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Student Loan Fight Moves to Senate

While I was vacationing, a long-simmering deadline to avoid a doubling in federal student loan interest rates became a cause célébre among the Democrats and the White House. They actually got Republicans to flip on the issue; the House GOP budget called for allowing the doubling to occur, but suddenly, John Boehner unveiled a plan to avert the rate increase. They used the health care law’s Prevention Fund as the pay-for, however, and had to pass it without Democratic support.

Now the Senate will try their hand at passing a student loan bill, and their pay-for is just as objectionable to Republicans as the House pay-for was to Democrats.

With Congress returning from a weeklong spring recess, the Senate plans to vote Tuesday on whether to start debating a Democratic plan to keep college loan interest rates for 7.4 million students from doubling on July 1. The $6 billion measure would be paid for by collecting more Social Security and Medicare payroll taxes from high-earning owners of some privately held corporations.

Republicans want a vote on their own bill, which like the Democrats’ would freeze today’s 3.4 percent interest rates on subsidized Stafford loans for one more year. It would be financed by eliminating a preventive health program established by President Barack Obama’s health care overhaul.

Each side scoffs that the other’s proposal is unacceptable, and neither is expected to garner the votes needed to prevail. Even so, everyone expects a bipartisan deal before July 1 because no one wants students’ interest rates to balloon before November’s presidential and congressional elections.

Democratic leaders call their pay-for the “Gingrich-Edwards” rule, invoking the names of two of the least-liked politicians they could find. Basically, rich people with S-corporations can maneuver to avoid payroll taxes, and the bill would eliminate the practice and put the proceeds toward advancing the lower student loan interest rate.

I’m not entirely sure that some compromise will be reached here. The President turned this into an electoral issue, and that had the effect of digging both sides into their positions. Obama threatened to veto the Republican version of the bill. In remarks on the Senate floor today, Harry Reid pressed that further:

Republicans claim they share Democrats’ goal of protecting 7 million students from interest rate increases.

But they insist we should pay for this proposal with unreasonable cuts to preventive health services for millions of Americans.

Republicans know their proposal could never pass the Senate. And President Obama has said he would veto more cuts to crucial, preventive health care.

Reid posited his version of the bill as closing “a loophole that allows the rich to avoid paying taxes they already owe.” But Republicans are highly unlikely to buy off on that. So I’m not at all convinced that this will end up with a resolution. And the interest rates of 7 million student loan recipients are at stake.

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David Dayen

David Dayen

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