U.S. Senate Rejects Dueling Bills on Student-Loan Interest Rates

June 06, 2013

Two bills designed to hold down student-loan interest rates both failed on votes in the U.S. Senate on Thursday, splitting Republicans and Democrats again as the deadline nears to keep key rates from doubling.

Democrats rejected a Republican bill that would have tied interest rates to the financial markets, similar to a measure passed last month by the U.S. House of Representatives. Soon after, senators voted down Democratic-sponsored legislation to freeze interest rates on subsidized Stafford loans for two years, calling it a short-term fix.

The votes put Congress in an even tighter deadlock in the student-loan debate. Interest rates on subsidized Stafford loans will double, to 6.8 percent, if Congress does not pass legislation to forestall the change by July 1.

The two parties offered starkly different proposals to keep the rates from doubling. Senate Republicans modeled their legislation after a House bill that would set rates annually by adding three percentage points to a rate equal to the 10-year Treasury note.

A vote on that bill failed, 40 to 57, even though Republicans argued that the measure resembled proposals passed by the House and endorsed in President Obama's budget for the 2014 fiscal year. Mr. Obama, though, came out against the measure.

In their bill, Democrats proposed holding rates at 3.4 percent for two more years, to give Congress time to draw up a long-term solution. But to pay for that extension, they proposed steps that drew Republican scorn, such as closing controversial tax loopholes affecting retirement plans, foreign corporations in the United States, and tar-sands oil refiners.

With a vote of 51 to 46, the Democrats' bill received a majority but failed to win the 60 votes needed, for procedural reasons, to pass.

Sen. Jack Reed of Rhode Island, who introduced the legislation, said before the vote that Congress needed more time to work out a way to pay for preserving lower student-loan interest rates.

"Access to college, which is fundamental for our growth, prosperity, and individual advancement, will be compromised for seven million families in this country," he said. "Republicans have a long-term proposal but not a long-term solution. We need the time to work on a long-term solution."

Sen. Tom Harkin of Iowa, chairman of the Health, Education, Labor, and Pensions Committee, said at a news conference after the votes that senators would now negotiate to keep rates at their current level by finding ways to offset the cost from elsewhere in the federal budget.

He added that a Senate vote on Mr. Obama's budget provision would probably fail because it would not cap interest rates.

"We don't have the time to put together a longer-term solution," he said. "I'm willing to work on a compromise to keep it at 3.4 percent. The ball is really in their [the Republicans'] court."