Student loan troubles? Illinois officials can suspend your professional license

Almost a quarter of Illinois workers need licenses to work in their professions, and workers who default on student loans can face the suspension of those licenses.

Illinoisans behind on their student loans could see their financial situations go from bad to worse due to one controversial policy in Illinois’ licensing regime.

If an Illinois licensed worker falls behind on student loan payments, state officials can suspend that person’s license, making it even harder for him or her to earn a living and get back on his or her feet, according to an article in The New York Times. This can make it nearly impossible for someone in a licensed profession who falls behind on loan payments to earn a living and repay the loan.

State licensing laws too often drag down residents trying to make a living. And according to new reporting and research, that holds true in Illinois.

Loan sharks

Illinois is among 19 states that can refuse to renew or grant professional or occupational licenses to people who default on their student loans, according to the Times.

Illinois law directs the Department of Financial and Professional Regulation to refuse a license or a license renewal to anyone in default on educational loans or scholarships guaranteed by any Illinois state agency, and allows the department to grant or renew licenses only if the licensee in default is performing satisfactorily under a repayment plan.

Cosmetologists and dental hygienists are among those who have been ensnared by this law.

With $1.4 trillion in student loan debt nationally, and 1 in 4 borrowers falling behind on payments or in default, rising student loan debt is a significant problem for many Illinoisans. A September 2017 report from the Institute for College Access and Success found that 61 percent of Illinois graduates of four-year public and private colleges and universities from the class of 2016 had educational debt, totaling $29,271, on average. And that’s not even counting Illinoisans who have borrowed money to attend community college, vocational or technical programs.

While the penalty for defaulting on educational debt is harsh, the department rarely resorts to suspending a professional license for student loan defaults, according to a statement by an employee of the Illinois Student Assistance Commission, reported in the News-Gazette. Some have noted that the law appears to function well as an encouragement to borrowers to repay their loans.

But the hardships that often drive borrowers to fall behind on payments, and the seeming illogic of making it more difficult for defaulting borrowers to earn an income inspired legislation in the General Assembly in 2016. A bill to repeal the provision that requires the Department of Financial and Professional Regulation to deny or refuse to renew the professional licenses of Illinoisans who have defaulted on student loans passed the Illinois Senate 51-0 in April 2016, but it died in the House of Representatives.

Suspending the professional license of someone in financial difficulty can wreak havoc on that person’s life. But the solution goes beyond amending the educational loan provision in the statute: Illinois’ professional licensure requirements themselves should be re-examined.

Illinois should reduce licensing burdens

Like other states, Illinois makes it harder for people to enter many occupations by making it illegal to work in these fields without obtaining a state-issued license, which can be a time-consuming and expensive process.

It’s not only relatively well-paid professionals such as doctors, engineers and accountants who need licenses to practice. Barbers, nail technicians and locksmiths are all licensed in Illinois, too. Nearly 25 percent of Illinois workers need a license to work in their fields, according to a 2015 Brookings Institution report.

Licensure – requiring a government permission slip for someone to work in his or her chosen field – is a severe form of state-imposed quality control. It is often an unnecessary method for protecting the public, is frequently poorly suited to that end, and reduces competition by erecting a barrier to entry for people trying to gain a foothold in a given profession. This hurts job seekers and would-be entrepreneurs, as well as consumers, who face restricted choice and higher costs for services.

Illinois could boost opportunity for residents by overhauling outdated and ineffective licensing restrictions.

According to a report by the Institute for Justice, the best way to protect against harm from incompetent or dishonest service providers and to reward outstanding professionals is through market-based mechanisms such as online reviews, voluntary, third-party certification, and voluntary insurance and bonding. Only when market-based solutions are inadequate should the government step in. And licensure should be the last resort among government interventions, behind measures such as mandatory inspections and insurance.

In a state with a lackluster economy and lagging jobs growth, policymakers should do everything possible to eliminate excessive licensure requirements that can make it even tougher for residents to earn a living.