Angela Lyons, a professor of agricultural and consumer economics and director of the Center for Economic and Financial Education, is an expert on financial education and consumer financial protection. Lyons spoke recently with News Bureau education editor Sharita Forrest about aggressive techniques to collect student loan debt.
The New York Times recently reported on people losing their professional licenses after defaulting on their student loans. Is that a common practice when people fall behind on their payments?
Even though several states have these regulations on the books, they’re really a last resort for collecting student loan debt.
Texas and Illinois were the first to suspend professional licenses as a way to motivate borrowers to pay off their loans. Tennessee is one of the most aggressive states at revoking professional licenses and carefully tracks how many borrowers are affected.
But while several states can legally use this method – including Alaska, Hawaii, Iowa, Massachusetts and Washington – they often choose not to. It’s not in taxpayers’ best interest to enforce these laws.
Oklahoma and New Jersey eliminated their laws last year with bipartisan support. Why? Because people who cannot work cannot repay their loans.
What percentage of borrowers in default on their student loans get their professional licenses revoked?
The percentage of people who are being affected by this potential enforcement is very small. There are 44 million Americans with student loans, and The New York Times reported finding only 8,700 cases.
However, we know these types of cases are under-reported because it’s very difficult to find public records about them. Many state agencies and licensing boards don’t track and report the information.
Lynne Baker, the managing director of communications for the Illinois Student Assistance Commission, determined that since 2015, ISAC had not reported any information on student loan defaults to the agency that oversees the regulation and state licensing of professionals in Illinois.
I don’t think there’s anything that borrowers here in Illinois have to worry about in regards to having their professional licenses suspended or revoked, but that law is still on the books and could be enforced if the state chose.
How successful are these laws at collecting debt if borrowers’ ability to earn a living is taken away?
Some states have been able to bring in money when they enforced their laws. Tennessee has been pretty aggressive in its enforcement efforts and has gotten borrowers to repay their debts in order to get their licenses back.
The state of Illinois is under fiscal pressures right now, and if borrowers are not repaying their debts, it’s putting pressure on the state and federal governments. The state might have a vested interest in seeing that federal student loans are repaid.
Even so, revoking people’s professional licenses and their means of making a living is not a practical and viable solution.
Are these stringent collection practices something new, sparked by growing concern that the rising default rates on student loans may topple the U.S. economy?
No. Federal and state officials began using aggressive collection techniques to collect student loan debt back in the 1980s.
If you are delinquent on your student loan payments, you technically have 270 days to make a payment before that debt goes into default. And then once it does, there are a number of options that are open and available to the federal government to try and get its money back. It could file a lawsuit, but they are time-intensive and costly, so you might see other things such as wage garnishments first.
If you’re nearing retirement, they can garnish your Social Security benefits. They can also withhold tax refunds, and in some cases have garnished disability benefits. They might also put liens on your personal property.
But before that happens, they usually outsource to some sort of collection agency that starts calling you, and that usually goes on for a while. But if they’re not getting their money, that’s when they’re going to resort to those aggressive strategies such as garnishments and property liens.
Illinois lawmakers recently overturned Gov. Bruce Rauner’s veto of the Student Loan Servicing Rights Act. What protections does that law offer consumers?
That law, which will go into effect at the end of 2018, will help protect borrowers from deceptive lending and debt collection practices. It requires student loan servicing companies to be forthcoming with borrowers about all of their repayment options, including those that enable borrowers to make lower monthly payments.
Servicing companies also have to let consumers know about loan forgiveness programs if they become disabled, if the school they attended misrepresents its programs or if the school closes suddenly.
To reach Angela Lyons, call 217-244-2612; email anglyons@illinois.edu
