A real Catch-22 of student loan debt exists in the 13 states with the ability to revoke a professional license in the case of student loan default. If people are unable to work in their chosen field -- the one they went to school for and presumably took out loans to fund -- how can they be expected to pay their debt?
According to the National Conference of State Legislatures, during the 1950s only 5% of U.S. workers were required to hold a license to practice their chosen profession. Today, that percentage has risen to more than 25%.
Nurses, teachers, hair stylists and travel guides are just a few of the types of professionals who require a license. The training necessary to obtain those licenses can be expensive, and many people are taking out student loans to cover the costs. Overall, student loan debt in the U.S. has risen to more than $1.5 trillion. More than 1 million people default on their student loans every year, according to a report from the Urban Institute, a nonprofit research organization.
In the 1990s, the federal government urged states to use their license revocation abilities to curb the growing tide of student loan default. More recently, however, many states have changed their laws to protect borrowers from this punitive tactic. Today, 13 states have these types of laws, although enforcement varies widely.
Bipartisan legislation was reintroduced last month in Congress to prohibit states from revoking or denying professional licenses solely because of default on a federal student loan. And legislation passed in Alaska, Illinois, Kentucky, North Dakota, Virginia and Washington has already prohibited the practice in those states.
For now, these are the states that still have laws that allow professional license denial, suspension or revocation for defaulting on student loans, according to October 2018 research from the National Conference of State Legislatures:
-- Louisiana (only for defaulted state education loans)
-- South Dakota
In Iowa and South Dakota, those in default can also have their driver's and hunting licenses revoked over defaulted student loans.
Overall, it is difficult to determine exactly how many licenses are actually revoked as those numbers are not being tracked in most states. But from 2012 to 2017, Tennessee officials reported an estimated 5,000 professionals to occupational boards for loan default. And in Texas, more than 4,200 professionals, including nurses and teachers, were in danger of losing their licenses in 2017 because of unpaid student loan debt.
One industry that has been especially hit is health care, particularly nurses. The Florida State Board of Health recently said that over the past two years about 900 health care workers were in danger of losing their license, but the board was able to work out repayment plans with most. The board estimates that between 90 and 120 licenses have been suspended since November 2016 in Florida.
It is worth noting that although Hawaii has had the law since 2002, it has never been enforced. Other states that typically don't enforce the legislation include Iowa and Massachusetts.
Louisiana, Tennessee and Texas are considered the more aggressive enforcers, according to NCSL, though Louisiana and Tennessee have both seen recent legislative efforts to abolish their laws revoking licenses for unpaid student debt. Georgia, Iowa, Massachusetts and South Dakota also introduced legislation in their 2017-18 sessions to repeal their laws. Texas is also expected to take up the issue this session, with bipartisan support to change the law.
If you are struggling to make the payments on your student loans, it's important to take action before things get out of hand.
Borrowers can avoid student loan default by reaching out to their loan servicer at the first sign that they are facing financial difficulty making their payments. There are protections in place for federal student loans they can take advantage of, such as forbearance, deferment and income-driven repayment. If you have private student loans, your loan servicer is still your first point of contact if you are struggling with repayment.
If you've already defaulted on a student loan, you have a few options. Borrowers can consolidate their defaulted federal student loan into a new direct consolidation loan if they meet certain criteria. You can also contact your servicer to learn about entering a loan rehabilitation program. If manageable, another option is paying the loan off in full.
Once a borrower enters a repayment plan for unpaid student loans, you should be able to obtain or renew your license.
The Student Loan Ranger recommends reaching out to your loan servicer or a nonprofit credit counselor to discuss your options. The key is to take action as soon as you recognize you may be unable to make your student loan payment.