The Interest Rate Fight Continues

The Democrats’ student loan bill, which would have kept the interest rate on newly-issued subsidized Stafford student loans at 3.4 percent, has come to a standstill. According to an article by Jonathan Weisman in the New York Times:

Senate Republicans on Tuesday blocked consideration of a Democratic bill to prevent the doubling of some student loan interest rates, leaving the legislation in limbo less than two months before rates on subsidized federal loans are set to shoot upward.

Along party lines, the Senate voted 52 to 45 on a key procedural motion, failing to reach the 60 votes needed to begin debating the measure. Senator Olympia J. Snowe, the moderate Republican from Maine who is retiring, voted present. Senators said quiet negotiations had begun to resolve the impasse, but Democrats sought to raise the political pressure, vowing to take to the Senate floor to show the cost of inaction for students in their states.

Republicans blamed Democrats for the impasse and suggested that they were manufacturing a political controversy instead of working out differences in private. “We all agree we’re not going to let the rate go up,” [Republican Kentucky Senator Mitch] McConnell McConnell said.

Both the Democrats and Republicans have proposed bills to keep the interest rate from doubling. Republicans in the House introduced their own bill last month to keep the interest rate low. Obama pledged to veto it.

The difference between the bills offered by the two parties comes down to how they pay for keep the rate low. The Democratic plan would keep the interest rate at 3.4 percent by closing a tax loophole that allows some wealthy Americans to avoid payroll taxes. The Republican plan would keep the rate low by cutting a preventive health care program created in President Barack Obama’s Affordable Care Act.

Because the 3.4 percent interest rate applies only to subsidized Stafford loans issued to undergraduate students for the 2011-12 school year, doubling the rate to 6.8 percent would cost students about $9 a month extra.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer