Live in one of these 20 states? Falling behind on student loans could mean losing your job.

Inside Subprime: November 21, 2017

By Caroline Thompson

If you have student loans, you know making those monthly payments isn’t always easy. Even if you’re on an income-based repayment plan, there are times when getting a payment in on time is just not possible. Unexpected life events, accidents and medical problems can come out of nowhere, driving up your monthly expenses and making it downright impossible to keep up with your loans. This might not seem like a huge deal, but depending on the state you live in, defaulting on your student loans could mean losing your professional, driver’s or other license, rendering you unable to work.

The New York Times reports that in the following states, “government agencies can seize state-issued professional licenses from residents who default on their educational debts.” This means nurses, teachers, lawyers, firefighters, hairdressers, psychologists, real estate brokers and any other professional who needs a state-issued license to do their job could have that license revoked for defaulting on their loans.

Additionally, residents of South Dakota can have their driver’s licenses suspended for failing to pay student loans, which can make it difficult or even impossible to get to work. The sad irony of these kinds of punishments is that enforcing them makes the likelihood of a return on the loan go way down. After all, how are you supposed to make fixed monthly payments when you’ve lost your ability to bring in any kind of income?

We reported last month that Michigan, which runs a similar punitive program that revokes driver’s licenses from people who neglected to pay traffic tickets, may be scaling back on this so-called “Driver Responsibility Fee” and even forgiving all debt associated with it. At the time, Michigan Secretary of State Ruth Johnson said suspending the licenses of Michigan drivers who failed to pay fees was “a costly, double penalty on working families added automatically, without the opportunity for a court to review the circumstances as with normal tickets. Too many Michigan residents now can’t drive because of these automatic fees, limiting their ability to find work, and it’s starting to hurt local businesses who can’t find enough qualified employees.”

According to the Times, licensing boards don’t track the number of licenses revoked for these purposes, which makes it difficult to tally up the number of people whose lives have been derailed by their inability to pay their student loans. Many states on this list, like Hawaii, Alaska, Iowa and Massachusetts have reportedly never suspended the professional or driver’s license of anyone for failing to pay student loans. However, in Tennessee, officials reported that more than 5,400 loan defaulters have been reported to professional licensing agencies from 2012 to 2017.

Jeff Barth, a commissioner in South Dakota, told the Times he thought these laws were “shortsighted” given his state’s lack of access to public transportation.

“I don’t like people skipping out on their debts,” Mr. Barth said, “but the state is taking a pound of flesh.”

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