Student Loans

Can't Pay Your Student Loans? In Some States, That Means You Can't Work Either.

Taking away someone's ability to earn money seems like a shortsighted way to get loans repaid.

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Ingram Publishing/Newscom

Shannon Otto took on thousands of dollars in student loan debt to pay for nursing school before an unexpected medical issue left her unable to work for more than a year. While she was recovering, her loan payments lapsed into default.

When Otto was ready to go back to work, she got more bad news: The state of Tennessee had revoked her nursing license, leaving her unable to work legally in the field she'd spent years mastering. Getting her license restored would require an additional payment of $1,500.

In 20 states, government agencies can revoke driver's licenses, hunting licenses, and (most importantly) occupational licenses simply because the license-holders fall behind on student loan payments, according to an investigation published last week by The New York Times. Tennessee is one of the most aggressive states when it comes to delicensing student loan deadbeats: The Times says officials there reported more than 5,400 people to professional licensing agencies between 2012 and 2017.

"It's an attention-getter," Peter Abernathy, chief aid and compliance officer for the Tennessee Student Assistance Corporation, told the Times. "They made a promise to the federal government that they would repay these funds. This is the last resort to get them back into payment."

Losing your job because the state government revokes a mandatory occupational license is certainly an "attention-getter." But student lenders aren't ultimately seeking attention; what they want is their money. And they're a lot less likely to get it if a borrower suddenly loses his or her job.

Getting an occupational license can be a significant investment, and not only for people in highly skilled professions such as nursing. On average, licensing laws require more than a year of schooling, according to a newly updated report from the Institute for Justice, a libertarian law firm that challenges onerous licensing requirements. Becoming a cosmetologist can require up to 900 days of school in some states, and various types of construction licenses routinely require more than 1,000 days of training. Those classes aren't cheap.

The federal government is partially to blame for these state-level policies. In 1990, the Department of Education recommended that states "deny professional licenses to defaulters until they take steps to repayment." That year defaulted student loans totaled about $7.8 billion. Last year the figure topped $32 billion.

Some state lawmakers understand how counterproductive this practice is. A law passed last year in Montana prohibits the state from revoking licenses over unpaid student loans. State Rep. Daniel Zolnikov (R-Billings), who sponsored the bill, noted to the Times that lenders have plenty of other options when it comes to getting borrower to make payments. They can be punished "with credit scores dropping, being traced by collection agencies, just having liens," he pointed out.

"The free market has a solution to this already," Zolnikov told the Times. "What is the state doing with this hammer?"

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  1. “The free market has a solution to this already,”

    Again the state does not like competition and would rather destroy a life than find a workable solution

  2. This seems like a logical government solution to a government created problem.

    I think scaling back federally-insured student loans and/or reducing government mandated licensing laws might do better to address the root cause.

  3. What is the state doing with this hammer?

    An acceptable album name.

    1. I prefer Kill Them All, but to each their own.

  4. “What is the state doing with this hammer?”

    Using it to break your legs.

  5. I like that when the government shows a special interest in something everyone involved other than the politicians gets hosed.

  6. Why is the state government enforcing federal debts?

    Naturally they are doing it in a way to make it more difficult to actually repay.

    Debtors prison?

  7. We don’t care about the money. We just want punishment.

    1. Another perfectly acceptable album name.

  8. This entire article is stupid and incorrect.

    First, Otto is a fool. She could have put her student loans into forbearance with not much more than a phone call. Then she would have accumulated interest but not been considered delinquent. She got into this trouble because she did not take care of her affairs.

    So, the entire enforcement pursued against her with her Nursing license is based on her being a hardcore delinquent who presumably, is not eligible for forbearance, and therefore just refuses to pay. I guess they failed to consider that she might just be incapable of calling the folks she borrowed money from and telling them she was out of work.

    Yep, I think this is not the best way to collect student loans. But Otto? Her problems are self inflicted.

    1. So, what part of the article did you disagree with? The part where they didn’t call Otto a cunt? Because other than that you seem to agree with the premise.

  9. “They made a promise to the federal government that they would repay these funds. This is the last resort to get them back into payment.”
    When the US government gets its spending and debt under control, then I could see this argument.

    Until then, using crony tactics not available to regular creditors is not acceptable.

  10. Just think of it as repossessing a professional license or foreclosing on a diploma

    SLD: government shouldn’t be in the student loan education business.

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