Author Topic: Avoiding Responsibility on Student Loans  (Read 5397 times)

kiwichick

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Avoiding Responsibility on Student Loans
« on: January 11, 2013, 05:04:02 PM »
Stories like this just piss me off. As comments can't be made on this news story, I thought I would vent by posting it here!   Surely I'm not the only person who thinks if you borrow money - no matter what it's for - that it's your responsibility to pay it back? This guy is moving to Australia so he only has to repay $3000 on an interest-accruing $110,000 loan, vs staying in NZ paying $10,000 on an interest-free loan. *bangs head against wall*

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10858618

kiwichick

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Re: Avoiding Responsibility on Student Loans
« Reply #1 on: January 11, 2013, 05:12:49 PM »
Thought I should note - in NZ you pay 10% of income above $19,084 towards your student loan. That means this guy makes about $120,000 a year, when the median income is around $37,000 I believe.

kiwibeach

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Re: Avoiding Responsibility on Student Loans
« Reply #2 on: January 11, 2013, 05:44:20 PM »
saw this too - infuriating, especially when, as you pointed out, he's on a high income in Australia, so could definitely pay it back.

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Re: Avoiding Responsibility on Student Loans
« Reply #3 on: January 11, 2013, 07:55:03 PM »
Stories like this just piss me off. As comments can't be made on this news story, I thought I would vent by posting it here!   Surely I'm not the only person who thinks if you borrow money - no matter what it's for - that it's your responsibility to pay it back? This guy is moving to Australia so he only has to repay $3000 on an interest-accruing $110,000 loan, vs staying in NZ paying $10,000 on an interest-free loan. *bangs head against wall*

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10858618

I don't understand the maths here...
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kiwichick

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Re: Avoiding Responsibility on Student Loans
« Reply #4 on: January 11, 2013, 10:59:10 PM »
Stories like this just piss me off. As comments can't be made on this news story, I thought I would vent by posting it here!   Surely I'm not the only person who thinks if you borrow money - no matter what it's for - that it's your responsibility to pay it back? This guy is moving to Australia so he only has to repay $3000 on an interest-accruing $110,000 loan, vs staying in NZ paying $10,000 on an interest-free loan. *bangs head against wall*

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10858618

I don't understand the maths here...

If you reside in NZ, then you pay 10% of your income above $19,084 and you also are not charged any interest.

If you live overseas, then you pay a lump sum based on the amount outstanding. For loans over $30,000 the minimum payment is $3000 per year. Plus you are charged interest on the loan of 6.4%. On a loan of $110,000 the interest comes to $7040, so the loan is growing faster than he's repaying.

gooki

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Re: Avoiding Responsibility on Student Loans
« Reply #5 on: January 12, 2013, 01:44:57 AM »
And it's moving up to 12% soon.

But yes I agree. He accepted the loan he should man up and pay it back.

Karl

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Re: Avoiding Responsibility on Student Loans
« Reply #6 on: January 12, 2013, 04:17:46 AM »
Good-morning,

Although I agree that one should pay back loans, it seems like we now have "world citizens" that clearly espouse a different norm.  If large organizations (e.g., airlines and pensions), governments (e.g., Russia, Argentina), and relatively well-known rich people (e.g., Donald Trump) feel that is acceptable to walk away from debt, then I sometimes wonder why more lower income individuals don't follow the provided models.

In my town, we have an ongoing neighborhood discussion.  A local, small manufacturer “sent the keys back to the bank” for a first building with a mortgage because a second, cheaper building became available.  Now, if this represents the norms for businesses (who are now legally “persons” in the USA), why should anyone raise a ruckus if I chose do the same thing and moved into a cheaper house across the street?  Based on my upbringing, my values won’t allow me to do it.  But…

Karl

marty998

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Re: Avoiding Responsibility on Student Loans
« Reply #7 on: January 12, 2013, 04:22:28 AM »
If he was educated in Aus and moved from Aus to NZ he'd never have to pay it back.
The repayment threshold is over $45k now and range from 4 to 8% of your adjusted taxable income. Interest accrues at CPI so it's a pretty sweet deal.

Basically if you die or never earn over $45k then you never have to pay back your higher education loans

@Karl, I've never understood this idea of just handing the keys in and walking away. If someone borrowed several hundred thousand from me I would chase them to the ends of the earth to get my money back. Banks should be entitled to do the same.

