CQ TODAY ONLINE NEWS
June 7, 2012 – 11:09 p.m.
GOP Warms to Student Loan Offer
By Lauren Smith and David Harrison, CQ Staff
Republicans signaled openness to two new proposals offered by Senate Majority Leader
In a letter to GOP leaders, the Nevada Democrat outlined two pension-related changes to cover the $5.9 billion cost of extending the current 3.4 percent interest rate on federally subsidized undergraduate loans for one year.
Reid’s first proposal would expand a change to employer pension funding contributions that the Senate overwhelmingly approved in March as a way to offset part of the cost of its surface transportation bill. That would generate approximately $9.5 billion, according to his office. Reid’s second proposal would increase the premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corp. (PBGC), to generate up to $8 billion.
“The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rate and reauthorization of the nation’s surface transportation programs,” Reid wrote. “My preference would be to use the funds raised by these two proposals to pay for both measures, and pass them immediately.”
“However, if House Republicans are still not ready to pass the transportation jobs bill, I suggest that we use part of these offsets to pay for the student-loan legislation, and pass that measure immediately so that middle-class families will not see their interest rates double on July 1,” Reid added. “The remainder of these offsets will still be available to finish completion of the transportation jobs bill once the conference committee completes its work.”
The spokesmen for Senate Minority Leader
“While we still haven’t heard from the White House on our bipartisan proposal, we are encouraged to see the majority leader drop his insistence on taxing job creators [as an offset],” said McConnell spokesman Don Stewart. “We will review these new proposals and hope that they will finally review the bipartisan proposals we sent a week ago. But bottom line, now that Democrats are willing to take this issue seriously, and not just use students as props, we may be making progress.”
The response from Boehner spokesman Michael Steel was less favorable, though he did not shut the door to Reid’s suggestion.
“The House has passed legislation to prevent student loan rates from doubling on July 1; the Democratic-controlled Senate has not,” Steel said. “We look forward to the Senate considering Senator Reid’s proposal — and if the Senate passes it, we will address it.”
The first proposal outlined by Reid would create a “stabilization range” for employers to compute their pension liabilities, similar to a provision in the Senate-passed highway bill.
Under the proposal, businesses would not have to invest as much money into their defined benefit pension plans, freeing up more money to invest in their businesses and thus increasing their tax bills.
Pension plans are funded both by annual contributions and investment returns. When interest rates are low, as they have been for the past few years, the law requires companies to bolster their pension plans to make up the lost market returns.
Under a 2006 law (PL 109-280), businesses must use a two-year interest rate average to determine how much money they need to contribute to their pension plans. Business groups have been pushing to widen that two-year window to smooth out the short-term bumps and dips in interest rates.
GOP Warms to Student Loan Offer
Language in the transportation bill would allow companies to use a range from 10 percent below to 10 percent above a 25-year average interest rate. That range would grow to 30 percent below or above the long-term average by 2016.
Although the details surrounding Reid’s latest proposal are unclear, his letter proposed expanding on the transportation bill provision as a way to further reduce the amount businesses have to invest in pensions and boost their tax obligations.
Reid said there “has been bipartisan support” for his second proposal, increasing premiums paid by employers for the insurance provided by the PBGC. 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. “To help improve the PBGC’s finances, these premiums could be increased as part of this proposal,” Reid said in his letter.
Reid’s new offer came shortly after President Obama wrapped up a speech about student loans at a rally at the University of Nevada (Las Vegas). “My message to Congress is, ‘Let’s get to work,’ ” he said.
Republican leaders have accused Obama of prolonging the standoff over the student loan issue for political gain. They issued numerous complaints this week that the White House had not fully responded to offset proposals they made in a May 31 letter to the president.
At his news conference Thursday morning, Boehner said Obama has failed to address economic problems, including the student loan controversy.
“The president [today] is at a rally at the University of Nevada, Las Vegas, talking about student loan rates. Instead, he should work with us to make sure they don’t double,” Boehner said, while adding that Democrats are “more interested in gimmicks” than solutions.
Meanwhile, more than 100 House Democrats signed a letter to Majority Leader
“We trust you can confirm that the omission of student loan interest rate relief from your summer legislative agenda was an oversight on your part and that you share our commitment to bringing responsible legislation to the House floor in the coming weeks that will prevent interest rates from doubling,” said the letter, spearheaded by Reps.
The current student loan interest rate was set in 2007, when congressional Democrats fulfilled a 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 gradually, over four years. That law expires July 1.
The interest rate break applied only to new federal student loans issued during the past four academic years. Graduates who are repaying older student loans have not enjoyed the special rate.
Senate Republicans voted twice in May to block action on a Democratic bill (
GOP Warms to Student Loan Offer
Niels Lesniewski and Richard E. Cohen contributed to this story.