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May 31, 2012 – 4:41 p.m.

GOP Offers Student Loan Bill Offsets

By Lauren Smith, CQ Staff

In a possible break to the standoff over student loan interest rates, the top House and Senate Republican leaders are offering additional proposals on how to pay for a legislative fix that the White House has generally supported in the past and did not outright reject Thursday.

“There is no reason we cannot quickly and in a bipartisan manner enact fiscally responsible legislation” to prevent a doubling of the interest rate July 1, House Speaker John A. Boehner of Ohio, Senate Minority Leader Mitch McConnell of Kentucky, House Majority Leader Eric Cantor of Virginia and Senate Minority Whip Jon Kyl of Arizona wrote in a letter to President Obama on Thursday.

Congress has been at odds since April over how to cover the $5.9 billion cost of extending the 3.4 percent interest rate on certain federally backed student loans for one year. The GOP leaders in their letter proposed two new offset schemes, many items of which the Obama administration has backed in the past in some shape or form. In response, the White House didn’t comment on the specifics but expressed openness to working out a solution.

“Earlier today, Speaker Boehner reportedly told his Republican colleagues that he thought this was a ‘phony’ issue,” said White House spokesman Matt Lehrich. “Now, he’s signed onto a letter asking the administration to work with him on a legislative fix. The president will work with members of both parties to prevent the interest rate from doubling because he understands that 7 million American college students and their families don’t think that an average $1,000 increase on the typical college student’s debt load is ‘phony.’”

The first new offset proposal offered by the Republican leaders would increase federal employee retirement contributions. The administration’s fiscal 2013 budget proposed increasing current employee contributions by 0.4 percent in each of the next three calendar years, for a cumulative increase of 1.2 percent of pay over current contributions by 2015. The Congressional Budget Office (CBO) estimates the move would generate $8 billion from 2012 to 2017 and $18 billion from 2012 to 2022.

The second new offset proposal would combine three different funding streams. It would limit the duration of borrowers’ in-school interest subsidy for subsidized federal student loans to 150 percent of the normal time required to complete their educational programs. The proposal is also included in the president’s fiscal 2013 budget request, and CBO estimates that it would generate $475 million from 2012 to 2017 and $1.1 billion from 2012 to 2022.

The second proposal also would phase down the Medicaid provider tax threshold to 5.5 percent starting in 2013, which CBO estimates would generate $4.65 billion from 2012 to 2017 and $11.3 billion from 2012 to 2022. That proposal is included in the House-passed sequester bill (HR 5652), but the administration included a similar phasing down to 3.5 percent in its fiscal 2013 budget request.

In addition, the second proposal would prevent Social Security overpayments by requiring state and local government pension payers to identify whether a worker’s pension is based on government employment. The idea, included in both the administration’s fiscal 2012 budget request and in 2011 House-passed legislation, would generate $358 million from 2012 to 2017 and $2 billion from 2012 to 2022, according to CBO.

Retroactive Fix Suggested

On Thursday morning, before the GOP letter to the president was publicly released, Boehner told a closed-door session of the House Republican Conference that “if the interest rate lapses [on July 1] because of the Democrats’ inaction, we can fix it retroactively,” according to Michael Steel, spokesman for the Speaker. Boehner also reiterated that the House has passed a “responsible” student loan bill, and is waiting on Senate Democrats, Steel said.

But Sen. Charles E. Schumer of New York, his chamber’s third-ranking Democrat, issued a statement seizing on published reports that Boehner had told the Republican Conference that Congress would probably be unable to prevent the rate hike before the end of June.

“These overheard comments by Speaker Boehner confirm our suspicions that Republicans were never serious about wanting to stop rates from doubling on college students,” Schumer said. “To many on the hard right, government should not play a role in helping students afford college. Speaker Boehner seems to be following their lead and throwing in the towel on this issue a month before the deadline.”

Likewise, House Minority Leader Nancy Pelosi, D-Calif., issued a statement, contending that “Speaker Boehner confirmed to his Conference what was already obvious: Republicans are not interested in working with Democrats to find a responsible path that would prevent the doubling of interest rates on America’s students.”

GOP Offers Student Loan Bill Offsets

Boehner has called the argument over the student loan legislation a manufactured fight and has urged his members not to fall victim to the partisan squabbles.

“The Speaker told the members that the president wants to fabricate fights on things like student loans because he’s out of ideas,” Steel said. “He doesn’t want to talk about his record or his failed policies.”

Steel said the Speaker is open to finding a bipartisan solution. “If there’s a solution that can pass both chambers, we’re ready to talk about it,” he said.

Late Thursday, Pelosi’s spokesman called the GOP overture to Obama “a complete and utter ruse,” saying it’s nothing more than “a damage control effort” aimed at covering up Boehner’s earlier remarks to his conference.

Mobilized by Campaign Speeches

Congressional Republicans earlier this spring expressed some hesitation about extending the 3.4 percent student loan interest rate. But after Obama embarked on a lobbying tour of college campuses, Mitt Romney, the presumed GOP presidential nominee, on April 23 called for action on the issue. A few days later, on April 27, the House voted 215-195 to pass a one-year extension bill (HR 4628), paid for by eliminating a preventive health care fund in the 2010 health care overhaul (PL 111-148, PL 111-152).

Before departing May 24 for its Memorial Day recess, the Senate held two show votes rejecting the parties’ competing measures to extend the interest rate for one year. Speaking on the floor before the votes, McConnell called the situation “a ridiculous staring contest.”

The Senate voted 34-62 to reject a GOP amendment, identical to the pending Senate Republican student loan bill (S 2366), that would pay for the patch by eliminating the same health care fund that House Republicans targeted.

The Senate also voted, 51-43, to reject the Senate Democratic bill (S 2343). Sixty votes were required for passage. That measure would pay for the interest rate extension by eliminating a tax preference for S corporations, which pass their income, losses, deductions and credits through to shareholders for federal tax purposes. It was the second Senate vote on the measure; Republicans on May 8 blocked cloture on a motion to proceed to the bill.

The current student loan interest rate was set in 2007, when congressional Democrats fulfilled a campaign pledge in their “Six for ’06” campaign agenda by pushing through a law (PL 110-84) that halved the rate, from 6.8 percent to 3.4 percent, over four years. Without additional legislation, about 7.4 million students will see their interest rate double July 1, when that law expires.

The interest rate break applied only to new federal student loans issued during the past four academic years. The Education Department distributes those loans annually to enable students to cover tuition expenses one year at a time. Graduates who are currently repaying older student loans have not enjoyed the special rate.

Richard E. Cohen contributed to this story.

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