Federal Legislation Seeks to Stop States from Denying or Revoking Licenses Due to Unpaid Student Debt

Student loan debt is a reality for Americans of all ages. The total student loan debt in America is about $1.3 trillion, a figure that has doubled in the last decade. Student loan debt is the second-highest category of debt in America, second only to mortgage-related debt.[1]

At the same time, student loan default rates have steadily increased over the last several decades, and “nearly 40 percent of borrowers are expected to default on their student loans by 2023.”[2] Projections like these have driven state and federal governments to be more focused than ever on collecting outstanding student loan debt. Following the lead of the federal Department of Education, some state governments have turned to solutions that exacerbate the problem.

Currently, 20 states have laws on the books that allow states to deny applications for or revoke professional and occupational licensure from those who are in default on their student loan debt.[3]

The policy of licensure action on those individuals in default on their student loans traces back to a 1990 document from the federal Department of Education titled “Reducing Student Loan Defaults: A Plan for Action.”[4] As the number of student loan defaults steadily increased, the Department of Education recommended (among other solutions) that states “enact legislation to deny professional licenses and state jobs to defaulters until they make adequate repayment arrangements.”

Revoking or denying licenses as an incentive to pay back student loans can be self-defeating. It is much more daunting to pay back a loan if one is barred by the state from gainful employment in their field. Without a driver’s license, potential workers, college graduate or not (two-thirds of borrowers who default on student loans did not finish their degree[5]), are often lack reliable transportation to and from work, especially in areas with little to no public transit. And with little support from the state or federal governments until the loans are in repayment, these policies can force people into an unwinnable situation.

A bipartisan bill co-sponsored by Sens. Elizabeth Warren (D-MA) and Marco Rubio (R-FL) seeks to end this practice. The Protecting Job Opportunities for Borrowers Act (Protecting JOBs Act) seeks to “prevent states from suspending, revoking, or denying” professional licenses only because a borrower is behind or in default on their student loan payments.[6]

Licenses that would be protected under this law would be driver’s licenses, teaching licenses, professional licenses, and other similar licensing required for lawful employment in a specific field. States would have two years to comply with this federal law, and borrowers would have a path to legal recourse if states were non-compliant.

Intervention at the federal level is a start, but the trend of punitive measures that exacerbate rather than alleviate the issue of student loan default points to the need for both enhanced borrower protection and innovative solutions to unpaid state and federal debt.

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