States Consider Repealing Laws Revoking Licenses for Student Loan Default

Posted By Dahna Chandler on May 5, 2015 at 10:49 am
States Consider Repealing Laws Revoking Licenses for Student Loan Default

Some states are enforcing an aggressive strategy to collect on defaulted, state-guaranteed student loans, revoking driver and professional licenses for nonpaying borrowers. 22 states have such laws on their books, some dating as far back as 1990. But many state legislators are fighting to repeal these laws, which debt collectors claim are effective in making defaulting borrowers repay or enter rehabilitation plans (and severely penalizes those who don’t).

Punishment that doesn’t fit the crime

Many borrowers default on their loans because their monthly payments are not supported by their current income. Most want to repay but cannot, and may be unable to reach a reasonable repayment plan with the lender or servicers currently managing their loans. With other expenses looming, borrowers may feel forced to allow their student loans to go into default rather risk the consequences of not paying other critical bills.

Though said to be a last resort, a recent Bloomberg article reported that states like Montana, Iowa and Tennessee have revoked multiple driver and professional licenses since 2007. But opponents to this practice argue that this may have negative consequences for both borrowers and the states pursuing this strategy.

First, by taking away the driver’s licenses of defaulted borrowers, states may be creating barriers to their being productive citizens. Already-financially strapped individuals may lose their ability to work, if getting work requires them to drive. Revoking a professional license certainly means they will be unable to work. In both cases, they will have an even harder time paying back their student loans.

Second and similarly, unemployed borrowers represent an extra burden on their states. They may need help paying for basic needs like housing, food, utilities, clothes and public transportation. They may end up on public assistance. Not only does the state then lack the income of their student loan payments –they are also supporting now-unemployed and unemployable borrowers with tax dollars.

Third, revoking licenses may force borrowers to commit crimes they wouldn’t otherwise. Some may feel forced to drive on revoked licenses to support themselves and their families. And, according to Bloomberg, the most commonly revoked professional licenses are of lower wage, middle class workers like EMTs, nurses and teachers. Those borrowers may attempt to work without licenses. Operating with licenses revoked under these programs would create a new criminal class out of defaulted borrowers, who would then be subject to arrest, fines and jail time.

Moving towards repeal

Critics of these laws are committed to preventing these negative consequences to borrowers and the states in which they reside. Advocacy groups in many states are lobbying to have the laws repealed, encouraging states to work with borrowers to help them repay their loans like the federal government has begun to with income-based repayment and other programs. In two states, Montana and Iowa, legislators have joined the battle. But while Montana officials successfully repealed a law revoking professional and driver’s licenses for student loan defaulters, similar legislation in Iowa failed to pass. Advocates hope that Iowa and 21 other states will follow Montana’s lead and overturn laws they say unnecessarily criminalize student debt.

Dahna Chandler
Dahna M. Chandler is a Washington, DC-area writer and award-winning business journalist who’s passionate about writing consumer finance and small business pieces. The President of Audience First Communications, a business and digital content writing consultancy, she loves the color red, coffee, popcorn, Bugattis, her grown son and HGTV. Follow her on Twitter @dahnamchandler.

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