This editorial is from Bloomberg View:
Even by government standards, it is a colossally dumb idea: revoking someone’s license to work as a way to get them to pay off their student loans. Yet many states do just that.
Student loan debt has more than doubled since 2009 to $1.3 trillion today. The average borrower in the class of 2016 left campus more than $30,000 in debt — triple the level from 1990, while earnings for newly minted grads have remained flat. Many are struggling to keep up with payments. Of the 22 million Americans with student loan debt, 30 percent are in default (at least a year behind on a payment) or delinquent (at least a month behind). The tax bill passed by the House, which would eliminate deductions for interest on student loans, may worsen this situation.
Many with student debt they cannot repay did not complete their degree or received a diploma that is worth little more than the paper it’s printed on. Others struggle to find work.
In 19 states, those who fail to repay loans can lose their professional license to work. At risk are nurses, teachers, social workers, engineers, beauticians, small business owners and nearly anyone else who relies on a state certification.
In South Dakota, those who fall behind without entering a repayment plan can lose their driver’s license, making travel to work difficult if not impossible. Other than bringing back debtors’ prisons, it’s hard to imagine a more counterproductive idea.
It’s also hard to say who is harmed more by these laws: the borrowers who lose their ability to provide for their families or the states, which lose their best chance of recovering tax dollars while also nudging families toward public assistance.
States have a right to attempt to recoup loans they make or that are made by public universities. But there are far better ways to go about it. Tax credits can be withheld. Wages can be garnished. As a last resort, lawsuits can be filed.
In other countries, loan repayments are made through tax returns once borrowers’ income reaches a certain threshold. The U.S. has begun to experiment with an income-based program, but repayments aren’t tethered to tax returns. A tax-return-based repayment system is something Congress should consider. Until that comes to pass, states should stop depriving borrowers of the right to work.