House Votes to Avert Doubling of Student Interest Rates

Republicans and Democrats are squaring off over freezing student-loan interest rates in a partisan fight that resembles lawmakers’ recent confrontation over extending the payroll tax cut.

The student-loan standoff could consume the energies of House and Senate leaders after they return from a week-long recess as the election race between President Barack Obama and Republican challenger Mitt Romney heats up. The payroll-tax fight lasted two months before Congress passed a $145 billion extension measure in February.

The student-loan dispute carries “a real downside” for Republicans, “but it’s not quite as radioactive as the payroll tax,” said John Pitney, a political scientist at Claremont- McKenna College in Claremont, California.

This time “they are trying to frame the issue to their advantage” by “passing something and trying to shift the blame for obstructionism to the Democrats,” he said.

The Republican-led House, defying a veto threat from the White House, voted 215-195 yesterday to extend the current 3.4 percent interest rate on government student loans that is set to double on July 1. The Obama administration called the measure “politically motivated” because it would finance the $5.9 billion subsidy by abolishing a public-health fund.

Democrats accused Republicans of what House Minority Leader Nancy Pelosi called an “assault on women’s health” because the measure would eliminate the health fund, which has provided breast and cervical cancer screenings as well as child immunization and prenatal tests for birth defects and developmental disorders. They cited a USA Today/Gallup poll showing Romney trailing Obama among women voters by 18 percentage points.

‘Where Are the Women?’

“We will continue to ask the question: Where are the women?” New York Democratic Representative Carolyn Maloney told reporters before the vote. “Republicans have worked very hard to earn that gender gap, bit by bit, vote by vote, defunding by defunding and insult by insult.”

House Speaker John Boehner, who had rushed the legislation to the floor after Obama toured college campuses in three swing states to prod Congress to act, maintained that Republicans had planned all along to avert the interest-rate increase.

“No one wants to see student loans go up,” Boehner said. “Why do people insist we have to have a political fight on something where there is no fight?”

Boehner, who had derided the public-health account as a “slush fund,” also rejected the Democrats’ charge against his party about women’s health. “To accuse us of wanting to gut women’s health is absolutely not true,” Boehner said in a floor speech. “Give me a break.”

‘Slush Fund’

Other House Republicans agreed. “What we are talking about is using a slush fund that is provided” to the health and human services secretary “to spend as she sees fit,” said John Kline, the Minnesota Republican who is chairman of the House Education and the Workforce Committee. “That is somehow perceived as an attack on women, what a surprise in this election year.”

Kline said there were other sources of money for the women’s health initiatives that are financed by the preventive health fund.

Boehner claimed Democrats earlier this year had supported taking $5 billion from the fund to finance the extension of the payroll tax cut through December.

Democrats “weren’t happy that was the only way” Republicans “would agree to the payroll tax reduction,” Pelosi said. The earlier example provides “all the more reason to leave the rest of the money” in the fund, she said.

Retroactive Adjustment

Unlike the payroll tax fight, Congress isn’t under a hard- and-fast deadline to avert the doubling of the interest rate on student loans from 3.4 percent to 6.8 percent.

The payroll-tax fight was resolved only after Congress had extended from Dec. 31 to Feb. 29 the withholding rates in effect for 2011. The student-loan interest rate can be adjusted retroactively because students don’t start paying off loans until they graduate.

Under the program, students must borrow money each year and pay an interest rate set at the time the loan is granted, according to the Education Department. In the current school year 7.4 million students borrowed an average of $4,226, according to agency data.

The House measure passed with the votes of 202 Republicans and 13 Democrats. Thirty Republicans and 165 Democrats opposed it.

The House Republican plan “doesn’t sound like a good deal to me,” Senate Majority Leader Harry Reid, a Nevada Democrat, said. He set up a procedural vote on a Democratic version of the measure for May 8, after Congress returns from a one-week recess.

Withholding Tax

The Senate’s version of the measure would raise $9 billion by requiring law, accounting and other professional services firms with three or fewer shareholders to pay withholding tax if they make more than $250,000 annually. Partners in such firms now treat the income as profits and avoid the withholding tax.

Both bills would amend the 1965 Higher Education Act to adjust the rate for Federal Direct Stafford loans. The 3.4 percent interest rate has been in place since July 1, 2011.

Both Obama and Romney are courting the youth vote.

The former Massachusetts governor joined Obama in urging lawmakers to freeze the interest rates students pay for the government loans, while blaming the president for an economy in which “50 percent of recent college graduates are unemployed or underemployed.”

Younger Voters

A Gallup poll shows Obama must generate more enthusiasm among younger people to ensure they vote, though he leads Romney 64 percent to 29 percent among people ages 18 to 29. Only 56 percent of young registered voters said they will definitely vote in November, according to the survey conducted April 20-24. Romney leads Obama by 12 percentage points among voters age 65 and older, and 86 percent of this group said they planned to vote.

The anti-tax group Club for Growth had urged lawmakers to oppose the bill, saying it would count as a “yes” vote against lawmakers in its annual congressional scorecard.

“The federal government should not be in the business of distorting the market for student loans,” Club for Growth President Chris Chocola said in a statement. “Decades of government intervention have driven tuition costs to record highs and continuing these subsidies is simply bad policy.”

The House bill is H.R. 4628.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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