Tuesday, June 14, 2011

Some reflections on student loan debt

I have a mixed set of feelings about Megan McArdle's Atlantic column. Sometimes I could not disagree with her viewpoints more (mostly when she rails against government spending without a good discussion of what a "public good" really is). Other times I think she does a very good job of thinking through the issues. A recent case in point is her posts on student debt. In these posts she does a really commendable job of pointing out two things that are important:

1) It is very hard to settle student loan debt and the lenders have ruthless policies to singificnatly increase what you owe

2) There is a problem with a social norm that makes default a trivial event

That being said, I must admit that the elephant in the room is probably the increasingly draconian state of US debt law. The stories of police raids over student loans (actually not owed by the person being put in handcuffs) may be missing important facts but the general picture is not pleasant.

But, at a more prosaic level, the inability to fail has a lot of serious issues. I have little sympathy for Elie Mystal , per se, but I do see a broad culture of making things worse when one experiences adverse life events. If one should end up unemployed they may well have no health insurance, limited access to bankruptcy for large debts (student loans), and have issues with basic necessities.

I am all for civic virtue and personal responsibility. These are both things that I wish we had more of. But I worry that we are creating a culture of cascading failures where one thing going wrong can set off a series of disasters. In a world with long term unemployment, is this really a good direction to be going?


  1. Joseph,

    You're a decent man and your reward's in heaven, but I think you may have taken things a bit too far in trying to be fair to McArdle here. Though she does acknowledge some common objections to her argument, her attempts at rebuttal are, well, McArdlean.

    Take this for example:

    "This argument makes even less sense outside of the mortgage context. At least there, people could argue that commercial borrowers do it (sort of, except that non-distressed borrowers don't stop paying their mortgages; they negotiate a giveback of the property. if they just stopped paying, they'd be in default, with all sorts of repercussions for their other debt.)"

    In other words, commercial borrowers engage in the same behavior but manage to avoid the consequences. Only McArdle could see this as a defense.

  2. I'd agree that this is an extremely weak argument. In the ideal world I would argue that we should hold corporations to the same standards as we do individuals.