You Can’t Get Blood From A Stone

17 Feb

I wasn’t planning to blog today, but this popped up in my Facebook feed.

If the article is taken at face value, a man was arrested at his home last week for a $1500 federal student loan he received in 1987. The article goes on to say that the US Marshals have 1500-2000 warrants for people who haven’t repaid their loans.

A second article popped up while I was reading the first here. It doesn’t make the situation much better – the Deputy Chief insists that the whole situation could have been avoided if the man had paid his $1500 outstanding student loan from 1987 and cooperated with the first two marshals on the scene. Leaving aside the former (the man insists that the marshals didn’t identify themselves), it does raise a very important question. How exactly is he meant to pay?

In fact, the sheer absurdity of the situation has me raising eyebrows. I am no expert, but a couple of commenters on the net asserted that the cost of the whole affair (so far) is just under $30’000, far in excess of the $1500 he owes. Am I missing something? Or is someone stupid enough to believe that the cost of arresting someone (and imprisoning them) is lesser than writing off the debt? The only explanation that makes sense, as far as I can tell, is that this is intended as a warning shot to every other debtor in the country. Pay up or go to jail.

So I did a net search and discovered this article, which asserted that the story was a little more complex than suggested. The man hadn’t shown up in court, etc, etc. (And he was ordered to pay back costs, though nothing like the extreme figure I mentioned above.) The article concludes by advising students to work out ways of repaying their loans before matters get out of hand.

But this runs into a very simple problem. A newly-graduated student, as I discussed before (here and here) is unlikely to be in a position to pay. I have no idea what the rules are in the US, but in Britain you have to earn above a certain threshold to pay back your debts. I certainly couldn’t pay them back myself when I had a regular job. A newly-graduated student trapped in Starbucks, selling lattes, or serving burgers at McDonalds is not going to be able to repay her loans. Sue her? She probably doesn’t have anything worth the cost of suing her. Put her in jail? Putting her in jail is going to cost the taxpayer a great deal of money, for what? Even if you set up a work camp and put debtors to work (doing what?) I doubt it will repay the loans, let alone the cost of setting up the camp and putting debtors in it.

So what can reasonably be done about this ever-expanding bubble?

Well, for a start, you could stop expanding it by shovelling more and more money into the bottomless pit. Fees have been rising, at least in part, because students can borrow money from lenders to pay the universities. The universities don’t care because they get their money first, but everyone else should be worried. Students may discover that their exam results aren’t worth the paper they’re printed on, while lenders may discover that they can’t get their investment back before it’s too late.

Really, if you’re in a hole, the first thing to do is stop digging. But it might be too late for that.

12 Responses to “You Can’t Get Blood From A Stone”

  1. Brian Wheeler February 17, 2016 at 8:01 pm #

    In the USA it is illegal to jail someone who is unable to pay their debt. However if you have a court appearance and don’t show up then you would have a warrant put out for you for failure to appear. It is the same reason people who don’t pay their traffic ticket in the US are put in jail.

    There is a exception though, if the Judge believes you can pay a debt, but you are unwilling to pay then he can put you in jail. This normally only applies to court fees and such and not other debts like student loans. A lot of time however judges put people illegally in jail.

    In the US if you have a loan sponsored by the US Government then you must start repayment 6 months after you leave University. If you can not pay you should get in contact with the people who loaned you the money. If you do not have a job that you can afford to pay the full payment there are income based options for payment. However if you ever miss a single payment on any student loan all the programs are no longer available to you.

    Courts can also garnish your wages, however the most they can ever take is 15% of what a person owes.

    • shrekgrinch February 17, 2016 at 11:50 pm #

      I think that it depends on who you owe the debt to.

      Private debt holders can go to court to get an award to collect the debt and damages, but if you don’t show up the worse that happens is that you lose by default, usually. Then they can have the sheriff come after you to grab your assets or garner your wages, but not haul yourself into jail.

      Furthermore, there is a statute of limitations defined in each state the limits how long a debt can be valid. 1987, no way could they go after him now even if wanted to.

      This guy defaulted on the government tho. Even though student debts back in 1987 were made by private lending institutions, those that defaulted were covered by the government 100% and the government ended up with it. Clearly the rules are different in these cases.

  2. Don Miller February 17, 2016 at 8:08 pm #

    There is a deferrment process in the US for people not making enough money to pay back their student loans. But you actually have to apply for it. You have to provide proof on income and do some paperwork.

    This guy got his loan 29 years ago. Has been ducking collectors for decades. He recently was served a lawsuit over his failure to pay and didn’t show up for court. They arrested him for a Failure to Appear in Court. Not Failure to pay his student loan.

    This isn’t some kid, just out of college, working his first job, and boom, arrested for failure to pay his student loan. This is a hard core student loan deadbeat.

    If he had paid $12.07 per month since he got the loan 29 years ago, it would have almost been paid off ($1500, 30 year payment, 9% interest). And he wouldn’t have gone to jail.

    For $19 a month he would have paid it off in 10 years.

    Yes, in hardship cases, they will spread student loan payments over 30 years

  3. shrekgrinch February 17, 2016 at 11:52 pm #

    There is something like 80 million Millennials in the US. A good portion of them have worthless college degrees that they owe outrageous amounts of debt for.

