Generation Greed and Student Loans

Yet another alleged scam is in the news. One that is, frankly, no surprise. Nor is it a surprise that the alleged ringleaders were from Long Island, where a grifter culture seems to have taken root that is draining both Nassau and Suffolk Counties and New York City alike. So what is the likely outcome of this investigation? My guess is that most of the older perpetrators will get away with it. And as a result, in an over-reaction, future generations of legitimately disabled New York City police officers and firefighters will have difficulty getting the benefits they actually deserve. To make up for the financial damage that older generations have caused. Consistent with 1,000 other examples all across our society.

Rather than write about something that is already in the news, lets move on to a possibly related subject. Every wonder why the terms of student loans are so draconian with regard to adjustment in bankruptcy? Why young borrowers who get in over their heads and face setbacks are essentially sentenced to a life of indentured servitude without parole? You guessed it. The system is beating on them in reaction to another generation that set out to beat the system. Generation Greed.

In the 1960s and early 1970s, many students received grants instead of student loans. Later, as fiscal conditions were tightened, student loans took the place of grants. But among many of the “financially shrewd” of the time, it was considered a “good move” to live off the land for a few years (or attend graduate school), default on the loans, declare bankruptcy, get rid of the debts, and start a high-paid career debt free! Having milked the system for all it was worth. The federal and state governments – taxpayers -- ended up paying for the defaulted debt. More and more the strategy became common knowledge. And more and more people used it.

Then the deep early 1980s recession, with its double-digit inflation and double-digit unemployment, hit. That is the economy I graduated into. Many young people were unemployed for years, and some sought to declare bankruptcy and get rid of their student loans using the tried and true strategy. Including one Marie Brunner of New York. She was a little late to the party, and New York State – via the New York State Higher Education Services Corp. – refused to go along. The bankruptcy court case went to the United States Court of Appeals, were Brunner lost.

Brunner claimed she couldn’t pay back her student loans because the recession had made her unemployed, the same claim many young people have made in recent years. But the judges concluded that she might be able to pay back the loans later, and thus should not be able to walk off debt free. “Predicting future income is, as the district court noted, problematic. Requiring evidence not only of current inability to pay but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time, more reliably guarantees that the hardship presented is ‘undue.’”

More importantly, the judges and appellate judges concluded she just didn’t feel like paying back her debts, and was using a widely known ruse. “At the time of the hearing, only ten months had elapsed since Brunner's graduation from her Master's program. Finally, as noted by the district court, Brunner filed for the discharge (of her debts) within a month of the date the first payment of her loans came due. Moreover, she did so without first requesting a deferment of payment, a less drastic remedy available to those unable to pay because of prolonged unemployment. Such conduct does not evidence a good faith attempt to repay her student loans.

That’s right, Marie Brunner had the ability, under the student loan terms of the time, to defer paying back her loans for hardship reasons -- and pay NO INTEREST on the loans -- until she was able to get a job. So did everyone else. When I graduated into unemployment in 1983, I did in fact defer paying back my loans, interest free. The loans were deferred again when I went to graduate school. And then, when I got a job, I paid them back. Many people did the same. But others were too smart for that. Lots of others. Until about the time Marie Brunner, who is about my age, came along, and a crackdown started.

To make up for what “everybody” did back in the day, requirements were made draconian. So today’s student loan borrowers have no way out. They don’t get to defer paying off their loans interest free if they have a hardship. Instead, if they can’t start paying the loans back the moment they graduate, the interest is added to the loan balance at a rapidly accelerating rate, until they are so deep in debt they can never get out.

Why? Why was this unique burden put on today’s troubled young people. Because of the scams of today’s older people back when they were young. Something the future recipients of New York City’s underfunded police and fire pension plans might want to think about.