US Will Have to Write Off Billions in Student Debt Due to Deaths

The US government will have to write off billions of dollars of student loans from borrowers who died during the pandemic, adding another complication to a system ill-equipped to handle the resumption of payments this fall.

(Bloomberg) — The US government will have to write off billions of dollars of student loans from borrowers who died during the pandemic, adding another complication to a system ill-equipped to handle the resumption of payments this fall.

Some 300,000 borrowers are estimated to have died since March 2020 when the pause was initiated, according to Adam Looney, an economist at the University of Utah whose research includes student loan policies. 

Even if that number were cut in half — which demographers say would be quite conservative — the government likely lost out on over $5 billion, according to a Bloomberg analysis of government data.

Death is one of the only ways to get out of paying student loans, as the debt dies with the borrower. Payments are set to resume in October — which is likely to be fraught with logistical challenges due to fewer companies administering the loans and outdated computer systems.

The payments lost due to borrowers who have died is just a small fraction of the total, but it’s still meaningful to a government with shakier finances. Fitch Ratings downgraded the US’s credit rating last week, highlighting the debt pile that the nation has built up in recent years, largely due to pandemic stimulus and tax cuts.

The Department of Education did not respond to requests seeking comment.

The calculation to arrive at the lost revenues is twofold. First, Bloomberg asked economists and demographers to estimate how many borrowers died during the forbearance period. Loan holders skew older now than before the pause and thus have a higher probability of dying.

Looney, who has testified before Congress on the implications of President Joe Biden’s student loan policies, applied the death rate to the ages of borrowers, which amounted to 93,000 deaths per year. Several of his peers say the figure is reasonable, including Ronald Lee, a demographer and economist at the University of California, Berkeley.

“The number is entirely plausible,” Lee said. “I thought that was impossibly high. But it is not, not at all.”

Looney cautioned that the estimate — about 300,000 in total — could be cut in half after factoring in differences in income, education, occupation, marital status and other factors that affect health and longevity. However, Philip Cohen, a professor of sociology at the University of Maryland, said that would be too big of a cut, and just reducing it by 25% would be “plenty.”

Bloomberg then calculated what the average borrower owes, dividing the total amount outstanding ($1.6 trillion) by the total number of borrowers (46 million). That came out to roughly $35,720 per person.

By multiplying that by the conservative estimate of 150,000 deaths, it amounted to about $5.36 billion of lost student-loan payments.

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