Senate Majority Leader Offers Plan to Stop Student Loan Rate Hike

On July 1, federally subsidized student loan rates double; Republicans say their plans have been ignored

Senate Majority Leader Harry Reid, D-Nev. (Photo: AP) Senate Majority Leader Harry Reid, D-Nev. (Photo: AP)

Student loan rates will double July 1 if Congress does not change course.

In a speech on Thursday at the University of Nevada, Las Vegas, President Obama said congressional Republicans were stalling in passing legislation to stop such a hike. However, Republicans say the administration has ignored their proposals to stop such a hike.

Also on Thursday, Senate Majority Leader Harry Reid, D-Nev., issued two proposals to pay for a one-year extension of the current student loan rates in a letter to House Speaker John Boehner, R-Ohio, and Minority Leader Mitch McConnell, R-Ky.

On July 1, federally subsidized student loan rates jump from 3.4% to 6.8%, Obama said. While both parties agree that a one-year extension of the current rate should continue, they are at odds over how to pay for the government's $6 billion expense to keep the rate intact.

“My message to Congress is simple: ‘Let’s get back to work,’” Obama said during his speech. “How many people can afford to pay an extra thousand dollars if you’re a student just because Congress can’t get its act together?”

In his letter, Reid told Boehner and McConnell, R-Ky., that he is proposing two measures to stop the hike. The first proposal expands an offset that recently passed the Senate on a bipartisan vote of 74-22 as part of the transportation jobs bill, Reid said. The combination of the two proposals, he said, “offers a bipartisan path forward to break the impasse currently facing the student loan bill.”

The two proposals Reid issued are as follows:

  • Reforms to employer pension payment contributions. The proposal would create a “stabilization range” for employers to compute their pension liabilities. Instead of being forced to use the two-year corporate bond rates in computing their pension liabilities, the new proposal would allow them to compute liabilities using rates for a 25-year period within which the two-year rates must fall. To the extent that the two-year rates fall outside this range, the company would be allowed to use a rate closest to the two-year rate that falls within the stabilization range to compute its pension funding requirements. This more flexible approach would narrow fluctuations in computing pension contributions and result in businesses taking fewer tax deductions for contributions.
  • Change contributions to Pension Benefit Guaranty Corp. premiums. In addition, Reid proposed increasing premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corp. Currently, employers pay a flat dollar premium of $35 per pension plan participant as well as a variable premium equal to $9 for each $1,000 that the plan is underfunded.

Boehner and Majority Leader Eric Cantor, R-Va., sent a letter to Obama on Wednesday reminding him of a May 31 letter they sent to him with their own proposals to stop such a student loan hike. However, the lawmakers complained their letter has fallen on deaf ears.

Both Boehner and Cantor told Obama that the recent “disappointing jobs report showed far too many Americans are still struggling in this economy. Young people in particular have been hit hard, with only half of recent college graduates able to find full-time work.” Both lawmakers told Obama that the current reduced rates for Stafford student loans should be extended for another year.

However, Boehner and Cantor told Obama that they “have not received any response from your administration.” In fact, they said, in recent public comments Vice President Joe Biden and Education Secretary Arne Duncan “both seemed unfamiliar with the proposals we sent you. With all of the great economic challenges facing our country, there is no reason to manufacture political fights where there is no policy disagreement.”

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