by CQ.com and Lauren Smith
As Republicans blasted a Democratic plan to pay for a student loan interest rate break by closing a corporate tax loophole, Sen. Lamar Alexander, R-Tenn., took to the floor Wednesday to announce a new bill.
Alexander proposed an alternative that would draw upon money helping fund the new health care law (PL 111-148, PL 111-152). The bill, which has not yet been filed, would use profits from the federal government’s student loan program that currently offset costs associated with the health care law.
Alexander said that would provide the $6 billion that the Congressional Budget Office estimates it would cost to extend the current 3.4 percent student loan interest rate for one year, plus an additional $2 billion to $3 billion that could be used to help shore up the Pell grant shortfall expected in the next couple of years.
“The main reason why tuition is going up and loans are going up is President Obama and his health care policy,” Alexander said. “Federal health care mandates on states are soaking up the money that states would otherwise spend on colleges and universities. Federal health care policies are the reason tuition is up, and tuition is up is the reason debt is up.”
Senate Majority Leader Harry Reid, D-Nev., introduced a bill (S 2343) late Tuesday that would head off a scheduled doubling of the student loan interest rate, paid for by closing a tax loophole on S corporations, companies that pass their income, losses, deductions and credits through to shareholders for federal tax purposes. Under the Democrats’ proposal, shareholders who are also employees would be subject to Social Security and Medicare payroll taxes on their dividends and shares of the company’s profits in addition to their wages.
House Democrats are expected to introduce a companion measure Wednesday, but they are also discussing alternatives.
Senate Minority Leader Mitch McConnell, R-Ky., said Wednesday that the S corporation proposal would make hiring even harder for small businesses. “We happen to think that at a time when millions of Americans — and countless college students — can’t even find a decent job, it makes no sense whatsoever to punish the very businesses we’re counting on to hire them,” he said. “It’s counterproductive, and it’s wrong.
More News about Student Loan Interest Rates:
Senate Democrats Prepare Legislation That Would Block Increase in Student-Loan Interest Rate by the Chronicle of Higher Education
“Let’s be honest,” McConnell continued. “The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election.”
Republicans also took aim at Obama’s two-day college tour aimed at ratcheting up public pressure over the student loan interest rate issue.
“Look, if the president was more interested in solving this problem than in hearing the sound of his own voice or the applause of college students, all he’d have to do is pick up the phone and work it out with Congress,” McConnell said. “We don’t want the interest rates on these loans to double in this economy. We don’t want today’s graduates to have to suffer any more than they already are as a result of this president’s failure to turn the economy around more than three years into office.”
In 2007, the Democratic-majority Congress cleared legislation (PL 110-84) that temporarily reduced the interest rate on subsidized Stafford Loans to undergraduate students from 6.8 percent to 3.4 percent for four academic years. Without additional legislation, about 7.4 million students will see their interest rate double on July 1.
Conservative Republicans have contended that the interest rate break was not meant to be a permanent reduction. Enactment of a short-term extension, they have argued, would be a political gesture in an election year that would simply delay a problem facing college students who are amassing large debts.
Republicans also argue that federal loans and grants have freed colleges and universities from pressure to hold down cost increases.
But Republican opposition to extending the interest rate break began to crumble Monday, when Republican presidential candidate Mitt Romney urged lawmakers to back the Obama administration’s request for an extension.
GOP support for extending the lower rate appears to be developing more slowly in the House than in the Senate.
House Education and the Workforce Chairman John Kline, R-Minn., has said he is exploring options with his GOP colleagues, but has not elaborated on what he has in mind.