Vice laments that get people who defaulted on loans have poor credit

March 31, 2022

By Tim Worstall

Vice is surprised – horrified, even – that if you don’t pay your debts then your credit rating declines. 

As, indeed, it is the point. A credit rating is a quick and simple way for a lender to see how good you’ve been at paying off past borrowings. This increases the confidence in your intention to pay off this or any future ones, thus making it more likely that you will be offered more lending.

This, apparently, is horrifying. If people miss 12 straight payments on their student loan debt – actually go into default – then this means that they find it extremely hard to borrow more money. Fancy that.

It is true that if you’ve trashed your credit score down to 300, or 400, then it’s very difficult to borrow money. But why it’s an outrage that no one will lend to you if you haven’t paid back past loans is a mystery. Lenders are supposed to lose money now are they?

Except it’s not a mystery at all. The complaint here is specifically about student loans. Even Vice would agree that if you’d run up the credit card to enjoy Spring Break then a trashed credit rating is fair enough. The difficulties that follow are well earned. The reason this concentrates upon student loans is just part of that retailing of the story that such loans should be forgiven, that college should be free.

Vice is a substantial part of the modern media landscape. The magazine itself has a 900,000 distribution, the cable channel reaches 60 million American homes. The website gains some 26 million visits a month.

There are perhaps two little technical details that we might add. The first is that the very invention of credit ratings has made credit more, not less, available to Americans. Any possible lender can now look up the number and make a decision – rather than the earlier system of the borrower having to be personally known to the possible source of funds.

The second is that when something doesn’t particularly impact the likelihood of loan repayment then it gets dropped from said credit reports. As has just happened with the vast majority of medical debt. Having some old debt from an emergency room visit doesn’t seem to change peoples’ efforts to repay any new debt they might take out. So, it’s no longer on credit reports because it doesn’t matter. The reason student debt in default is? Because it does.


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