More Teeth in the Jaws of the Student Loan Debt Trap

23 Mar More Teeth in the Jaws of the Student Loan Debt Trap

In a growing list of states, if the lender reports a default on a student loan, the state will suspend or revoke occupational licenses until the default is cured.  In some of these states, the statute extends not only to occupations (such as teaching or most health professions) requiring a college degree for licensing, but to virtually any state-regulated job.  In Washington State, for example, one cannot practice as an accountant, auctioneer, cosmetologist, barber, manicurist, embalmer, funeral director, engineer, land surveyor, escrow agent, birthing center care provider, real estate broker, well-driller, health professional, teacher, real estate appraiser, private investigator, security guard, or bail bond agent, or operate a boarding house, if student loans are in default.  Apparently dog groomers are not regulated in Washington, accounting for the otherwise glaring omission of this critical profession from the list.

This is a Catch-22 worthy of the days of debtors’ prisons.  These days, most people fall into default because they are genuinely unable to pay.  They are unemployed, underemployed, or have a personal or family health crisis.  Lenders and guarantee agencies are notoriously uncooperative in working out affordable repayment plans when student loan accounts become delinquent.  The end result of their self-serving shenanigans (documented in part in the Student Loan Borrower’s Bill of Rights) is large numbers of debtors ending up in default, who might have averted that disastrous position if they had been given timely and accurate information by loan servicers.

Suspending an occupational license further curtails earning power – drastically.  At this point, the unfortunate student loan debtor, if able to negotiate a repayment plan at all, will be faced with a total loan obligation inflated by 18-25% default fees, and most probably with payments which do not cover interest, resulting in negative amortization.  If the borrower succeeds in jumping through all the hoops to reinstate an occupational license, and sees an income increase, the minimum payment required to actually pay off the loan will be substantially larger.

Is such punitive treatment necessary to ensure that cosmetologists and security guards who were so incautious as to incur debt for postsecondary education do not endanger the public welfare in their capacity as service providers?  Evidently the State of Washington’s Legislature thinks so. 

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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