Senate Republicans Block Student Loan Rate Freeze Plan

U.S. Senate Republicans blocked Democrats’ proposal to cover the cost of a one-year freeze in government student loan interest rates by requiring some professional services firms to pay withholding taxes on their income.

The Senate, in a 52-45 vote with 60 required, didn’t advance the plan to avert a July 1 increase in college-loan interest rates to 6.8 percent from 3.4 percent. No Republicans joined Democrats in voting to advance the measure.

“Republicans claim that they want to stop student-loan interest rates from doubling this summer,” Senate Majority Leader Harry Reid told reporters after the vote. “That’s what they say. But Republicans showed today that it’s only talk.”

Republicans said they opposed the measure because they wanted a chance to offer another way to cover the $6 billion cost of the interest rate freeze.

President Barack Obama’s press secretary, Jay Carney, said in a statement that more than 7.4 million students’ loan interest rates will double unless Congress acts.

Carney said the administration is pleased that Republicans “now profess to be concerned about this coming rate hike. But now it’s time for them to stop refighting old political battles and prove they’re serious by proposing a real solution.”

S Corporations

The Democrats’ bill would finance it by requiring law, accounting and other professional services firms with three or fewer shareholders to pay withholding taxes on annual income of more than $250,000. The firms, known as S corporations, currently can treat their income as profit and avoid the withholding tax.

“We all agree we’re not going to allow the interest rate to go up,” said Senate Minority Leader Mitch McConnell, a Kentucky Republican. “It’s ridiculous that we’re having these kind of show votes on the floor when we could sit down and negotiate an outcome, and that’s what will happen. It ought to happen sooner rather than later.”

Senate Republican leaders said they back a bill passed by the House that would cover the proposal’s cost by abolishing a public-health fund created by Obama’s health-care overhaul.

Before last month’s House vote, Speaker John Boehner, an Ohio Republican, said Democrats had supported taking $5 billion from the fund to finance an extension of a payroll tax cut.

‘Fluff’ is Gone

Reid said today that “any fluff that was in that program is gone” and added, “some would say we’ve cut far too much out of it.” He said he would have allowed a vote on the Republican proposal to pay for the measure if Republicans had agreed to take up the Democratic proposal.

The House passed its bill, H.R. 4628, on a 215-195 vote April 27, during the same week that Obama visited three college campuses to press Congress to continue the lower interest rate.

Democrats are trying to “drive a wedge between Republicans and a constituency they are trying to court” before the November elections, McConnell said today in a Senate floor speech.

“It’s not exactly a state secret that Senate Democrats have turned the Senate floor into an extension of the Obama campaign,” McConnell said.

‘Fiscally Responsible’

The Obama administration yesterday endorsed the Senate bill and has said it would veto the House bill because of its method of financing the interest-rate freeze. In a statement, the White House said the Senate bill would cover the rate freeze “in a fiscally responsible manner.”

Democratic leaders haven’t said whether they will seek to bring another student loan proposal to the floor before July 1.

“Obviously we’re not going to let this thing die,” Senator Tom Harkin, an Iowa Democrat, told reporters today. “We’ll figure something out.”

Congress could adjust the interest rate on the loans later because students don’t start paying off loans until they graduate.

The bill is S. 2343.

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.