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Wednesday, November 29, 2017

The State’s War on Student Debtors Is Heating Up

The government is using increasingly hostile tactics and illogical methods to get student loans repaid.

Unlike most any other debt, student loan debt can’t (normally) be dismissed in bankruptcy, and millions of graduates and non-graduates are struggling to live out the American dream saddled with thousands of dollars in student debt, and in some cases bleak job prospects to pay it back.

If that’s not bad enough, The New York Times reports, “in 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work.”

“It’s an attention-getter,” Peter Abernathy, chief aid and compliance officer for the Tennessee Student Assistance Corporation, a state-run commission that is responsible for enforcing the law, told the Times. “They made a promise to the federal government that they would repay these funds. This is the last resort to get them back into payment.”

However, it is this licensing which, in some cases, forced students to rack up student debt in the first place to satisfy these barriers to entry. Now, these roadblocks are contributing to unemployment.

In a piece for The Atlantic entitled, “The Disappearing Right to Earn a Living” Conor Friedersdorf quotes an Institute for Justice report, “In the 1950s, about one in 20 American workers needed an occupational license before they could work in the occupation of their choice,” the report states. “Today, that figure stands at about one in four.”

A License To Work

You wouldn’t guess workers would want the hassle of being licensed. However, to restrict competition in their profession, they support the licensing effort. “In serving as a bottleneck on entry into an occupation, licensing restricts the supply of practitioners, allowing those who are licensed to command more in wages and prices for their services,” writes the IJ.

It’s also believed that licensure elevates the status of the profession, even though thousands of positions, like university professor, aren’t licensed and have status. Of course, the case for licensing is always to protect the health and safety of the consumer even though technology allows customers to rate each and every business to accomplish the very same thing without the force of government.

Texas Supreme Court Justice Don Willett trenchantly concurred in a 2015 case involving the licensing of eyebrow threading,

the Texas occupational licensure regime, predominantly impeding Texans of modest means, can seem a hodge-podge of disjointed, logic-defying irrationalities, where the burdens imposed seem almost farcical, forcing many lower-income Texans to face a choice: submit to illogical bureaucracy or operate an illegal business? Licensure absurdities become apparent when you compare the wildly disparate education/experience burdens visited on various professions. The disconnect between the strictness of some licensing rules and their alleged public-welfare rationale is patently bizarre.

However, once licensing is codified in law, licensees “guard it jealously against reform bills or legal challenges. These efforts frequently resemble the original campaigns for licensure,” the IJ writes.  

Shooting Yourself In The Foot

With delinquencies over a billion dollars, states have started playing hardball. So it’s no small matter when the state threatens to take away a person’s ability to make a living. Louisiana’s nursing board notified 87 nurses last year their student loans were in default and had to be brought current for their licenses to be renewed.

“It’s like shooting yourself in the foot, to take away the only way for these people to get back on track,” Daniel Zolnikov, a Republican state representative in Montana told the Times.

Non-payers are already punished, Zolnikov points out, “with credit scores dropping, being traced by collection agencies, just having liens. The free market has a solution to this already. What is the state doing with this hammer?”

However, when the federal government lends the money, it uses tactics other lenders can’t use to collect. Since 2010, the government has made all student loans directly. With delinquencies over a billion dollars, states have started playing hardball, going beyond garnished non-payers’ wages and liened property. “Deny professional licenses to defaulters until they take steps to repayment,” the Department of Education urged in 1990.  

In South Dakota, “Nearly 1,000 residents are barred from holding driver’s licenses because of debts owed to state universities, and 1,500 people are prohibited from getting hunting, fishing and camping permits,” the Times reports.

Jeff Barth, a commissioner in South Dakota’s Minnehaha County, says it’s “better to have people gainfully employed,” and rightly points out, “the state is taking a pound of flesh.”

Why Not Bankruptcy?

Bankruptcy gives many people a fresh start. The President has filed four times, for instance. But also, Henry Ford, Walt Disney, H. J. Heinz, Milton Hershey and many others who went on to build great fortunes filed bankruptcy.  

However, while student debt used to be dischargeable, that has, for the most part gone away. Josh Cohen, Vermont-based attorney who specializes in student loans, explained in Forbes,

Congress made student loans non-dischargeable over a period of years.

At first, [student loans] were dischargeable if they had been in repayment for five years. Then, [Congress] extended it to seven years. Then, in 1998, they removed dischargeablility except if a debtor could show that paying back the student loans would create an undue hardship. In 2005, they extended this protection to private student loans.

No one really understands why Congress felt federal loans shouldn’t be discharged. Lots of other federal debt is dischargeable, including Small Business Administration (SBA) loans and taxes.

Andrew Heaton wrote for FEE in 2013 that if student debt is “forgiven,” it really is paid either by the alumni or the taxpayer. Heaton wonders, “Why not remove this legal impediment, allowing graduates to decide for themselves the pros and cons of filing for Chapter 7, which results in a personal balance sheet purged of debt, but a horrendously blemished credit rating?”

What does a principled libertarian do? In his book The Ethics of Liberty, Murray Rothbard writes, “Relations with the State, then, become purely prudential and pragmatic considerations for the particular individuals involved, who must treat the State as an enemy with currently prevailing power.”

The state guaranteed these student loans with funds coerced from taxpayers. “Such coercion can never be licit from the libertarian point of view,” Rothbard explains.

For the student/graduate borrower, the state is their enemy, blocking their path toward financial freedom and occupational success, while extracting its pound of flesh.