Giving Compass' Take:

• Matthew M. Chingos explains how student loan forgiveness programs can target low-income families in order to best serve the populations in most need. 

• How can debt forgiveness best serve the interests of the U.S.? What factors should be considered in loan forgiveness?

• Learn about racial disparities in student loan debt default. 

Proposals to make college free and forgive student debt have been criticized for disproportionately delivering benefits to high-income families. This pattern is difficult to reverse because students from high-income families are more likely to attain higher levels of education and to borrow more for college and graduate school. And it means policymakers seeking to forgive large amounts of debt face a trade-off between generosity and targeting.

Households with higher incomes tend to have more student loan debt. So, forgiving larger amounts of debt would distribute a larger share of benefits to higher-income households, and reducing the amount of debt forgiven should increase the share of benefits going to lower-income households.

Forgiving all education debt for households that participate in public assistance programs would concentrate benefits on low- and middle-income Americans, with the majority of forgiven dollars (60 percent) going to people in the bottom two income quintiles. About $138 billion in loans would be forgiven.

This kind of plan could be combined with a Warren-style plan. I simulate the benefits of such a plan that forgives all federal loans of public assistance participants and up to $100,000 of the loans of families making up to $25,000, with lower amounts of forgiveness for families making up to $150,000.

This hypothetical plan forgives approximately the same total amount of loans as Warren’s proposal but distributes a somewhat greater share of benefits to low-income families (16 versus 14 percent for the bottom quintile) and a significantly lower share to the highest-income families (8 versus 17 percent).

Read the full article about student loan forgiveness for low-income families by Matthew M. Chingos at Education Next.