"Falling behind on student loan payments after hitting a rough spot is one of the most stressful situations a person can face. Given the many debt-collection tools lenders can employ, well-meaning borrowers usually attempt to catch up as quickly as possible. But some states have actually passed laws that can make it harder to repay student loans after an initial default," C. Jarrett Dieterle and Shoshana Weissmann write in an opinion article for the Washington Examiner.
"According to a recent report by The New York Times, 19 states have laws on the books allowing them to suspend professional and occupational licenses for borrowers who default on student loan debt. The types of licenses affected include those for nurses, teachers, lawyers, massage therapists, barbers, and real estate brokers.
While ensuring on-time loan payments is an important goal, these laws can hurt upstanding, well-intentioned citizens who never could have imagined themselves facing default. Consider Shannon Otto from Tennessee, whose story was highlighted by the Times. After successfully accomplishing her dream of becoming a nurse — which required her to take out thousands of dollars in student loans — she started suffering from epileptic seizures. She was no longer able to care for herself or work. She defaulted on her loans, and Tennessee’s Board of Nursing suspended her license.
Once Shannon was able to manage her seizures, she couldn’t get her license back. To do so, she would have had to pay more than $1,500 in fees — money she didn’t have. 'I absolutely loved my job, and it seems unbelievable that I can’t do it anymore,' she told the Times.
Shannon’s story shows how stripping occupational licenses as punishment for student loan defaults can be both self-defeating and harmful. It creates a vicious cycle: Take away the ability of defaulters to work in the profession they know best, and they no longer can earn money – money that they need to pay their loans. Some states have claimed that threatening the loss of a license is an effective mechanism for getting people to quickly repay. But what they don’t reveal is that many people may be taking out more debt, such as credit card debt, in a desperate attempt to regain their license and source of income.
Even more self-defeating, denying people their livelihood can conflict with some of the traditional debt-collection tools lenders and governments already employ. For example, it’s hard to use tools like wage garnishments when a borrower is no longer earning any wages.
Most of the loans affected by these state laws are pre-2010 Federal Family Education Loans, which were issued by third-party lenders and guaranteed by the federal government. To be sure, rising student loan debt and default rates are legitimate concerns that policymakers and lawmakers are understandably interested in addressing. But, as noted, there are already a bevy of debt-collection tools available to go after defaulters, from garnishing wages and Social Security checks to employing liens. And right-leaning policymakers have suggested interesting options, like income-share agreements, as alternatives to the traditional student loan repayment model."
NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.
Publication Date: 3/8/2018