By Jessica Silver-Greenberg
Fall behind on your student loan payments, lose your job.
Few people realize that the loans they take out to pay for their education could eventually derail their careers. But in 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts.
Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work.
As debt levels rise, creditors are taking increasingly tough actions to chase people who fall behind on student loans. Going after professional licenses stands out as especially punitive.
Firefighters, nurses, teachers, lawyers, massage therapists, barbers, psychologists, and real estate brokers have all had their credentials suspended or revoked.
Determining the number of people who have lost their licenses is impossible because many state agencies and licensing boards don’t track the information. Public records requests identified at least 8,700 cases in which licenses were taken away or put at risk of suspension in recent years, although that tally almost certainly understates the true number.
Shannon Otto, who lives in Nashville, can pinpoint the moment that she realized she wanted to be a nurse. She was 16, shadowing her aunt who worked in an emergency room. She gaped as a doctor used a hand crank to drill a hole into a patient’s skull. She wanted to be part of the action.
It took years of school and thousands of dollars of loans, but she eventually landed her dream job, in Tennessee, a state facing a shortage of nurses.
Then, after working for more than a decade, she started having epileptic seizures. They arrived without warning, in terrifying gusts. She couldn’t care for herself, let alone anyone else. Unable to work, she defaulted on her student loans.
Otto eventually got her seizures under control, and prepared to go back to work and resume payments on her debt. But Tennessee’s Board of Nursing suspended her license after she defaulted. To get the license back, she said, she would have to pay more than $1,500. She couldn’t.
“I absolutely loved my job, and it seems unbelievable that I can’t do it anymore,” Otto said.
With student debt levels soaring — the loans are now the largest source of household debt outside of mortgages — so are defaults.
Lenders have always pursued delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on their property and seizing tax refunds. Blocking licenses is a more aggressive weapon, and states are using it on behalf of themselves and the federal government.
Proponents of the little-known state licensing laws say they are in taxpayers’ interest. Many student loans are backed by guarantees by the state or federal government, which foot the bills if borrowers default. Faced with losing their licenses, the reasoning goes, debtors will find the money.
But critics from both parties say the laws shove some borrowers off a financial cliff.
In some states, the laws are unused. Hawaii has a broad statute, enacted in 2002, that allows it to suspend vocational licenses if the borrower defaults on a student loan.
But the state’s licensing board has never done so, said William Nhieu, a spokesman for Hawaii’s Department of Commerce and Consumer Affairs, because no state or federal student loan agencies have given it the names of delinquent borrowers.
Officials from Alaska, Iowa, Massachusetts, and Washington also said their laws were not being used. Oklahoma and New Jersey eliminated or defanged their laws last year, with bipartisan support.
Tennessee is one of the most aggressive states at revoking licenses, the records show. From 2012-17, officials reported more than 5,400 people to professional licensing agencies. Many — nobody knows how many — lost their licenses. Some, like Otto, lost their careers.
“It’s an attention-getter,” said Peter Abernathy, chief aid and compliance officer for the Tennessee Student Assistance Corporation, a state-run commission that is responsible for enforcing the law. “They made a promise to the federal government that they would repay these funds. This is the last resort to get them back into payment.”
In Louisiana, the nursing board notified 87 nurses last year that their student loans were in default and that their licenses would not be renewed until they became current on their payments.
Eighty-four paid their debts. The three who did not are now unable to work in the field, according to a report published by the nursing board.
Two years ago, South Dakota ordered officials to withhold various licenses from people who owe the state money. Nearly 1,000 residents are barred from holding driver’s licenses because of debts owed to state universities, and 1,500 people are prohibited from getting hunting, fishing, and camping permits.
“It’s been quite successful,” said Nathan Sanderson, director of policy and operations for Governor Dennis Daugaard. The state’s debt collection center — which pursues various debts, including overdue taxes and fines — has brought in $3.3 million since it opened last year. Much of that has flowed back to strapped towns and counties.
But Jeff Barth, a commissioner in South Dakota’s Minnehaha County, said that the laws were shortsighted and that it was “better to have people gainfully employed.”
In a state with little public transit, people who lose their driver’s licenses often can’t get to work.
“I don’t like people skipping out on their debts,” Barth said, “but the state is taking a pound of flesh.”
Sanderson countered that people did not have to pay off their debt to regain their licenses — entering into a payment plan was enough.