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Senate Blocks Rate Freeze on Federal Student Loans; Political Messaging Emerges Senate Blocks Rate Freeze on Federal Student Loans; Political Messagin...

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Economy

Senate Blocks Rate Freeze on Federal Student Loans; Political Messaging Emerges

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Senate Minority Leader Mitch McConnell, R-Ky.(AP Photo/J. Scott Applewhite)

Consider some voting blocs: Struggling students. Wealthy lobbyists. Small businesses. Unemployed college graduates. People who don’t like President Obama. People who do.

Tuesday’s Senate vote, in which Republicans blocked Democratic-backed legislation to freeze need-based student loan rates at 3.4 percent, boiled down to those voting blocs. Student loans are just a small part of college-financing issues, but they are the surrogate for an election-oriented conversation about which political party has the best answers for boosting economic growth and helping the middle class.

 

It is unclear who will win the battle, but Democrats at the moment have the upper hand in terms of human props. They talk about middle-class families, union members, and students whose future employment will bring economic prosperity. Republicans talk about the need to protect the small business that will grow the economy, and they accuse congressional Democrats of colluding with the White House to reelect Obama at all costs.

Without congressional action, the interest rate for subsidized student loans will double on July 1 to 6.8 percent. It would mean $1,000, on average, in additional costs for about 7 million borrowers. It’s not chump change, but over a10-year repayment period, it’s probably won’t send anyone to the poorhouse either.

(RELATED: Debate Over Loans May Be Less About Helping Students Than About Political Priorities)

 

Democrats played to their strengths on Tuesday. They need support from young people in November, and they are getting it. They brought a group of students to the Capitol before the Senate vote to gather before the TV cameras. A junior at Howard University said she had jumped “hurdle after hurdle to escape the cycles of poverty and drug abuse” in her home community to get to college. Now her student loan might be more expensive next year. Sen. Sherrod Brown, D-Ohio, said that Democrats are trying to accomplish for that student what the GI bill accomplished in the postwar years. “Look at the prosperity it created for the whole country,” he said.

Republicans scoffed at the theatrics. “It’s phony. They all know it’s phony,” said Sen. Orrin Hatch, R-Utah, the ranking member on the Senate Finance Committee. Republicans don’t object to freezing the subsidized student loan rate, but they do object to Senate Democrats’ proposal about how to pay for it—raising taxes on so-called S corporations that use a legal alternative to filing corporate taxes. More than half of all U.S. companies use that option, generally small companies that are privately held. They include law firms, lobby shops, sports teams, and tech start-ups. Democrats are “raising taxes on the very businesses we’re counting on to hire these young people,” said Minority Leader Mitch McConnell, R-Ky., on the Senate floor.

(PICTURES: Mitt Romney's Possible VP Picks)

Hatch said that tinkering with the S Corp alternative would require far more policy-oriented discussion than has been offered by Democrats, who drafted the student loan bill in secret and unveiled it a few weeks ago. “That’s something that’s going to take some real consideration,” he said. “Fifty percent of companies are pass-through companies. (That hints at another voting bloc to consider—corporate tax reform watchers.)

 

All signs point to a stalemate on the student-loan issue, despite agreement among Republicans and Democrats that freezing the subsidized interest rate is a good idea. Democrats refuse to accept a Republican proposal to tap a preventive health care fund. Democrats also are laying the groundwork for a one-year freeze with no offset. It would simply ask the taxpayers to eat the $6 billion cost. They claim that Republicans are doing the same thing in not seeking offsets for extending the Bus-era tax cuts.

Other pay-fors have surfaced—taxing oil companies (Democrats), eliminating the in-school interest-rate waiver (Republicans), “g-fees” on mortgages (analysts). It seems that each idea proposed from one side is almost certain to be rejected by the other. Noting this, one reporter asked Democrats at their press conference, “Where are the actual negotiations?”

From all appearances, they’re not happening. Chances are that any real negotiations will start among House and Senate leaders after Memorial Day, ensuring a “countdown” through June that will agitate all the voting blocs that care.

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