The Scary Consequence of Student Loan Defaults That Could Impact Your Job
If the threat of lawsuits, debt-collection calls or garnished wages isn’t scary enough to stop you from defaulting on your student debt, this might do the trick: Twenty states, including California, Texas, Massachusetts and Illinois, have the right to suspend professional, driver’s, or other state-issued licenses if you stop paying your federal student loans.
According to a recent New York Times investigative report, everyone from nurses to teachers to lawyers to psychologists to real estate brokers have had their professional licenses suspended or revoked because of defaulting on their educational loans. South Dakota and Iowa will also suspend a driver’s license.
Reporters uncovered more than 8,700 cases of people nationwide losing their licenses under these local laws, which often fly under the radar because many state agencies don’t keep good records on the number of people affected by them. The rationale behind these extreme measures? Many student loans are backed by both the federal and state governments, so officials see this as a last resort to show they mean business when it comes to getting their money back.
Of course, the rub is that people need to retain their professional licenses — and their ability to drive to and from work — in order to actually pay the loans back. There are two small silver linings to the news: Some states, like Hawaii, Massachusetts and Washington, haven’t enforced these laws, partially because they don’t receive the names of delinquent borrowers. Also, borrowers don’t need to have paid back their defaulted loans in full to get their licenses back; they just need to have entered a repayment plan.
Still, it’s more scary news for student loan borrowers who aren’t always fully aware of the consequences of defaulting. The best protection is to stay informed and, of course, know what your options are if you think you’re on the brink of default. Deferment, forbearance or changing the terms and length of your repayment could ultimately help you keep your head above water — and avoid impacting your job.