Fact check: Biden’s student loan relief vs. GOP tax cuts
Households earning at least $250,000 a year — and individuals earning at least $125,000 — would be eligible for forgiveness of up to $10,000 in student loan debt (up to $20,000 in the case of Pell grants for low-income students). Parents who have taken out so-called Plus direct loans would also be eligible, in addition to their children.
In this tweet, the White House contrasts its plan with the sweeping tax cut passed by Republicans in 2017. The suggestion is that President Biden’s plan directly targets the middle class, unlike a GOP tax plan that would have rained down money on the rich.
There’s a reason $75,000 is so attractive to the White House. The Census Bureau said the median household income is close to $70,000. But these numbers measure different things and are therefore not directly comparable.
White House Student Loan Statistics
The White House strongly emphasized its claim that much of the loan forgiveness would go to people earning less than $75,000.
A chart appears in the White House fact sheet claiming that 87% would go to people earning less than $75,000, 13% would go to people earning between $75,000 and $125,000, and 0% would go to people earning more than $125,000.
In his remarks announcing the plan, Biden said“About 90% of eligible beneficiaries earn less than $75,000 per family.”
In fact, Biden got it wrong. The table indicates that the figures reflect “individual income” and not family income. The official transcript has not been corrected, but Biden may have been confused, as typically these payout tables are based on household (family) income. Instead, the White House reported the statistics as individual income.
Imagine a family in which the husband and wife each earn $75,000. That’s a family income of $150,000. They would probably file a joint tax return. But in the White House scenario, each person is treated as an individual.
White House officials said they were relying on an analysis by the Education Department that looked at individual income data from the Census Bureau and used what they claimed was data on stronger student loans than those provided by the Federal Reserve’s Survey of Consumer Finances (SCF). The Ministry of Education calculated the distribution based on the characteristics of people who took out student loans.
So far, a full distribution chart or methodology has not been released, only the White House chart – a fact that makes it difficult to assess. Some analysts question how the distribution estimate accounts for the rapidly changing incomes of 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 from the forgiveness of a $10,000 loan. reimbursement based on income (IDR) loan – in which someone can expect to pay less than half that amount over the life of the loan. Under IDR loans, borrowers pay a monthly percentage of their income for a specified period.
During this time, the Penn-Wharton budget model, to assess the distributive impact of the student loan scheme, used household income. White House officials confirmed there was no phasing out of income limits, just a threshold at $125,000 per individual or $250,000 per household. In doing the analyses, Penn-Wharton assumed that there was no phase-out.
For student loans, the Penn-Wharton model relies on data from the Department of Public Education and uses Fed data only for income distribution and thresholds, according to Kent Smetter from the Wharton School of the University of Pennsylvania.
The extra $10,000 for the Pell Grant is the main source of progressivity in the Biden plan, Smetters said, but it’s mostly tied to parental income, which complicates analyzes and perhaps makes the Biden plan appear 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 said zero percent would make over $125,000? The Penn-Wharton model found that about 1% of households whose debts were forgiven would earn between $212,209 and $321,699 in fiscal year 2022. About 5% would earn between $141,096 and $212,209.
The Penn-Wharton model typically displays distribution results in quintiles. But at the request of the fact checker, Smetters analyzed the numbers so we could make a direct comparison with the White House numbers. He said 66.13% of households receiving loan forgiveness would have an income of less than $75,000; for those aged 25 to 35, 62.04% would have an income of less than $75,000. Penn-Wharton said most of the canceled debt would go to borrowers in that age bracket.
In other words, at least one third would win over $75,000. It’s a different picture than the one presented by the White House.
White House officials have argued that when using household data, a direct comparison should be at the $150,000 level, which is double the $75,000 in the chart. Smetters again ran the numbers. By that standard, about 95% of loan forgiveness benefits would go to households earning less than $150,000, he said. For ages 25 to 35, he said, about 93% of benefits would go to households earning less than $150,000.
Meanwhile, the GOP’s tax plan stat — “85% of Congressional Republicans’ tax cut went to taxpayers earning more than $75,000” — is based on household income, not income. individual. The White House said that figure came from a 2018 Urban-Brookings Tax Policy Center (TPC) calculationshowing the share of the total federal tax change.
It should be noted that the Tax Policy Center uses a concept called increased cash income, which includes in income such items as employer contributions for pension plans, health insurance and payroll taxes, as well as government cash transfers such as food stamps. These elements could push some households into higher income categories. Penn-Wharton does not include these items, nor 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 reportalso found that “provisions included in the 2017 tax law reduced average federal tax rates among all quintiles in 2018.”
As we often find, since the wealthy pay the most income taxes, they end up with the most tax cuts in any widespread tax cut.
“Households in the highest income quintile, which received about 55% of all income, paid more than two-thirds of all federal taxes in 2018,” the CBO estimated. “In contrast, households in the lowest quintile, which received about 4% of all income, paid about 0.01% of federal taxes, net, that year.”
In any case, the White House distribution chart for student loan relief is based on individual income, while the claimed distribution for the GOP tax cut is based on household income.
White House officials said that even using household numbers, the student loan plan compares favorably to the GOP tax cut. The bottom four income quintiles (less than $141,000 household income in the Penn-Wharton model) should receive 94% of student loan relief, an official noted. In contrast, the TPC analysis of the Republican tax law found that the bottom four quintiles (less than $149,000 in expanded money income) received 36% 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’s not kosher to compare individual numbers with household numbers. It’s apples and oranges.
Generally speaking, student loan forgiveness is more gradual than tax reduction. But notice what happens when the analysis is apples to apples – household income of about $150,000: the student loan plan ends up benefiting about 95% of those below that income level – but the tax reduction benefited more than 35%. This contrast works in favor of the White House – but it’s not as stark as before.
Send us facts to check by filling out this form
Sign up for The Fact Checker weekly newsletter
The fact checker is a verified checker signatory to the International Fact-Checking Network Code of Principles