NEWS ; GOVERNMENT
President and Parties Focus on Proposals to Keep Student-Loan Interest Low
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A;; President Obama; toured colleges in swing states last week, parties in both cham-
bers of Congress offered legislation
to keep student-loan interest rates
low past the November election.
Without action by Congress, the
interest rate on new subsidized Stafford loans to undergraduate students
will double, from 3.4 percent to 6.8
percent, on July 1.
The ;rst bill came from Senate
Democrats, who introduced legislation to extend the lower Stafford interest rates for one year. In a move
sure to rankle Republicans, the legislation would offset the cost of lowering the rates by tightening the way
payroll-tax rules apply to so-called S
corporations, which tend to be small,
privately held companies. Current
law allows some owners of S corporations who are also employees
to take their pay as dividends, rather
than salaries that are subject to Social Security and Medicare taxes.
House Democrats followed quickly with a bill that would pay for the
one-year freeze by cutting subsidies
to oil companies. Not to be outdone,
Republicans in the House and Senate offered a plan that would draw
money from a fund to help prevent
chronic disease that is included in
the president’s health-care law.
The ;urry of activity came as
President Obama was visiting the
University of Iowa, his third campus
stop of the week. The day before,
he spoke at the University of North
Carolina at Chapel Hill and the University of Colorado at Boulder, and
at both destinations he called on
Congress to keep student-loan interest rates low for another year.
The interest-rate problem stems
from 2007, when Congress voted—
with bipartisan support—to cut the
Stafford interest rate in half by 2011,
to 3.4 percent. The cut cost an estimated $7.2-billion from 2007 to
2012, a total that was absorbed almost entirely by lenders and loan-guarantee agencies, the Congressional Budget Of;ce says.
The Department of Education has
estimated that the expiration of the
lower interest rate on July 1 would
affect seven million student-loan
borrowers and would cost borrowers
$1,000 over the life of each loan. A
one-year extension of the lower rate
would cost $6-billion, the Congressional Budget Of;ce estimates.
In the years since the original interest-rate cut was enacted, student-loan debt has burgeoned, nearing
the $1-trillion mark and exceeding
the nation’s total credit-card debt for
the ;rst time. Student debt has also
grown as an issue, gaining importance as college costs have continued to rise and a sluggish economy
has failed to produce jobs for many
college graduates.
The issue has been particularly
potent among young people and is
a key concern of Occupy-movement
protesters. The Occupy Student Debt
Campaign organized protests around
the country last Wednesday to mark
what the group estimated would be
the day U.S. student debt reached
$1-trillion. And in March college
students delivered 130,000 letters to
Congressional leaders to protest the
expiration of the lower interest rate.
To the surprise of some members
of his party, Mitt Romney also ex-
pressed support for extending the
lower interest rate.
At a press event in Pennsylvania
last week, Mr. Romney backed the
effort, saying that his support was
partially because of “the extraordinarily poor conditions in the job
market.”
