Everyone knows that student loan debt can cause irreparable damage to credit scores. It can make it hard to do basic things like owning a home or background checks for jobs. Student loan borrowers who default on their debts face are now facing a much more life changing danger: the loss of their driver’s or occupation licenses, including those used by nurses, doctors, teachers and emergency personnel.
Bloomberg reports that 22 states currently have active laws giving the state the authority to revoke their licenses and privileges from consumers who are more than 270 days behind on paying their student loans.
Logically, it might make sense to punish borrowers who don’t keep up with their obligations to repay debts, but this punishment seems counter-intuitive when you think about it. You need a license to work, you need to work to make money and you need money to pay your debts. If you have no license you can’t work and the debt you have grows into something that seems insurmountable. It perpetuates 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 are facing default and the real possibility of losing their license and in-turn their livelihood. Last year, reports found that nearly one in three borrowers are at least 90 days behind on their student loan payments.
Stats on License Suspension:
· Montana: 92 driver licenses
· Iowa: 900 people lost their licensure.
· Tennessee: 1,500 occupational licenses revoked
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.
To make sure that this does not happen to you please contact the Degrees of Success staff today to talk about managing and reducing your student loan debt.