    What are they going to do? Imprison the 30 million or so who fit in that above situation?

  4. Joel Li February 18, 2016 at 6:05 am #

    Would it not be easier and much more meaner to just mark him as a defaulter in his credit scores.

    Cheaper for government but oh so much trouble for the defaultee. Which will probably make the person start paying up.

    • shrekgrinch February 19, 2016 at 7:34 pm #

      That doesn’t stay on your credit score forever. Like 5-7 years, tops.

  5. Robert Burnham February 18, 2016 at 7:33 am #

    It has been 29 years that he has owed the $1500. . . if he had paid $52 a year he would have had it paid off. How much did he spend on beer, wine, going to the movies, cable TV, etc each year since 1987? I think it is safe to say that it was probably more than $52 a year. Why should the people forgive his debt?

  6. Anarchymedes February 18, 2016 at 9:37 am #

    ‘So what can reasonably be done about this ever-expanding bubble?’
    Well, if there was anything good in the Soviet Union, it was this: after your graduation (normally, an equivalent of our Master degree: five years), instead of repaying any debts for your education (which was legally free: I don’t count the bribes), you’d have to go and work for three years, wherever the Government (which was, naturally, the only sponsor of anyone’s education) wanted you to be. Sure enough, it usually was a s**thole, and the job was crap: something the migrants – the visa slaves, as I heard them called – are used for here. But after you’d done your three years, you were on your own (well, with all other stupid Soviet strings attached, of course, but that’s beside the point).
    The point is, here in Australia quite a lot of people wouldn’t mind something similar – as an option, not as the only choice. Some said they were prepared to slave away for their sponsors even longer: for ten years (one bloke told me). And the sponsor doesn’t have to be the Government, of course. A few old-timers remember something like that being attempted in the 1960s, but later dropped.
    I think I know why it was dropped: it seems that we’re dying for some capable hands here, and would trade them for the huge surplus of affluenza-suffering brains who want only to manage, not to work. 🙂

    • Lindsay February 18, 2016 at 9:59 am #

      I was discussing the same thing with some friends not long ago. It does not seem too difficult to set up a scheme where after graduation a person works for say 5 years in a position of the governments choice in return for cancelling their HECS debt. Remote and undesirable locations would get doctors, teachers etc. and the graduates would get valuable experience as well as working off the debt. Some of them may even like it and decide to stay.

  7. Robert Burnham February 18, 2016 at 6:23 pm #

    The U.S. military has the “G.I. Bill”. It has changed over the years, but basically if you do a minimum of 36 months of honorable service, they will pay for your college education. The current rates are different than what it was 40 years ago, but it includes tuition, a living allowance, and fees. Back in the early 1970s it was a flat rate. . . $270 a month and for every month you served honorably, you would receive 1.5 months of the G.I. Bill. So if you were a draftee for 24 months, you received 36 months of benefits and if you were an enlistee for 36 months, you received 54 months. $270 doesn’t sound like much, but it paid for my tuition and room and board for my bachelor’s degree and all but $1 of master’s degree tuition.

  8. Big Ben February 19, 2016 at 1:11 am #

    Okay, I’m gonna get up on my curmudgeon soapbox for a moment … even though I’m not yet 50. What’s the low age limit for curmudgeons?
    College / university is the biggest SCAM of the last fifty years. You think the Wall Street shenanigans, recent housing bubble and the bank hijinks cost the pubic a fortune? All of them combined are a drop in the bucket compared to the financial drag that’s coming over the next several decades as a direct result of overwhelming student debt. I’ve read a few articles predicting that it’ll be over ten trillion by 2050. How many zeros is that?!
    After all, if these new adults can’t afford to buy a house (and everything associated with that), a new car, or even a couple of nights out per month, then the overall economy will start to slow. More, slow more!
    And for what? The author hit the nail on the head – go to school for four years, spend fifty grand, all so you can hang a twenty cent piece of paper in a cheap frame on your wall and go to work saying, “Would you like fries with that?”
    I guess I lucked out. All I’ve got is a high school diploma and an honorable discharge from the Army and I’m a successful, self-made small business owner. Probably the last generation that’ll be able to be successful without that so-called mandatory twenty cent joke hanging on the wall.
    Maybe if more folks stopped expecting something for nothing … Do our colleges and universities no longer teach kids how interest works and what a trap debt can be? I seem to recall learning that in high school.

  9. Don Miller February 19, 2016 at 8:23 pm #

    It occurred to me that people in other countries might not understand some basic information about Student Loans that most US people know.

    Almost all student loans are Government guaranteed loans. Meaning the US Government would be on the hook is someone defaulted.

    So, the US Congress pass lots of laws to prevent defaults. 1. You can’t declare bankruptcy on student loans. 2. They can withhold tax returns to pay for student loans. 3. Many debts can go stale and have a Statute of Limitations for collections. Not Student Loans, they are forever. 4. Any student loan debt owed when you die is paid by your estate. If your estate is not large enough to pay your balance, that is the only way the Government will pay a guarantee to your creditors. Your family that was going to inherit something to survive on, so sorry, they will have zero

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