April 16, 2015

Hidden Consequences of Falling Behind on Student Loan Payments in Some States

Bloomburg Business reports that at least 22 states have laws on the books allowing authorities to revoke drivers’ or professional licenses when people fall behind on their student loan payments significantly.  Some states have had such laws since the 1990s.  In 2014, the National Consumer Law Center compiled a list of states with such laws that can be found here.  Connecticut is not one of these states, but Massachusetts and New Jersey have such a punishment for borrowers who default on their loans.

In support of these laws, debt collectors assert that they have been valuable tools in collecting loan payments that were well past their due dates.  They feel the laws work as a deterrent, explaining that guaranty agencies often issue license revocations only as a last resort and prefer to encourage borrowers to enroll in income-based repayment plans instead.

Opponents of such laws say that revoking someone’s driving or professional license takes away his or her ability to earn money to pay the loan back.  They argue that the loss of a driver’s license is particularly crippling in states that lack public transportation options, leaving borrowers with no way to get to work.