Student loan bill blocked by GOP in Senate; rates set to rise

Posted Tuesday, May 15, 2012 in News

Student loan bill blocked by GOP in Senate; rates set to rise

WASHINGTON D.C. -- Senate Republicans blocked a Democratic bill Tuesday to preserve low interest rates for millions of college students' loans.

The 52-45 vote to begin debating the legislation fell eight votes short of the 60 needed to proceed.  Both parties expect a compromise, but in the meantime, both will use the stalemate to paint the other as using the issue for campaign purposes. Keeping the current interest rates will cost $6 billion, and predictably, each side has a different idea about how to pay for it.

Republicans would like to pay for lower student loan interest rates by dropping preventative health care for women, including mammograms and pap smears.  Democrats would keep the rates the same by increasing tax on investment income.

The vote was nearly party-line, with Reid voting "no" to give himself the procedural ability to demand another vote once a compromise is reached. Sen. Olympia Snowe, R-Maine, voted "present," saying she wanted to avoid any vote that might affect a private education business of her husband, John McKernan.  Sen. Susan Collins voted no.

The Democratic bill would keep interest rates for subsidized Stafford loans at 3.4 percent for an additional year, rather than doubling automatically for new loans starting July 1. It would have no impact on current loans.

A 2007 law approved by a Democratic Congress gradually lowered the rates but pops them back up to 6.8 percent in July because lawmakers were worried about costs.

Stafford loans are for low- and middle-income students. The Education Department projects the measure would affect 7.4 million undergraduates borrowing money in the year starting July 1.

Republicans oppose the Democratic plan to pay for the bill by forcing high-earning stockholders in some privately owned corporations and professional practices to pay additional Social Security and Medicare payroll taxes. Even if it passed the Senate, it would have no chance of emerging from the Republican-controlled House.

Democrats reject the GOP version, which drums up money for the extension of low rates by abolishing a preventive health program created by Obama's 2010 health care overhaul. Republicans are demanding a Senate vote on their measure but it cannot pass that chamber, and the White House has threatened to veto a House-passed bill that uses that same funding mechanism.

Neither party wants to be blamed for letting students' costs grow larger in the middle of the presidential and congressional campaigns, so both have strong motivations to cut a deal.

Stafford loans are generally paid off over a decade or more after graduation. Allowing interest rates to double would cost the typical student about $1,000 over the life of the loan, the administration says.

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