The Money Monk

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Re: Avoiding Responsibility on Student Loans
« Reply #8 on: January 12, 2013, 09:34:23 AM »
Good-morning,

Although I agree that one should pay back loans, it seems like we now have "world citizens" that clearly espouse a different norm.  If large organizations (e.g., airlines and pensions), governments (e.g., Russia, Argentina), and relatively well-known rich people (e.g., Donald Trump) feel that is acceptable to walk away from debt, then I sometimes wonder why more lower income individuals don't follow the provided models.

In my town, we have an ongoing neighborhood discussion.  A local, small manufacturer “sent the keys back to the bank” for a first building with a mortgage because a second, cheaper building became available.  Now, if this represents the norms for businesses (who are now legally “persons” in the USA), why should anyone raise a ruckus if I chose do the same thing and moved into a cheaper house across the street?  Based on my upbringing, my values won’t allow me to do it.  But…

Karl

I totally agree. I know this is about student loans not mortgages, but just to highlight the point, nobody thinks the bank is being an asshole if they take back your house if you stop paying. That's the contract.

So why is it looked at as being morally reprehensible when the buyer says "ok lets abide by the contract, I'll stop paying and you just take the house back".

People will say "buy you AGREED to pay!!!" Well, no. You agreed that if you stopped paying the bank would take it back. So what's the problem?

Generally speaking people do what you pay them to, so if the laws are structured so that this guy can benefit himself by doing certain things, why is it looked upon harshly when he does them? If I had his income I would just pay off the debt to be free of it, but I don't think its a moral issue, just a personal preference for freedom.

kiwichick

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Re: Avoiding Responsibility on Student Loans
« Reply #9 on: January 12, 2013, 01:52:51 PM »
The main reason this story is aggravating to me is not necessarily the fact he is avoiding paying debt, it's the fact he is blaming the government for his debt in the first place - like many other NZers seem to do - instead of taking ownership. He CHOSE to go to university and take out a whopping great loan. Studying political science and commerce, I'd estimate his annual fees at around $4000 a year - that means he likely spent an extra $13000 on living expenses (and probably overseas holidays and "stuff" like a lot of other students did back then before the rules were tightened). So therefore it appears he also CHOSE not to work while studying to pay the bills. He CHOSE to avoid the debt and let the interest accrue. How is that the government's fault?

Large organisations and governments walking away from their debt isn't OK and can't be used to justify Joe Blogs doing it as well. Two wrongs don't make a right. Maybe I'm just being naive here, but I'm very proud of the fact that when I got myself bogged down in a whole crapload of debt ($50,000!) I owned up, worked hard and paid that sucker off. I didn't blame the government for charging for education, I didn't blame my employer for not paying me enough, I didn't blame advertisers for enticing me to buy stuff.

Richard3

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Re: Avoiding Responsibility on Student Loans
« Reply #10 on: January 12, 2013, 02:10:41 PM »
The problem is the the rules are poorly set up to allow this sort of shenanigans to go on. The incentive should be to remain in the country not leave it. My suggestion would be a 2% extra charge on top of the interest if you go overseas with a loan. The loan was in the hopes you would stay in NZ and help grow the economy.

Full disclosure - I milked the student loan system too - invested some, spent some on travel. I paid it off though - six months after graduation I was debt free.


DoubleDown

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Re: Avoiding Responsibility on Student Loans
« Reply #11 on: January 14, 2013, 10:57:09 AM »

I totally agree. I know this is about student loans not mortgages, but just to highlight the point, nobody thinks the bank is being an asshole if they take back your house if you stop paying. That's the contract.

So why is it looked at as being morally reprehensible when the buyer says "ok lets abide by the contract, I'll stop paying and you just take the house back".

People will say "buy you AGREED to pay!!!" Well, no. You agreed that if you stopped paying the bank would take it back. So what's the problem?

Generally speaking people do what you pay them to, so if the laws are structured so that this guy can benefit himself by doing certain things, why is it looked upon harshly when he does them? If I had his income I would just pay off the debt to be free of it, but I don't think its a moral issue, just a personal preference for freedom.

I respectfully suggest you are conflating the loan agreement (the contract) with the collateral on the loan (the deed or "the keys" in familiar terms). The contract states unequivocally that you are required to pay back the loan, with interest, on a set schedule. The deed to the property is really just collateral to help insure the lender against loss for people who end up violating the terms of the contract  -- that is failing to repay the loan. It is not the case that you can just walk away and hand over the keys, and everyone is happy. You have violated the terms of the agreement when you do that, and the lender is just trying to cut their losses by taking the collateral and disposing of it. Banks are not house flippers or real estate agents. They don't want your house or to have to deal with it. They want you to honor the terms of the agreement and repay the loan.

