
Heather Jarvis is a self-proclaimed student-loan expert. According to her website, she graduated from Duke Law School with $125,000 in loans and has been an advocate for borrowers ever since. "I think it's oversimplified when people take the position of 'people gotta pay what they owe,'" she told me. "It's much, much more complicated than that. When we find ourselves in situations where there isn't enough money to pay what's due, it's important to be informed about the way the law works and the options that are available." Here's what advice she gave me about owing the government the price of a house, and what she would tell a kid thinking about signing on the dotted line for the first time.
Related: President Obama, VICE, and US Students Talk Student Debt Issues in Roundtable Discussion
VICE: So let's cut to the chase. I'm almost $100,000 in debt. Why even bother trying to pay that back?
Heather Jarvis: The federal government has extraordinary collection powers. They can garnish wages without a court order, they can seize tax refunds, even intercept a portion of government benefits including Social Security. They can and do—literally do—pursue debtors to their graves. I think anyone who knows about debt knows that the government is the most persistent and effective collector. I think as an individual who's considering their options, defaulting on student loans is a dramatic decision that will have significant negative consequences.
I'm still not sold. What would happen if I just never made a payment again?
It takes nine months for a federal student loan to go into default. You have to not make a payment for 270 days. And after the loans are in default, they are typically sent for collection to the private third-party collection agents. It escalates at that point. There are significant penalties and fees—as much as 18 percent of the balance, which is a lot of money. Then the process continues. The federal government doesn't often sue, because they don't have to. But they will if they think it will get them access to other assets.
What if I literally can't afford my payment because I live in a city that literally eats money, but I don't believe having my paycheck seized will help the situation?
People should first pay for their housing, and their food, and their transportation, and their utilities. They should then start looking to prioritize their debts, so you would wanna stop paying your credit-card bills before you stopped paying your federal student loans. You would wanna stop paying your private student loans before you stopped paying your federal student loans.
One of the harsh realities for us as borrowers is that although federal student loans have more flexibility than a lot of kinds of debt do, they don't take cost of living into account or people who have extraordinary expenses like high medical bills. All they care about is your adjusted gross income. I guess I would say that your option to pay 15 percent or 10 percent of your discretionary income is much better than what people used to have to deal with.
The student-loan scheme is extremely complicated and convoluted and tricky to navigate, even for sophisticated and educated borrowers.
You're telling me I have it better off than people used to have it? That's dark.
Income-based repayment became available in 2009 right after the bottom fell out of the economy. Before that, there was no way you could pay less than the interest that was accruing on your loans every month. Now if someone makes like 40 grand a year, they can pay something like $300 a month, and that is manageable for most people who don't have special circumstances like living in Manhattan—which I guess the policy position is that if you owe that much money, you can't afford to live in Manhattan, period.
What if I have some sort of big windfall at some point, but it's not quite $100,000? Like I win the scratch-off jackpot or get an inheritance from a long-lost aunt. Should I put a big chunk toward the principal, or just keep making the bare minimum payment forever?
If you make payments based on your income for 25 years and there's still a balance remaining, the balance is canceled. There is an end in sight.
See, this is the thing. One of the things that's super frustrating is that the student-loan scheme is extremely complicated and convoluted and tricky to navigate, even for sophisticated and educated borrowers. It is absolutely bizarre in its complication, and it gets more complicated every day. So the best circumstances for someone in a situation like your own is to make payments based on your income for 25 years, expect some cancellation, and then also to be forewarned and prepared that under current law that canceled amount is taxable under income to you.
I feel like this should be common knowledge. Why haven't I read this?
It's too complicated to make for a decent story or decent reading, because it's really detailed in a way that can be really cumbersome. It's just not well understood. I think people tend to frame the questions and the debate in really stark terms. It's more cut and dry from a policy perspective that way, but that's not really the deal.
So was that New York Times op-ed writer a jerk?
There was some conversation within Occupy Wall Street about organizing people to default in mass, which really would be a way of protesting and being activists and sticking your neck out. You don't default on your loans to escape on responsibility or make things better for yourself—in fact, you make things worse for yourself and it's like an act of martyrdom for the cause to draw attention to the high cost of education, which really is the problem.
But he wasn't really making a moralistic argument as much as he was saying, "Having bad credit isn't a big deal." That seems like terrible advice based on what you're telling me.
It depends on your goals and what you value and what risks you're willing to take. When it comes to federal student loans, they will get their money and never leave you alone. And if you live off the grid or whatever that might be OK with you. But if you're someone who wants to have a more mainstream life financially in terms of being able to do things like qualify for mortgages, you might someday care about that. And I guess what I'm saying is debt to the federal government is not the same as debt to a big bank—which does have limits on their ability to collect. And in the end, it is only money. They're not gonna put you in jail or take your children away, thank God. You can pay or not pay, but I think people should be really informed before they make any such decisions.
What do you suggest to an 18-year-old kid thinking of taking out a loan—don't do it? Go to community college instead?
I would definitely say people should think carefully about how much they can afford and should give strong consideration to the less expensive educational options that meet their needs and goals. I think it's very difficult though to put that on the backs of people who are making these difficult decisions often when they're young.
All the research does continue to show that you're better off having an education than not. If you complete a program and have a degree, you're better off financially. You're more likely to work, you're more likely to be paid well, in spite of the student-loan debt. Obviously the debt diminishes the financial gain, but it does not erase it by far. Most of us would be much worse off without the education and the student loans than we would be with the education and the student loans. Now, of course, if we could have the education without the student loans, we'd be even better off. But that's not an option. If you don't come from a family of wealth, you need to access education somehow if you're going to have any shot at having the best kind of jobs and life. Most people are not Mark Zuckerberg who could do it without education.
But the most expensive education is not necessarily better than less expensive alternatives, and people tend to forget that the student loans permit us to pursue an education that we really can't afford. I think the idea that young people are supposed to be able to weigh that kind of significance—it's foolish to think that they could.
UPDATE 6/10: An earlier version of this article erroneously implied that Freddie Mac was involved in providing student loans. This error has been corrected.
Follow Allie Conti on Twitter.