Senate Takes Up Partisan Debate on Student Loan Interest Action

The U.S. Senate this week will be taking up a bill intended to prevent interest rates on student loans from doubling on July 1. Even though both sides agree that keeping that keeping the rates low is in everyone’s best interest, competing ideas on how to pay for the bill are creating a partisan battle.

The Senate is scheduled Tuesday to vote on Senate Bill 2343. The bill would prevent an interest rate freeze on federally subsidized Stafford loans from lapsing as scheduled on July 1. If the freeze lapses, the interest rates on those loans would effectively double on that date for about 7.4 million borrowers.

Because the bill is projected to cost some $6 billion, a fight has begun on how to pay for it.

Senate Democrats, sponsors of the bill, want to increase Social Security and Medicare payroll taxes on certain high-income owners of S-corporations. Specifically, the bill would lift an exemption under the current tax code that allows shareholders earnings more than $200,000 in an S-corp to exempt some of their income from S-corporations from payroll taxes.

House Republicans, meanwhile, have their own bill that calls for the elimination of a preventive health fund created in 2010 by the health care reform package.

While the vote Tuesday is to move forward with formal debate on the bill, lawmakers and others took up the public debate Monday.

Sen. Tom Harkin (D-Iowa) testified Monday on the Senate floor against the Republican plan to eliminate the preventative care program. “Anti-healthcare reform demagoguery,” he called it (quoting a New York Times Sunday editorial).

Sen. Jon Kyl (R-Ariz.) said Monday that the Democratic plan would be a permanent job killer, since it pays for a one-year extension by permanently imposing more taxes on high-income earners.

And President Obama applied pressure Monday. “As the economy continues to recover, and at a time when market interest rates are at historic lows, students who rely on loans to finance postsecondary education should not be burdened with additional college debt,” the White House said in a statement.

Stafford loans are made to low- and middle-income students. The Department of Education estimates students will borrow $31.6 billion in Stafford loans in the year beginning July 1, average $4,226 for each student.

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