From the ethical standpoint, it is all the rest of us who suffer when deadbeats walk away. The bank has to pass those losses on to the rest of us in the form of higher interest rates or charges. Not to mention depressing real estate values further, blighting the neighborhood with rundown properties, and so on.

I think Karl was speaking pretty much tongue-in-cheek, saying that their are some pretty disturbing high profile examples of people bailing on their debt, setting a bad and too-easy-to-follow example for us lower-profile people.
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DoubleDown

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Re: Avoiding Responsibility on Student Loans
« Reply #12 on: January 14, 2013, 11:08:51 AM »
A little tangential to backwards thinking on debt...

In the U.S. when the housing crisis hit, I called my bank to refinance down to the much lower rates that were available as a result of the crash. My loan to value ratio had fallen a little below 80/20 as a result of depressed property values. The bank absolutely, positively would not lower my rate, which actually would have only made it easier for me to honor the terms of the loan and keep repaying them as agreed if I had been in any kind of financial trouble.

I was told unequivocally that the only way they would lower my rate was if I STOPPED making payments for three months, when they could begin foreclosure proceedings and then I could take advantage of the government HAMP/HARP refinancing programs with guaranteed lower rates. But that was only if they got around to it; they said they were so backlogged it could take a year or more of me not paying before they'd get around to refinancing me to the lower rate. I told them I was happy to keep paying on time, I just would like to do it at the lower prevailing rates. No dice, had to stop paying to qualify. What a freakin' backwards incentive, no wonder so many people happily walked away from their loan obligation and it's taken so many years to only start recovering.
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The Money Monk

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Re: Avoiding Responsibility on Student Loans
« Reply #13 on: January 15, 2013, 08:18:50 PM »
It is not the case that you can just walk away and hand over the keys, and everyone is happy.

Um, except that you CAN just hand over the keys and walk away. Everyone may not be 'happy', but that is sort of irrelevant. BOTH sides are likely to be unhappy. It's not like a person who defaults runs away laughing with their pockets full of cash. They chose the more personally favorable of two outcomes, both of which will damage them financially.

The contract is that if you violate the loan's payment terms (for ANY reason) they take back the collateral. THAT is the agreement. That is how collateralize loan agreements work.  What's the difference between the person not making the payments because they died, lost their job, or 'strategically' defaulted?   I don't see the moral dilemma if the person didn't go into the loan planning on defaulting. If something changes and they act accordingly in their own best interests, what universal standard of conduct are you alleging they violated? 


From the ethical standpoint, it is all the rest of us who suffer when deadbeats walk away. The bank has to pass those losses on to the rest of us in the form of higher interest rates or charges. Not to mention depressing real estate values further, blighting the neighborhood with rundown properties, and so on.

First of all, what ethical standpoint is that?

And by what empirical standard does everyone else suffer when somebody defaults on a loan? Lowered real estate prices would be good for some, bad for others.  And a defaulted loan isn't going to magically make a property 'rundown' or a 'blight', that's a bit of a stretch.

Again, as long as the person enters into the loan with no nefarious intentions of gaming the system, and simply make a mathematical decision, congruent with the laws of the land,  when their situation changes, I don't see a problem.
« Last Edit: January 15, 2013, 08:25:07 PM by The Money Monk »

NumberJohnny5

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Re: Avoiding Responsibility on Student Loans
« Reply #14 on: January 15, 2013, 09:54:27 PM »
I don't think there's anything wrong with "gaming the system", long as it's completely legal.  If you can rack up $100,000 in student loan debts, and there's a completely legal way to only pay back $15,000, go for it!  How is it different than getting your student loan paid off (or forgiven, or whatever term is used) for doing some civic service?  Do X, only have to pay back Y, simple.  Yeah, I know that wasn't the point of the article itself (a greatly reduced repayment was nice, but it was due immediately and guy couldn't pay it immediately).  But if he'd saved the money required, hopped overseas and paid it off?  Fine by me.

