Households earning at least $250,000 a year, and individuals earning at least $125,000, would be eligible to pay off up to $10,000 in student loan debt (up to $20,000 for Pell Grants for low-income students). Parents who took out direct loans known as Plus would also be eligible, along with their children.
In this tweet, the White House contrasts its plan with the sweeping tax cut Republicans approved in 2017. The suggestion is that President Biden’s plan is aimed squarely at the middle class, in contrast to a GOP tax plan that allegedly showered money on the rich.
There’s a reason $75,000 is so attractive to the White House. The Census Bureau He says the median family income is about $70,000. But these numbers measure different things, so they’re not directly comparable.
White House Student Loan Statistics
The White House has been very emphatic about its claim that much of the loan forgiveness would go to people making less than $75,000.
A frame appears on the White House fact sheet stating that 87 percent would go to people earning less than $75,000, 13 percent would go to people earning between $75,000 and $125,000, and zero percent would go to people earning more than $125,000.
In his comments announcing the plan, Biden said“About 90 percent of eligible beneficiaries earn less than $75,000 per family.”
Actually, Biden was wrong about that. The table says the numbers reflect “individual income,” not family income. The official transcript has not been corrected, but perhaps Biden got it wrong, because such distribution tables are usually based on household (family) income. Instead, the White House presented the statistics as individual income.
Imagine a family where the husband and wife earn $75,000 each. That’s a family income of $150,000. They would probably file a joint tax return. But under the White House scenario, each person is treated as an individual.
White House officials said they relied on an analysis by the Department of Education that studied individual income data from the Census Bureau and used what they claimed was stronger student loan data than that provided by the Survey. of Consumer Finance (SCF) of the Federal Reserve. The Department of Education calculated the distribution based on the characteristics of people who have taken out student loans.
So far, no full distribution table or methodology has been published, only the White House graph, a fact that makes evaluation difficult. Some analysts question how the distribution estimate captures the rapidly changing incomes from 2020 and 2021 to 2022, and the “life cycle effects” of people as they age. Another issue is how the loan forgiveness benefit is calculated when paying off a $10,000 loan. income-based reimbursement Loan (IDR): where someone could only expect to pay less than half that amount over the life of the loan. With IDR loans, borrowers pay a monthly percentage of their income over a set period of time.
Meanwhile, the Penn Wharton Budget Model, in assessing the distributional impact of the student loan plan, used household income. White House officials confirmed that there is no phasing out of income limits, only a limit of $125,000 per person or $250,000 per household. In conducting the analyses, Penn-Wharton assumed there was no phase-out.
For student loans, the Penn-Wharton model is based on data from the Department of Public Education and uses Fed data only for income distribution and thresholds, according to Kent Smith’s from the Wharton School of the University of Pennsylvania.
The extra $10,000 for the Pell Grant is the main source of progressivity in Biden’s plan, Smetters said, but that’s mostly related to parental income, which complicates analyzes and possibly makes Biden’s plan look more progressive than it really is. Penn-Wharton hopes to refine the analysis in the coming weeks once it receives permission to use the confidential National Center for Education Statistics.
Remember how the White House says zero percent would earn more than $125,000? The Penn-Wharton model found that about 1 percent of households with canceled debt would earn between $212,209 and $321,699 in fiscal year 2022. About 5 percent would earn between $141,096 and $212,209.
The Penn-Wharton model generally displays distribution results in quintiles. But at the fact-checker’s request, Smetters ran the numbers so we could make a direct comparison with the White House figures. She said that 66.13 percent of households receiving loan forgiveness would have income below $75,000; for ages 25 to 35, 62.04 percent would have incomes below $75,000. Penn-Wharton said most of the forgiven debt would accrue to borrowers in this age range.
In other words, at least a third would earn more than $75,000. That’s a different picture than the one the White House presented.
White House officials argued that when household data is used, a direct comparison should be at the $150,000 level, double the $75,000 in the table. The butterflies ran the numbers again. By that standard, about 95 percent of loan cancellation benefits would go to households earning less than $150,000, he said. For ages 25 to 35, she said, about 93 percent of benefits would go to households earning less than $150,000.
Meanwhile, the statistic on the GOP tax plan—“85% of the tax cut from Republicans in Congress went to taxpayers making more than $75,000”—is based on family income, not income. individual income. The White House said this number comes from a 2018 Urban-Brookings Tax Policy Center (TPC) estimateshowing the portion of the total federal tax change.
It is worth noting that the Center for Fiscal Policy uses a concept called expanded cash income, which includes as part of income items such as employer contributions for retirement plans, health insurance, and payroll taxes, as well as government cash transfers, such as food stamps. These items could push some households into higher income categories. Penn-Wharton does not include such items, and neither does the Census Bureau. (The White House fact sheet linked to the Census Bureau when discussing income limits.)
TPC’s analysis shows that taxes were cut at all income levels in the 2017 bill. The Congressional Budget Office, in a 2021 reportit also found that “provisions included in the 2017 tax law lowered average federal tax rates among all quintiles in 2018.”
As we often note, since the rich pay the most income taxes, they end up with the most tax cuts in any general tax cut.
“Households in the highest income quintile, which received about 55 percent of all income, paid more than two-thirds of all federal taxes in 2018.” the CBO estimated. “In contrast, households in the bottom quintile, which received about 4 percent of all income, paid about 0.01 percent of federal taxes, on a net basis, in that year.”
In either case, the White House distribution table for student loan relief is based on individual income, while the distribution claimed for the GOP tax cut is based on household income.
White House officials said that even when household numbers are used, the student loan plan compares favorably with the GOP’s tax cut. The bottom four income quintiles (less than $141,000 in household income in the Penn-Wharton model) are projected to receive 94 percent of student loan relief, one official noted. By contrast, TPC’s analysis of the Republican tax law found that the bottom four quintiles (less than $149,000 in expanded cash income) received 36 percent of the federal tax cuts.
Someone in the White House thought it would be smart to have a quick comparison between the student loan plan and the GOP tax cut. But it is not kosher to compare individual numbers with household numbers. That’s apples and oranges.
Generally speaking, student loan forgiveness is more progressive than tax relief. But notice what happens when the analysis is apples to apples: Family income of about $150,000: The student loan plan ends up benefiting about 95 percent of those below that income level, but the reduction of taxes benefited more than 35 percent. That contrast works in the White House’s favor, but it’s not as stark as it used to be.
Send us data to check by filling in this form
Sign up for The Fact Checker weekly newsletter
Fact checker is verified signatory to the code of principles of the International Fact-Checking Network