Tags: senate | gop | student | loan

Senate GOP Blocks Student Loan Freeze

Tuesday, 08 May 2012 12:54 PM


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U.S. Senate Republicans blocked Democrats’ proposal to cover the cost of a one-year freeze in government student loan interest rates by requiring some professional services firms to pay withholding taxes on their income.

The Senate, in a 52-45 vote with 60 required, didn’t advance the plan to avert a July 1 increase in college-loan interest rates to 6.8 percent from 3.4 percent.

“Over the last few weeks, Senate Republicans have repeatedly claimed they support efforts to keep interest rates low for federal student loans,” Senate Majority Leader Harry Reid said before the vote. The Nevada Democrat urged Republicans to “end the needless filibuster” of the Democratic proposal.

Republicans said they opposed the measure because they wanted a chance to offer another way to cover the $6 billion cost of the interest rate freeze.

The Democrats’ bill would finance it by requiring law, accounting and other professional services firms with three or fewer shareholders to pay withholding taxes on annual income of more than $250,000. The firms, known as S corporations, currently can treat their income as profit and avoid the withholding tax.

“We don’t think young people should have to suffer any more than they already are as a result of this president’s failure to turn the economy around,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican. He said Congress shouldn’t pay for the rate freeze by “raising taxes on the very businesses we’re counting on to hire these young people.”

Public-Health Fund

Senate Republican leaders said they back a bill passed by the House that would cover the proposal’s cost by abolishing a public-health fund created by President Barack Obama’s health- care overhaul.

Before last month’s House vote, Speaker John Boehner, an Ohio Republican, said Democrats had supported taking $5 billion from the fund to finance an extension of a payroll tax cut.

Reid said today that “any fluff that was in that program is gone” and added, “Some would say we’ve cut far too much out of it.” He said he would have allowed a vote on the Republican proposal to pay for the measure if Republicans had agreed to take up the Democratic proposal.

The House passed its bill, H.R. 4628, on a 215-195 vote April 27, during the same week that Obama visited three college campuses to press Congress to continue the lower interest rate.

‘Drive a Wedge’

Democrats are trying to “drive a wedge between Republicans and a constituency they are trying to court” before the November elections, McConnell said today in a Senate floor speech.

“It’s not exactly a state secret that Senate Democrats have turned the Senate floor into an extension of the Obama campaign,” McConnell said.

The Obama administration yesterday endorsed the Senate bill and has said it would veto the House bill because of its method of financing the interest-rate freeze. In a statement, the White House said it was “pleased” that the Senate bill would cover the rate freeze “in a fiscally responsible manner.”

Democratic leaders haven’t said whether they will seek to bring another student loan proposal to the floor before July 1.

“Obviously we’re not going to let this thing die,” Senator Tom Harkin, an Iowa Democrat, told reporters today. “We’ll figure something out.”

Congress could adjust the interest rate on the loans later because students don’t start paying off loans until they graduate.

The bill is S. 2343.

© Copyright 2014 Bloomberg News. All rights reserved.

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