Democrats’ Interest Rate Bill Fails Test Vote in Senate
The Senate voted down a motion Tuesday to begin debating Democrats' proposal (S.2343) to extend the 3.4 percent interest rate on subsidized Stafford loans by amending tax law to close a small business tax loophole.
While the GOP's interest rate plan passed in the House last week, Tuesday's failed Senate vote makes it unclear how the Senate will proceed. If Congress fails to address the issue, the 3.4 interest rate will double to 6.8 on July 1.
The Congressional Budget Office estimates it would cost just under $6 billion to keep the subsidized Stafford interest rate at 3.4 percent for an additional year. Senate Democrats and House Republicans each proposed their own plan to find the $6 billion over a 10-year period needed to fund the one-year extension, but each plan offsets the cost from a different source.
The Senate plan would amend tax law to close a small business tax loophole for some shareholder-employees of S Corporations. Current law states that S Corporations avoid paying corporate taxes by passing on earnings to shareholders who report the income on their taxes, however if the shareholder is an employee they can report the earnings as profit rather than wages, evading payroll taxes.
The House-passed Republican plan (H.R. 4628) would pay for the interest rate extension by repealing the Prevention and Public Health Fund, a disease prevention fund created by the Affordable Care Act. Though Democrats say the prevention fund would particularly benefit women with support for screenings for breast and cervical cancer, House Speaker Joan Boehner has called the fund a "slush fund," noting that $5 billion has already been drawn out of the fund to cover the payroll tax cut extension signed into law earlier this year. President Obama’s fiscal year (FY) 2013 budget also calls for reductions in the fund that amount to $4 million over 10 years beginning in 2014. Still, Obama has said he would veto the Republican plan.
NASFAA has joined the American Council on Education (ACE) and other higher education associations in sending a letter to Congress this week and a letter to the House last week to express support for enacting legislation to keep the interest rate on subsidized Stafford loans from doubling.
"The administration and both parties have expressed their strong support for keeping the interest rate at 3.4 percent without cutting other forms of student aid," the letter to Congress states. "We urge Congress to continue their work and produce a final bill with bipartisan support."
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