Senate Democrats made a major gamble Thursday by rejecting a new bipartisan student loan proposal in favor of their bill to freeze interest rates for one year. They’re eying a vote on it July 10, effectively conceding that Congress won’t avert the rate spike by July 1.
In just four days, rates for federally-subsidized Stafford loans are set to automatically double from 3.4 percent to 6.8 percent for millions of Americans, costing the average borrower roughly $2,600 over a decade if no congressional action is taken.
Led by Sens. Jack Reed (D-RI) and Kay Hagan (D-NC), the group of Democrats unveiled the legislation at a Capitol Hill news conference. It would be funded by closing a loophole that allows people who inherit certain Individual Retirement Accounts (IRAs) and 401(k)s to delay paying taxes on them, limiting the deferral period to five years.
“The fundamental issue is whether the United States government should be making a profit off students,” Sen. Elizabeth Warren (D-MA), one of the backers, told reporters.The 35 cosponsoring Democrats rejected a deal by Sens. Joe Manchin (D-WV), Tom Carper (D-DE), Angus King (I-ME), Lamar Alexander (R-TN), Richard Burr (R-NC) and Tom Coburn (R-OK) to tie the loan rate to the yield on the 10-year Treasury note — a concept that President Obama proposed in his fiscal 2014 budget. They argued that the bipartisan bill lacked sufficient protections for students. Sen. Tom Harkin (D-IA) brought along a chart to attack it.
It’s a high-risk, high-reward gamble for Democrats. The upside is they can credibly claim that their fix, although short-term, would better protect students. The downside is they open themselves up to charges of blocking bipartisan proposals to fix the problem in time.
“As a result of the Senate Democrat leadership’s obstruction, interest rates on some new student loans will increase next week,” said Senate Minority Leader Mitch McConnell’s spokesman Don Stewart. “It is baffling that Senate Democrats are rejecting the President’s reforms and we can only hope that he’ll try and change their minds.”
The battle could carry on for weeks, if not months, because Democrats provided no assurances when TPM asked if they’ll have the 60 votes necessary to break an expected GOP filibuster on July 10. The Democratic senators said the fix would be retroactive and Reed said there isn’t “a major concern” that a delay would harm students.
“We know the Republicans will filibuster and we’re asking everyone to get engaged,” said Sen. Debbie Stabenow (D-MI).
The House, meanwhile, has already passed legislation to avert a loan spike, which also ties the interest rate for borrowers to the 10-year Treasury note. In the face of Democratic pushback, Republicans persistently point out that it echoes a key piece of Obama’s plan.