WHEN SUPPORTING A CAUSE UNDERMINES IT

Lee Siegel and The New York Times probably thought they were aiding a vital cause when the Times published Siegel’s June 6 op-ed, “Why I Defaulted on My Student Loans.” The underlying issue is important. Many of today’s young people bear the burden of huge educational debt in an economy that has not afforded the kinds of opportunities available to their baby-boomer parents, including Siegel.

Here’s the problem: Siegel did more harm than good. He made himself a poster child for the kind of moral hazard that first led policymakers to render student loans non-dischargeable in bankruptcy more than 40 years ago. It was a mistake then, and it’s a mistake now. But Siegel is exactly the wrong spokesperson for the issue.

Lee Siegel’s Pitch

According to his op-ed, Siegel financed his education with student loans, the first of which he obtained 40 years ago. But when his family’s financial hardship left him unable to pay the full cost of tuition at “a private liberal arts college,” he “transferred to a state college in New Jersey, closer to home.” Eventually, he defaulted on his student loans.

“Years later,” he writes, “I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.”

He urges others to follow his example: default.

Who is Lee Siegel?

Here’s what Siegel and the Times didn’t reveal.

Notwithstanding his transfer to a New Jersey state college, he obtained three degrees from Columbia University — a B.A., an M.A., and a master’s of philosophy. According to the HarperCollins Speakers Bureau website, he’s “an acclaimed social and cultural critic.” The mere fact that he appears on that site means that you should expect to pay big bucks for the privilege of hearing him speak. He has written four books and his essays have appeared in The Atlantic Monthly, The New Yorker, Time, Newsweek, The New York Times, and The Wall Street Journal.

In other words, he has an elite education that led to a lucrative career. He is exactly the wrong person to be the face of the student loan crisis — which is very real.

The Problem with Siegel’s Support

Siegel has now made himself a powerful anecdote for those on the wrong side of the fight for reform in financing higher education. Forty years ago, similar ammunition — anecdotes about individuals exploiting moral hazard — led to bad policy when student debt first became non-dischargeable in bankruptcy.

In the early years of the student loan program, the Department of Health, Education & Welfare brought a supposed “loophole” to the attention of the 1973 Congressional Commission on Bankruptcy Laws. Concerned about tarnishing the image of the new program, the Department didn’t want new college graduates embarking on lucrative careers to default on loans that had made their education possible

But there was no hard, numerical evidence suggesting a serious problem. Rather, media hype over a few news reports of “deadbeat” student debtors took on a life of their own. In 1976, Congress yielded to public hysteria and made student loans non-dischargeable in bankruptcy unless a borrower had been in default for at least five years or could prove “undue hardship.”

In 1990, it extended the default period to seven years. In 1997, the Bankruptcy Reform Commission still had found no evidence supporting claims of systemic abuse, but Congress decided nevertheless that only “undue hardship” would make educational debt dischargeable. That placed it in the same category as child support, alimony, court restitution orders, criminal fines, and certain taxes. In 2005, it extended non-dischargeability to private loans as well.

The Enduring Power of a Big Lie

Unfortunately, the anecdotes and unsubstantiated lore about supposed abuses that led to the current rule persist to this day. In a lead editorial on July 25, 2012, The Wall Street Journal perpetuated the falsehood that “[a]fter a surge in former students declaring bankruptcy to avoid repaying their loans, Congress acted to protect lenders beginning in 1977.” 

There was no such surge. It was “more myth and media hype” than reality. Now, Siegel has provided fuel for a new round of obfuscation to displace facts.

“Thirty years after getting my last [student loan],” Siegel writes, “the Department of Education is still pursuing the unpaid balance.” I hope they catch him.

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10 thoughts on “WHEN SUPPORTING A CAUSE UNDERMINES IT

  1. I agree. The guy is fraud and a selfish pig. I was not surprised to see The Times shut off comments to the article because they must owe this clown something.

  2. I agree wholeheartedly. He is not the face of the overwhelming student loan repayment crises. He says that he “had a choice” to give up is vocation and take another job that he didn’t want. Really? How may students weighed down with student loan debt today would fall down on their knees in gratitude for any decent job, dream job or not, that would help them pay their student loans? Yet, Siegel’s only solution was to quit paying his student loans, the very loans he used to get the elite education that allowed him to pursue his “vocation” at such a high level.
    I hope that the Dept. of Education is as pissed off about this guys arrogance in writing and printing his “story” as I am and forces him to repay every dime owed, including accrued interest!

    • “He says that he “had a choice” to give up is vocation and take another job that he didn’t want. Really? How may students weighed down with student loan debt today would fall down on their knees in gratitude for any decent job, dream job or not, that would help them pay their student loans?”

      Exactly. The student debtors I feel for are those who, despite “doing everything right” (i.e. going to the best college, getting good grades, internships, etc.) end up unemployed or chronically underemployed. Their choice is non-existent, hence the trap they find themselves in. For someone to turn down a job that could pay their loans simply because they want to be a “writer” seems to miss the entire point. The deal he made with the government was that he borrows the money for college then finds a job that’ll pay it off, not that he borrows the money for college then pays the loans off only if he’s a famous writer.

      So totally agreed – this guy is a terrible spokesperson. And what were his loans back in the day? Like, $5,000?

      Ugh. What a step back for the cause…

  3. We all neglect that it is the REST of us, we taxpayers, who get stuck with the debt from student loan. Such loans should not be dischargeable for ANY reason, unless you’re dead.

    • Um, not really. It’s not as if the treasury actually borrowed the money from the general public to make those loans. It’s shuffling numbers on a piece of paper as far as I understand it. (Except for the part where the schools get paid.) Not sure I’m being 100% accurate here, but there’s a lot of funny accounting and fuzzy math going on when it comes to student loans.

      The real problem is that when the loans are non-dischargeable, two things can occur: (1) the collections companies can demand that the government actually pays them for defaulted student loans (which does hurt the taxpayer, especially at the grotesque inflated balances that default causes), and (2) it cripples a generation would would, were it not for student loans, be able to start businesses, be productive members of society etc, and truly contribute.

      Non-dischargeable loans help nobody except the student loan lenders. End of story. It’s a giveaway to a corporate special interest.

  4. Jordan Weissmann at Slate describes Lee Siegel as an unrepentant leech. The real scandal about student loans is that federal policies for grants and student loans have fueled an explosive growth in educational costs for all in a well-intentioned but misguided effort to make college and graduate education more affordable for some.

    • Pretty much. When educational institutions realized that they could charge whatever and the government would write them a check in that amount, they took full advantage. Terrible, but unsurprising.

  5. BAPCPA worked all sorts of evil, but one of the worst was taking a fictional moral hazard (masses of graduates bankrupting out of their loans) and turning it into a REAL moral hazard (private lenders not having to worry about getting discharged in bankruptcy).

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