As for walking away from a mortgage, it's simply a business transaction.  Contracts are broken all the time.  That's why there's penalties spelled out in the contract for what would happen.  For a mortgage, in some states it's simply that they'll take ownership of the house and kick you out.  In other states, you'll be liable for whatever shortfall there is (balance of $100k but house sells for $70k, they can come after you for the $30k difference).  The banks definitely went into the deal with eyes wide open, with their teams of lawyers going over everything (and if they're caught unawares, that's their problem).  Yes, the homeowner should go into the deal with eyes wide open too, but many don't have a dedicated team of lawyers on their side (at the bare, bare minimum you should read every single word of the contract, no matter how uneasy it makes them feel).

I would view walking away from a mortgage the same as quitting a job one year into a two year contract, and repaying any bonuses that had already been paid (and any other penalties that were outlined in the contract), at least from a moral point of view.  Really the same difference.  You agreed to do something, and also agreed that if you did NOT do it, then the other side would get some kind of compensation (in the case of a mortgage, a house; in the case of terminating employment early, repaying any bonuses and whatever other penalties).  Heck, you can even compare it to breaking a mobile phone contract early; you agreed to stay with Verizon for two years, then decided one year later to switch to T-Mobile; you call Verizon to cancel, and happily pay the ETF.  Important business people break contracts all the time and it's no big deal; why is it such a horrible thing when an average person breaks a contract (and only specific contracts at that)?

sheepstache

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Re: Avoiding Responsibility on Student Loans
« Reply #15 on: January 16, 2013, 02:02:15 PM »



From the ethical standpoint, it is all the rest of us who suffer when deadbeats walk away. The bank has to pass those losses on to the rest of us in the form of higher interest rates or charges. Not to mention depressing real estate values further, blighting the neighborhood with rundown properties, and so on.

First of all, what ethical standpoint is that?


The Kantian one, I believe.  "What if everyone did it?"  When banks set mortgage rates they include the risk that x% will default.  As x goes up, their rates and fees have to go up too to account for the greater risk.  Granted, it seems more like a zero sum game than, for example, the obese raising insurance prices for everyone, but this is assuming the properties are salvageable.  Half-developed development properties are probably lost money even in the big picture, same for abandoned entire neighborhoods that do in fact turn into blight areas which goes back to the "what if everyone did it" aspect.    I take your point that lowered real estate prices would be good for some, but it seems a little odd in light of our current recession having been partially triggered by a sudden drop in housing prices :)

The Money Monk

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Re: Avoiding Responsibility on Student Loans
« Reply #16 on: January 18, 2013, 09:55:24 AM »
I don't think there's anything wrong with "gaming the system", long as it's completely legal.  If you can rack up $100,000 in student loan debts, and there's a completely legal way to only pay back $15,000, go for it!  How is it different than getting your student loan paid off (or forgiven, or whatever term is used) for doing some civic service?  Do X, only have to pay back Y, simple.  Yeah, I know that wasn't the point of the article itself (a greatly reduced repayment was nice, but it was due immediately and guy couldn't pay it immediately).  But if he'd saved the money required, hopped overseas and paid it off?  Fine by me.

As for walking away from a mortgage, it's simply a business transaction.  Contracts are broken all the time.  That's why there's penalties spelled out in the contract for what would happen.  For a mortgage, in some states it's simply that they'll take ownership of the house and kick you out.  In other states, you'll be liable for whatever shortfall there is (balance of $100k but house sells for $70k, they can come after you for the $30k difference).  The banks definitely went into the deal with eyes wide open, with their teams of lawyers going over everything (and if they're caught unawares, that's their problem).  Yes, the homeowner should go into the deal with eyes wide open too, but many don't have a dedicated team of lawyers on their side (at the bare, bare minimum you should read every single word of the contract, no matter how uneasy it makes them feel).

I would view walking away from a mortgage the same as quitting a job one year into a two year contract, and repaying any bonuses that had already been paid (and any other penalties that were outlined in the contract), at least from a moral point of view.  Really the same difference.  You agreed to do something, and also agreed that if you did NOT do it, then the other side would get some kind of compensation (in the case of a mortgage, a house; in the case of terminating employment early, repaying any bonuses and whatever other penalties).  Heck, you can even compare it to breaking a mobile phone contract early; you agreed to stay with Verizon for two years, then decided one year later to switch to T-Mobile; you call Verizon to cancel, and happily pay the ETF.  Important business people break contracts all the time and it's no big deal; why is it such a horrible thing when an average person breaks a contract (and only specific contracts at that)?


This is pretty much what I was trying to say. I think you articulated it a little better than me. Like you said, I see nothing wrong with people making decision in their own interests.

