NAICU Washington Update

Senate Fails to Consider Student Loan Interest Fix

May 14, 2012

Senate Democrats attempted on May 8 to gain floor consideration of  S. 2343, a bill introduced by Majority Leader Harry Reid (D-Nev.) extending the 3.4 percent interest rate on subsidized student loans for one year.  However, they were unable to get Republicans to consider their version of the bill.  Leaders of both parties, though, have agreed that the interest rate should not revert to 6.8 percent on July 1, as will happen automatically if no action is taken to prevent it.

In 2007, legislation was passed that would gradually lower of the interest rate for Stafford loans from 6.8 percent at that time. These are subsidized loans for qualifying low income students, who also don't have to pay interest on the loans while in school.  At the time, then Speaker of the House Nancy Pelosi (D-Calif.) advocated for a more far-reaching provision, but funding limited the number of borrowers (now 7 million) who benefited from the reduction, and the interest rate did not drop to 3.4 percent until the 2011-12 academic year. The interest rate on unsubsidized loans remained at 6.8 percent.

Republicans objected to the Democrats' proposal to fund continuing the reduced rate by closing what Democrats describe as a tax loophole for "S" corporations. The Republicans would fund continuing the 3.4 percent rate by using money from an Obama preventative health program, as proposed in the House-passed H.R. 4628, introduced by Rep. Judy Biggert (R-Ill.). 

Although Democrats failed to defeat the filibuster, Majority Leader Reid has provided for reconsideration of the bill.  While there is bipartisan support for continuing the reduced interest rate, agreement on how to pay for the extension will have to be reached before the end of June.

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