States Resort to Suspending Licenses in Effort to Collect Student Debt

By Allen Kors, Special for  USDR

The student loan bubble has ripened to such an extent that over 7 million debtors are in default as of mid-2014, and they’re holding on to over $100 billion in outstanding debt. Consequently, both private and federal lenders are exploring a variety of tactics to collect outstanding payments. Those payments, after all, represent forecasted revenues that never  arrived.

One such tactic employed by the Education Department is engaging private debt collectors to bring in borrowed money. While they often rely on unethical (and illegal) pressure tactics to coerce borrowers to start paying, these glorified bounty hunters have earned over $1.6 billion in commissions and bonuses from 2010 – 2013. Evidently, these guys have been effective over the past few years, and they’ve been compensated as  such!

Still, when engaging debt collectors just doesn’t cut it, many states resort to other, more punitive means. 22 States have passed litigation that permits them to suspend professional and/or driver’s licenses of student loan defaulters. Here’s a breakdown of the result of this completely counter-intuitive strategy: The defaulting borrower, clearly struggling to stay fiscally afloat, must now deal with the massively detrimental impact of student loan default on credit (probably one of the worst blows out there), and additionally suffer by losing their ability to work and drive! States are stripping away the very instruments that preserve the modicum of hope for these struggling debtors to survive their  catastrophe.

Where is the logic behind this machination? I don’t see  it.

Instead of such punitive measures, what we should be doing is stimulating and rewarding behavior that will eventually enable these borrowers to make good on their debt: providing overtime opportunities, second and/or part-time jobs, additional responsibilities at current jobs, and so forth. These remedies would all represent steps in the right direction. Rather than imposing barriers, let’s break down barriers and advance the nation such that we all emerge as winners. Because that should always be the goal:  win-win.

Here at Achieve Lending, we promote fiscal responsibility. We’re firm believers in equipping Americans with the tools they need to succeed – to attain the proverbial “American Dream.” But, once we give people the right tools, the onus is on them to leverage those tools effectively. For instance, if an individual takes on debt, of any form, it should be that individual’s job, not the job of others (read: American taxpayers), to make good on his or her debt. This is why we seek to engage and educate the borrowers before they take on debt so they know what they’re getting into when they sign for the money. Going the extra mile to educating consumers, and implementing incentives for paying off debt, is a much better strategy for the student loan crisis than employing draconian tactics and suspending  licenses.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.