The problem lies in the govt subsidizing these decisions, which distorts natural market equilibrium.

For example, its hard to get mad at a farmer for growing corn instead of something better, simply because the government is paying them to do it. We should be getting mad at the government for causing those distortions, and it is no different with student loans.

First the played with the system by not allowing people to be able to default on student loans at all, when they should have just allowed interest rates to adjust to reflect the aggregate risk of default. Now because nobody can default they have to come up with all sorts of measures to fix the issues that arise because of that, and those measures will cause more issues, and so on.

But I don't begrudge the individual for engaging in certain behavior because of obvious incentives. 

strider3700

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Re: Avoiding Responsibility on Student Loans
« Reply #17 on: January 18, 2013, 11:59:04 AM »
right now facebook is all abuzz because a HD containing the personal info on people that got student loans from 2000-2006 has gone missing from some governement office.  It's about half a million peoples info and more then enough to commit identity theft with.    Every 3rd post I'm reading is someone overjoyed because they think they won't have to pay back the loan now.   

Apparently people have no idea how loans work and how serious creditors will be about getting their money back...

MrChanticleer

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Re: Avoiding Responsibility on Student Loans
« Reply #18 on: January 18, 2013, 01:44:29 PM »
Every 3rd post I'm reading is someone overjoyed because they think they won't have to pay back the loan now.   

Apparently people have no idea how loans work and how serious creditors will be about getting their money back...

Why would they think that? It seems that someone would have to really be clueless not just about loans but about life to reach that conclusion. But, I imagine most if it is just wishful thinking.

strider3700

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Re: Avoiding Responsibility on Student Loans
« Reply #19 on: January 18, 2013, 04:39:39 PM »
1 harddrive with loan info on it means that noone knows about the loans right?   

This comes from a group of people who don't do backups at home and view loss of data in one location as meaning it's gone period no matter what.   technically illiterate but completely reliant on tech.

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Re: Avoiding Responsibility on Student Loans
« Reply #20 on: January 19, 2013, 08:55:13 PM »
First the played with the system by not allowing people to be able to default on student loans at all, when they should have just allowed interest rates to adjust to reflect the aggregate risk of default. Now because nobody can default they have to come up with all sorts of measures to fix the issues that arise because of that, and those measures will cause more issues, and so on.
The only thing securing student loans is your future earning potential. If it were possible to default on student loans, the cost of borrowing would be astronomical, if they could even still exist -- what's to stop literally everyone who doesn't want a mortgage before 28 from declaring bankruptcy after they send in the payments for their last semester of college?

The Money Monk

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Re: Avoiding Responsibility on Student Loans
« Reply #21 on: January 20, 2013, 12:02:07 PM »
The only thing securing student loans is your future earning potential. If it were possible to default on student loans, the cost of borrowing would be astronomical, if they could even still exist -- what's to stop literally everyone who doesn't want a mortgage before 28 from declaring bankruptcy after they send in the payments for their last semester of college?

The same things that stopped them before they made it impossible to discharge student loan debt; You do know you used to be able to, right?

There are lots kinds of unsecured debts out there, its not just student loans. The interest rate would rise to a point that reflects the aggregate risk of default. Yes it would probably go up, but it wouldn't be astronomical. This would cause colleges to lower their prices, which would allow more people to be able to afford it without debt anyway.


mpbaker22

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Re: Avoiding Responsibility on Student Loans
« Reply #22 on: January 22, 2013, 04:08:44 PM »
I've read everything, but I don't thing I understand it all, and I don't think I can respond to everything that was posted.

Here's what I think is insane.  This guy can't pay off $10,000 a year?!?  If I had $100K in student loans, I would be paying off at least $25,000 a year ... at a MINIMUM.
Whoever somehow calculated that he makes $100000 ... if that's true, it is insane that he can't pay it back.

On the ethical side - I think he has a moral commitment to pay it off if possible.  It's a little different with a mortgage because the bank will get the house if it goes bankrupt.  But with student loans, at least in the US, there is no collateral, so I think he should be even more obligated to pay it.

Regardless, this guy needs to start complaining about his inability to pay the loan and figure out why he's so retarded that he can't pay the loan.

kiwichick

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Re: Avoiding Responsibility on Student Loans
« Reply #23 on: January 24, 2013, 10:19:10 PM »
Oh he CAN repay the loan at $10,000 a year. It's just he thinks he shouldn't have to, so won't :-S