April 25 (Bloomberg) -- U.S. Senate Democrats’ plan to vote on a proposed freeze in student-loan interest rates is their latest effort to boost one of President Barack Obama’s re-election campaign issues.
Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters yesterday that he will introduce a bill “in the next 24 hours” modeled on Obama’s rate-freeze plan. The president yesterday pledged to keep student-loan interest rates steady as he campaigned at the University of North Carolina at Chapel Hill, one of three campuses in battleground states he is visiting this week.
“They’re obviously coordinating,” Senator John McCain, an Arizona Republican who ran against Obama for president in 2008, said yesterday in an interview. “It’s pretty expected in an election year that they force votes on issues that they think play to their advantage.”
A Senate Democratic leadership aide said the student loan legislation will come up for a vote in May after the Senate returns from next week’s recess.
Senate Republicans on April 17 blocked a proposal to set a minimum 30 percent federal tax rate for the highest earners. In the days before the vote, Obama campaigned for the legislation, maintaining that it’s unfair to let some high-income taxpayers use deductions and preferential tax treatment of investment income to pay lower rates than many middle-income wage earners.
Senator Barbara Mikulski, a Maryland Democrat, said Democrats want to make sure the public understands what’s at stake in the November election.
“We need a clear message, we need an echo chamber and really a way of communicating to both the young students and their families this jump in interest rates,” she said in an interview. She said Democrats will continue to press for votes on elements of Obama’s campaign platform.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said today that Democrats were “using the floor as an extension of the Obama campaign.”
“So no one should be surprised that they opted for a political show vote over a solution,” McConnell said.
In his fiscal 2013 budget plan, the president proposed holding student-loan rates steady. The rate on federally subsidized Stafford loans is scheduled to increase on July 1, from 3.4 percent to 6.8 percent, unless Congress acts.
Signed By Bush
Congressional Democrats in 2007 passed legislation cutting the rate in half, and President George W. Bush signed the measure into law.
“We need to go back to what President Bush signed,” Reid said today on the Senate floor. “We cannot have these rates go up.”
Senate Democrats and the White House are seeking a one-year freeze in the interest rate. The $6 billion cost would be offset by limiting a tax provision that allows some owners of so-called S-corporations to avoid paying Medicare payroll taxes on their earnings, Senator Tom Harkin, an Iowa Democrat, told reporters yesterday.
Harkin said the legislation would require the Medicare payroll tax on income of more than $250,000 a year earned at S-corporations with fewer than three shareholders.
Closing a ‘Loophole’
“This is a loophole that needs to be closed anyway,” he said. “So this is the right time to do it and for the right cause.”
Obama and Republican presidential candidate Mitt Romney are trying to appeal to younger voters. At the University of North Carolina yesterday, Obama said higher education “is the clearest path to the middle class.”
“We can’t make higher education a luxury; it’s an economic imperative,” he said.
Romney, who polls indicate is trailing Obama among younger voters, said in a campaign appearance in Pennsylvania April 23 that he also supports freezing student-loan interest rates.
“I don’t think anybody believes this interest rate should be allowed to rise,” McConnell told reporters yesterday. “The question is: How do you pay for it?”
McConnell said Senate Republicans were discussing what type of rate freeze they could support. He said today that Democrats wanted to pay for their proposal “by raiding Social Security and Medicare.”
House Speaker John Boehner, an Ohio Republican, today raised the possibility that the House also would act. He told reporters that Republicans who control the House are “trying to find a responsible way to fix” the “student-loan problem which was created by Democrats.”
A higher student-loan interest rate would affect about 7.4 million students, according to the White House, adding an average of $1,000 in payments. The Congressional Budget Office estimates a one-year freeze would cost the federal government $6 billion in forgone revenue.
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