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A Misguided Way to Collect Student-Loan Debt

Suspending delinquent borrowers' occupational licenses just makes it harder for them to repay their loans. Thankfully, states are moving to abandon the practice.

Denise Thorman has a passion for helping others. After caring for her aging parents, she decided to go to school to become a certified nursing assistant. In time, she graduated, obtained the necessary CNA license and got a job as a health care provider. However, she struggled with repaying her student loans, and understandably so -- the median CNA salary is only around $26,500.

Before long, Thorman fell behind on her student-loan payments. It was then that she came face-to-face with a cruel and counterproductive public policy: Her home state of Florida suspends the occupational licenses of those who default on their education loans, effectively stripping borrowers of their jobs. "Your license is gone, your livelihood is gone, the care of your patients is gone. How fair is that?" Thorman lamented.

Sadly, Thorman's case is far from unique. Licensing boards across the country have suspended the occupational certifications of an untold number of delinquent borrowers since the late 1980s and early 1990s, when the U.S. Department of Education began urging states to adopt statutes requiring licensing boards to do so. At least 22 states did just that. Effectively, this permitted the federal government to use state governments as collection agents to encourage debt repayment.

The results of these policies have been devastating. When defaulters' licenses are suspended, they are prohibited from working in their chosen profession. And without a job, it becomes even harder for borrowers to repay their loans. This makes it more likely that these borrowers will apply for taxpayer-funded assistance. Borrowers who do manage to extricate themselves from the suspension process usually do so by taking out more loans to pay off their student loans, and their debt continues to spiral out of control. Under these statutes, borrowers lose, government loses and taxpayers lose.

Beyond these matters, the threat of suspension doesn't even appear to be a reliable method of deterring loan defaults. Other more-effective means of debt collection exist, including garnishing wages. Yet as of June 2018, 18 states still had laws on the books permitting license suspensions. Thankfully, states are starting to abandon the misguided policy. Alaska, Illinois, North Dakota, Virginia and Washington did so last year. This legislative session, lawmakers in at least eight states have introduced proposals to prohibit license suspensions due to student-loan defaults, and so far this year the governors of Arkansas, Georgia and Kentucky have signed bills repealing this power.

The license-suspension policy is so egregious that it has even grabbed Congress's attention. Republican Sen. Marco Rubio of Florida and Democratic Sen. Elizabeth Warren of Massachusetts recently joined forces on the matter, creating one of Washington's most surprising political odd couples. They have co-sponsored legislation to discourage states from employing the practice, which Rubio says traps borrowers in a "modern-day debtors prison."

It remains to be seen whether Congress will have the will to pass this measure. But in the absence of congressional action, state legislatures are beginning to take this ill-advised policy head-on. One way or another, it seems only a matter of time before it is eradicated. Only then will people like Denise Thorman be able to rest assured that licensing boards will not punish them for falling on hard times.

Director of state government affairs at the R Street Institute
A Fellow and digital media manager at the R Street Institute
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