DC Shuttle: How to Pay for Student Loan Interest Rate Extension

On Tuesday, Senate Republicans blocked a motion to proceed on the Senate Democrats’ bill (S. 2343) to extend current interest rates on federal student loans for one year. With a vote of 52-45, the cloture motion failed to garner the needed 60 votes to proceed. Republicans objected to Majority Leader Harry Reid’s (D-NV) refusal to allow a vote on the Republicans’ alternative legislation (S. 2366). The principle difference between the two bills—which would both extend the current 3.4% interest rate for one year past the current July 1 deadline—is in the offsets. Delaying the interest rate increase to 6.8% interest for one year would cost about $6 billion, according to the Congressional Budget Office. Senate Democrats want to require shareholders who are also employees of an S corporation to pay payroll taxes on their share of the company’s profits. The Senate Republicans’ bill would eliminate the $12 billion Prevention and Public Health Fund originally created by the 2010 Affordable Care Act. A companion to the Senate Republicans’ bill (H.R. 4628) was passed by the House on April 27 despite a veto threat from the White House. During discussion on the Senate floor, Republicans condemned the Democrats’ bill for putting an unnecessary burden on job-creators during an economic downturn, while Democrats countered that the public health fund saves both lives and money. Several Republican members suggested that consensus on a pay-for provision would have been possible to reach if Senate leadership had not bypassed the usual committee process. Sen. Reid said Tuesday that the Senate will “definitely have more votes” on S. 2343 and he hopes some Republican members will change their minds on the bill. Democrats may also be exploring an option to extend the current interest rate without any offset, comparing the move to Republicans’ plan to reauthorize the Bush-era tax cuts without any offsets.

Sen. Scott Brown (R-MA) introduced two federal student financial aid bills on Tuesday. One bill (S. 2834) would pay for the one-year extension of current student loan interest rates by “reducing improper payments made by the federal government,” according to a press release. The Office of Management and Budget estimated that the federal government made about $115 billion in improper payments, including misdirected payments and overpayments. Sen. Reid questioned the efficacy of such a measure which does not specify how the improper payments would be avoided in the future. The second bill (S. 2835), aimed at increasing transparency, would require any colleges and universities which file IRS Form 990 to publish the form online. The measure would not apply to those institutions which do not file 990s, including for-profit colleges.

As a member of New England Council, we publish the DC Shuttle each week featuring higher ed news from Washington. This edition is drawn from the Council’s Weekly Washington Report Higher Education Update, of May 14, 2012.

Founded in 1925, the New England Council is a nonpartisan alliance of businesses, academic and health institutions, and public and private organizations throughout New England formed to promote economic growth and a high quality of life in the New England region. The Council’s mission is to identify and support federal public policies and articulate the voice of its membership regionally and nationally on important issues facing New England. For more information, please visit: www.newenglandcouncil.com.


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