Research & Commentary: Denying Licenses to Those in Student Loan Default is Bad Policy for Georgia

Published February 21, 2019

Georgia is one of 15 states where entrepreneurs can have their professional licenses denied or revoked if they default on their student loans. Although many of these laws were designed to hold borrowers accountable and discourage defaults, they actually make it more difficult for borrowers to find the jobs necessary to pay off their loans. According to CNBC, U.S. college graduates currently owe around $1.4 trillion in student loans combined, a mountain of personal debt that only promises to rise. 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.

In Georgia alone, 60 percent of students graduating in 2016 have outstanding student loans,  according to the Institute for College Access & Success. These laws place an unnecessary burden on the hundreds of thousands of college graduates seeking to find gainful employments in order to pay off their loans. Burdensome occupational licensing laws often produce negative economic effects, such as less competition and higher costs. Even worse, these onerous regulations rarely yield better or safer services.

In many instances, licensing laws are unnecessary, which is why many states are passing reforms to reduce the authority of state licensing boards and reduce the impact of licensing laws. In Georgia, a new bill was introduced that would repeal the sections of current law allowing for the suspension or denial of licenses for those in default. HB 42 would also add new protections for borrowers in default. The bill’s language is clear and concise: “No licensing entity shall refuse to issue nor suspend or revoke a license to an applicant or licensee who is a borrower in default who is not in satisfactory repayment status.”

When implemented, reforms making occupational licenses more available to the public have lowered the barrier to entry for entrepreneurs and employees. Even better, they have spurred economic growth, promoted competition, decreased business costs, and improved quality of services. In fact, a new study from the Institute for Justice (IJ) found occupational licenses rarely improve consumer outcomes and substantially increase costs. Nationally, around 20 percent of professions are licensed, a dramatic surge from 5 percent in the early 1950s.

Unfortunately, these licenses have led to fewer jobs and economic opportunities. The IJ study found that licensing-related job loss in 2018 ranged from 7,000 jobs in Rhode Island to 196,000 in California. Furthermore, IJ conservatively estimates that occupational licensing reduces national economic activity by at least $6 billion per year. A broader estimate in the same study that took into account the full scope of economic ramifications related to licensing approximates the reduction in economic activity could be up to $184 billion. At the state level, these losses range from $675 million in Rhode Island to more than $22 billion in California.

Georgia’s new law would also address 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.

In many respects, this requirement is similar to the 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.

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. Georgia’s new law would 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.

Georgia Should Not Suspend Occupational Licenses of Those in Default of Student Loans
In this letter to Georgia lawmakers, a group of free market and business groups asks Georgia to end the practice of suspending licenses for borrowers in default of student loans.

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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