Can’t Pay Your Student Loans? In Some States It Might Cost You Your License To Drive Or Work

In addition to causing irreparable damage to their credit scores, student loan borrowers who default on their debts face a much more devastating and counter-intuitive danger: the lost of their driver’s or occupation licenses, including those used by nurses, doctors, teachers and emergency personnel

Bloomberg reports that 22 states currently have laws on the books giving authorities the power to revoke these privileges from consumers who are more than 270 days behind on paying their student loans.

While it might make sense to punish borrowers who don’t keep up with their obligations to repay debts, taking away their ability to get to work or to actually perform their job duties, seems to perpetuate an environment in which consumers already have few options to get out of debt.

With delinquencies and default rates on the rise, according to reports from the Federal Reserve Bank of New York, more and more consumers face default and the real possibility of losing their licenses. Last year, reports found that nearly one in three borrowers are at least 90 days behind on their student loan payments.

According to Bloomberg, since 2007 Montana has suspended the driver’s licenses of 92 people, while Iowa suspended the licenses of more than 900 residents. The Iowa licenses were reinstated in 2012 after the state moved its student loan portfolio out of state.

As for occupational licenses, Bloomberg found that more than 1,500 professional licenses for nurses, teachers and others have been revoked in Tennessee because of student loan defaults.

Student loan debt collectors say the threat of taking away consumers’ ability to legally drive or work often propels them to deal with their debt.

“It’s more of a deterrent than something that goes all the way to license suspension,” says Cheryl Poelman-Allen, who works in default prevention at the Montana Guaranteed Student Loan Program, a guaranty agency that collects federal student loans in the state, tells Bloomberg.

In Iowa, officials with the Iowa College Student Aid Commission say the ultimatum has produced similar responses.

“Once we served a written notice that we were going to revoke a license, we generally got some action from a borrower,” an executive for the office tells Bloomberg.

Still, consumer advocates and legislators say the threats are unfair and don’t address the underlying reasons why consumers can’t afford student loan debts.

“It’s the most inappropriate consequence, because you are taking away their ability to eventually pay [their loans] back,” Moffie Funk, a Montana state representative who sponsored a bill to repeal the state’s law regarding license revocation, tells Bloomberg.

Several states have introduced legislation that would reverse the measures, although they’ve proven to be slow moving. The bill to repeal the consequence in Iowa stalled because of a procedural obstacle, while the Montana bill introduced by Funk is currently under consideration in the Senate.

These States Will Take Your License for Not Paying Student Loans [Bloomberg]

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