Pay what you owe (and take the high road)

 

Last time I talked about how I automate all my bills, and recommend that you do the same.

But during the course of my argument, I dropped in this statement:

…most of all, your record will say that you did not do what you promised to do. Yes, you may be dealing with companies you dislike, but the obligation is still on you to be better than them. You “promised” to pay your bills by a certain date, so do so.

I think in the spirit of the site, that this is worth elaborating on.

Banks got bailed out, etc. etc.

It’s very easy to have negative feelings about many large establishments, especially financial ones. Anyone who is reading this is well aware of the narrative arc of the Global Financial Crisis of the past few years, and of the forces behind it. And it may be tempting to want to get back at the “villains” in some way.

I caution against this. Not just from any difference in size/power between you and them, but from a moral standpoint. In short, I want you to take the moral high ground.

Glug glug

Many of you were unfortunate enough to buy property of some sort during the height of the property boom. If so, you are most likely “upside down” (or “underwater”), which means that you may owe more on your mortgage than the house is worth.

In many ways, this patently sucks. I mean, to buy something and then have it go down in value?

But maybe one of the reasons why it sucks is because of our expectations. We don’t, after all, expect our other biggest purchase to go up in value. But we’ve assumed that our home would, and often based plans against that. That hasn’t worked out here.

(Keep in mind, of course, that you haven’t actually lost anything as long as you’re not selling the house. There isn’t necessarily an urgency to getting out of an underwater house. You’re still able to live there, after all; the numbers just aren’t as favorable.)

But anyway, what to do? Well, many have turned around and just stopped paying the mortgage entirely, letting the bank foreclose. This is known as “strategic default.” Strategic as in, one can afford to the pay the mortgage, but one chooses not to. Strategically.

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I understand the argument, but I have trouble buying it. Yes, the bank may have given you inflated expectations, but there was never a contractual guarantee of home values. There was, however, a contractual guarantee of home payments, and you signed it. To me, that’s a matter of integrity. You signed something saying you would do something, and therefore you should do it. It’s hard to be convinced otherwise, short of a situation involving outright fraud. (Which, of course, has happened a bunch too.) The bank may have given you a raw deal, but you signed for that raw deal. I just can’t license acting immorally just because they did the same.

(Now, there is also the possibility of getting out via a short sale, which is very different from strategic default, but that’s getting into the weeds a bit here.)

Gaudeamus indentur

The same argument goes for student loans. Education is too expensive! I’d agree. The cost of college isn’t worth it! Debatable, but okay. There are no jobs! Well, maybe yes maybe no, but no one at college guaranteed anyone a job. (Certainly not to me!) And by extension, no one ever guaranteed anyone a certain salary or standard of living.

A lot of the arguments for student loan forgiveness seem to center on being sold something unfairly. I don’t think I see that; there was never a realistic promise of riches. (Was there? If so, did anyone believe them?) There was just a promise that if you pay all this money, you’ll get a degree. And a degree may or may not lead to anything.

(It’ll be interesting to see what happens with the recent bill affecting student loans, and the general mood that the student loan system is unsustainable. Which I think it most definitely is.)

Is honor all it’s cracked up to be?

I certainly want people to not have to deal with debilitating mortgage payments, and student loans that are like family heirlooms. But I think that we should honor our side of our bargains. To me, it’s one way that we can be better than those who seek to prey on us. Pay what you owe. And then be much more judicious before ever entering into anything like that again.

How do you feel about strategic default? Have you walked away from a mortgage? Do you believe student loans should be forgiven or reduced? I’d love to hear your thoughts.

3 Comments

  1. saulofhearts

    I’m going to play Devil’s Advocate on this one. I think it’s a similar situation as when people of power prey on someone romatically or sexually — sure, they “consented” (they “signed the contract”) but was it truly a contract between equals?

    In my case, my college didn’t promise me a job, but the implication was that Emerson grads do well when they move to LA and join the film industry. Because these were our teachers, in a position of power, we had no reason to doubt them. They were in a better position that us students to forsee the collapse of “film” and the shift toward video, and yet most of out classes turned out to be on equipment that is now obsolete. I don’t think the education was terrible, but it certainly wasn’t as “relevant” as we were led to believe.

    • Mike

      Fair points all. I see what you mean about a contract between equals. Clearly not. And I actually at one point had a very similar education experience as you did. It’s hard not to feel a little taken advantage of.

      But help me follow it through: how much is that misleading direction worth? Is it worth invalidating all of your education? 50%? 20%? And who gets to decide this? I don’t like that so many people got sold a raw deal, especially recently, and I agree that we should feel free to lobby for some form of remuneration. But are we owed it? I just don’t know.

      Merely saying that we don’t feel like we got our money’s worth, though, feels to me to be inadequate justification for abdicating our responsibilities. But I can understand how people might feel otherwise.

      • saulofhearts

        I don’t know that I feel a need for righting that wrong (i.e., not paying off my loans), but in doing my best to make sure it doesn’t happen to others. By that, I mean advocating for more transparency from colleges, such as including “industry prep” courses as graduation requirements, not just as optional “job placement” seminars offered by the alumni network. In the old days, all you had to do was land a single job; now, you need to know how to sell yourself over-and-over again, especially if you’re a freelancer.

        I can’t think of a single “how to freelance” course that my college offered, which is pretty crazy considering that many film school grads choose that option!

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