New York (MainStreet) - Student debt could cost you your job.
Robert Bowman found that out the hard way when he decided to go to law school, an expensive undertaking he didn't have the cash to cover.
Like most students, Bowman raised the money to earn his degree through student loans. He borrowed heavily to pay the tuition for undergraduate and law schools, got his J.D. and passed the bar exam. It took time but eventually Bowman got there. He was ready to be a lawyer.
Until, that is, five state judges decided that all of his efforts weren't good enough, according to the New York Times.
In layman's terms, Bowman had fallen too far behind on his student debt and therefore didn't deserve to be a lawyer. This story is unique to neither New York nor law, and it isn't even all that unusual. Several years ago student debt professionals were rocked by the news that 42 nurses in Tennessee had their licenses to practice suspended for failure to keep up with their individual mountains of debt, forcing them out of their jobs. In Montana, some graduates have reported losing their drivers license for the same reason. It's all part of a little known tactic to encourage repayment on the part of many states, but one that borrowers need to be very aware of. Fall too far behind on your student loans and you might lose your license to work, practice a profession or even drive a car.
Carrot or Stick
New research from Jobs With Justice has uncovered laws in at least 22 states that punish borrowers who fall too far behind by revoking their professional license; that's particularly grave given that some 30% of workers require professional licensure to do their job. It’s a novel approach to helping people get out of debt by taking away their ability to earn a living.
From the article:
These state laws target a wide range of professions, including attorneys, physicians and therapists – even barbers make the list. But two professions show up over and over again: nurses and teachers.
In Alaska, California, Florida, Georgia, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Montana, New Jersey, North Dakota, Oklahoma, Tennessee, Texas, Virginia and Washington, nurses and health-care professionals can all be locked out from their job if they fall into default on their student loans. In Georgia, Hawaii, Iowa, Louisiana, Massachusetts, Montana, New Jersey, North Dakota, Oklahoma and Tennessee, laws prevent K–12 teachers from working until they begin to repay their student loans.
Debtor’s laws that suspend driver licenses for defaulted borrowers exist in three states: Montana, Iowa and Oklahoma. In addition to the personal inconvenience, the professional and financial problems caused by a lost drivers licenses are well documented. Many people simply drive anyway, choosing to accept the risk of a ticket over losing their job. The result has become a revolving-door system of court costs, warrants and arrests for people caught between the pot and the flame.
Default has become a major part of America’s catastrophic experiment with student debt. According to Forbes 13.7% of borrowers defaulted in 2014, and far more struggled to make payments. Nearly 70% of all students will borrow, and they owe an average of $33,000 by graduation. This doesn’t account for the astronomical numbers forced upon students who pursue increasingly important graduate and professional degrees.
These professional license suspension laws aren’t targeted at a reckless few. A Tennessee review of the issue lists over 2,600 suspension notices sent out in response to more than $20 million in defaulted debt statewide. In an economy of low wages and challenging employment for young people, keeping up with student loans is a major issue. Laws like this hold borrowers’ heads underwater, taking away job opportunities from those most in need of help repaying their loans.
In fact, according to Chris Hicks, the "Debt Free Future" campaign organizer for Jobs With Justice, this has nothing to do with economics or paying off debt at all. It’s about punishment.
There are two possible reasons for a law like this, Hicks said.
“The first is that a handful of states passed these laws in the early '90s, when you could declare bankruptcy on a student loan and come out from under that," he said. States may have passed these laws in order to disincentivize that outcome.
“The second reason, which I’m more in line with, is that this isn’t supposed to incentivize paying off your student loans," he said. "This is more of a punitive law. This is a ‘how dare you not pay off your student loans, how dare you prioritize groceries instead of paying off your student loans.’”
Although the 22 states involved target a wide variety of professions from barbers to doctors, the two most common are teachers and nurses, jobs which sit on the intersection of income and debt.
“They both require advanced degrees,” Hicks said. “While both of those professions are not high paying they require [a high] amount of student debt in order to do the job, which is a crazy idea.”
According to Hicks, a Tennessee hospital even once found itself understaffed when more than 40 nurses got sent home in one day after losing their licenses to practice.
Student loan consultant Jan Miller says that he hears from plenty of graduates facing just this situation, both the ones worried about losing their license and the ones who have.
“It puts them in a really bad spot,” he said, “because they’ve already lost their license so it’s kind of a double whammy. Not only do they lose their license for their job but they don’t have enough money to make their loans current.”
Recovering a lost license can be more challenging than bringing a loan current, as governments or licensing boards often require more than rehabilitation. Borrowers may often have to show a series of good faith payments before recovering their license. For professions such as law or finance, where fiduciary duty is an important concern and regulators worry about abuse of a client’s money, the journey can be even more difficult.
All of this is not to mention the difficulty of a worker getting his or her job back after losing it for failure to make student loan payments.
Unfortunately, targeting a borrower’s license to work also might be effective.
“You know those 42 nurses in Tennessee? I heard from a lot of nurses that year,” Miller said. “It was a wake up call.”
The fear nets results.
“For better or worse it did spread the word a little bit," Miller said. "You need to take this seriously, because the double-edged sword of a student loan is you have more options than any other payment in the world… but the flip side is they can put the hammer down without taking you to court. The consequences for defaulting on your student loan are so dramatic.”
It’s effective -- as long as graduates know about it, that is. Many borrowers have never heard of this tactic, no less whether or not they live in a state which enforces it. Although state legislatures are considering rollbacks of the three existing programs regarding drivers licenses, there’s no reason to believe that professional default penalties are going anywhere.
For the time being, defaulting on student loans might not just mean credit and financial troubles. It might also cost you your job.
For a list of specific state laws, see the Jobs With Justice rundown here.
--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website A Wandering Lawyer.