Research & Commentary: Illinois Law Governing Licensing and Student Loans Could Be a Model for Other States

Published August 30, 2018

In some states, entrepreneurs can have their professional licenses denied or revoked if they default on their student loans. According to the Illinois Policy Institute, 19 states have laws like these on the books. The New York Times found more than 8,700 cases in recent years in which borrowers had lost their credentials for defaulting on a loan, a number that is likely understating the problem.

Fortunately, several reforms are being considered at the state and federal levels that would end this policy. For example, Illinois lawmakers recently passed the Career Preservation and Student Loan Repayment Act, which prevents Prairie State residents who are considered delinquent on student loan payments from having their professional licenses denied, revoked, or suspended.

Under previous Illinois law, the Department of Financial and Professional Regulation could not process a license or a license renewal to anyone in default on educational loans unless they were performing satisfactorily under a repayment plan.

The Illinois Policy Institute (IPI) argues the previous Illinois licensing law made it more difficult for college graduates to find gainful employment and repay their student loans. IPI points to a Brookings Institution study that estimates nearly 40 percent of student loan borrowers are expected to be at risk of defaulting on their loans by 2023. In Illinois alone, 61 percent of Illinois graduates from four year universities in 2016 had educational debt; this does not include those students borrowing money to attend community college, vocational or technical programs.

A national effort to end license revocations is now being proposed by Sens. Marco Rubio (R-FL) and Elizabeth Warren (D-MA). The bill would bar states from denying, suspending, or revoking the driver’s and professional licenses of those who have defaulted on federal student loans.

Illinois’ new law attacks another aspect of what has become a growing problem in many states: the maze of rules, regulations, testing, and fees entrepreneurs must face to receive a professional license. Rejecting a license application because of student loan debt is counterintuitive; it makes it even more difficult for individuals to repay these loans by blocking an opportunity to generate income.

This requirement is similar, in many respects, to burdensome and destructive occupational licensing requirements frequently imposed by states on workers in countless industries. Morris Kleiner, a University of Minnesota professor and a chair in labor policy for the AFL-CIO, examined the effects of occupational licensing laws on the price and quality of products and found these laws unnecessarily harm consumers by increasing prices of goods and services without providing any appreciable quality increases, according a 2015 article published by The Hamilton Project.

Eliminating excessive licensing requirements and permitting voluntary certification are viable options that would empower consumers to choose the best services on their own, thereby allowing the free market to flourish. Draconian occupational regulations such as registration, certification permits, and licensure give bureaucrats undue influence on dozens of industries. This creates an economic environment that’s rife with cronyism and exceedingly difficult for new and existing businesses to operate or expand.

Occupational licensing laws have an especially strong effect on lower-income consumers and entrepreneurs, and the licensing process places unnecessary hurdles for jobseekers. On average, low- and medium-income jobseekers in licensed professions are required to spend nine months in education or training, pass an exam, and pay more than $200 in fees, according to the Institute for Justice. Illinois’ new law provides a model for states to follow that will help remove an unnecessary barrier for entrepreneurs and give them to chance to start a new business and help pay off their student debt.

The following documents examine occupational licensing in greater detail.

Rauner Signs Bill Preventing Professional License Suspension for Student Loan Delinquencies
In this article, Amy Korte of the Illinois Policy Institute examines Illinois’ new law that prevents Illinoisans who fall behind on student loan payments from having their professional licenses denied, revoked, or suspended. “The new law is a step in the right direction toward dismantling the roadblocks that too often get in the way of struggling Illinoisans trying to earn a living. But lawmakers should go beyond amending the educational loan provision in Illinois’ administrative code: Illinois’ professional licensure requirements themselves should be re-examined,” wrote Korte.

The Effects of Occupational Licensure on Competition, Consumers, and the Workforce
This paper by the Mercatus Center at George Mason University examines the costs and benefits of occupational licensing regulations on consumers, the economy, and the workforce, and it also recommends areas in need of reform.

Restoring the Right to Earn a Living: A Common-Sense Solution to Occupational Licensing Job Barriers
In this paper, Goldwater Institute Director of National Litigation Jon Riches examines the burdens inflicted by onerous job licensing requirements in Louisiana. “For too many professions, occupational licensing requirements do not exist to protect public health and safety—rather, they exist to protect incumbent industries or special interests,” Riches wrote. “The percentage of jobs requiring a license has exploded over the last 60 years, and in a state like Louisiana, which has slow job growth and low wages, thousands of job-seekers are being unnecessarily blocked from meaningful work.”

Bottleneckers Beware: Occupational Licensing Reform Bills Filed Across the Nation
Matt Powers of the Institute for Justice examines the growing trend in states to reduce burdensome occupational licensing laws, which impede dozens of industries nationwide.

Right to Earn a Living Act
The Goldwater Institute argues the burdens of occupational licensing in many states are excessive and should not be placed on those who want to earn an honest living. Instead, governments should bear the burden of justifying the restrictions. The authors argue states should enact a Right to Earn a Living Act to protect freedom of enterprise. By doing so, they will ensure that economic opportunity is not merely a promise but a reality.

Occupational Licensing: Ranking the States and Exploring Alternatives
Adam Summers of the Reason Foundation addresses the impact of occupational licensing on the labor market. Service quality and health and safety “may actually be diminished by occupational licensing,” he finds. Through high prices, reduced competition, and arbitrary requirements, the government thus hurts the average consumer and worker. Licensing is for special interests, not public interests, he writes. These laws hurt the poor and minorities disproportionately, he notes, proving the government is not helping those they say they are.

The Prevalence and Effects of Occupational Licensing
Morris Kleiner and Alan Krueger note research shows nearly 30 percent of the U.S. workforce is required to obtain a license to work. The authors find licensing costs consumers more and reduces their ability to choose services for themselves.

License to Work: A National Study of Burdens from Occupational Licensing
The Institute for Justice conducted a national study to measure how burdensome occupational licensing laws are for low-income workers. The authors found “the barriers imposed by licensure schemes on those wishing to enter the 102 lower-income occupations we studied are not only widespread but often severe, arbitrary and irrational.” The authors conclude, “As millions of Americans struggle to find productive work, one of the quickest ways legislators can help is to simply get out of the way: Reduce or remove burdensome regulations that force job-seekers and would-be entrepreneurs to spend precious time and money earning a license instead of working.”


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