Senate Democrats Prepare Legislation That Would Block Increase in Student-Loan Interest Rate

Democrats in the U.S. Senate announced plans on Tuesday to introduce legislation that would prevent interest rates on federally subsidized Stafford student loans from doubling on July 1, from 3.4 percent to 6.8 percent.

Both President Obama and his likely Republican challenger in November, Mitt Romney, support extending the lower interest rate for one year. Republicans in Congress say they also want to stop the rate from increasing, but are concerned about how to pay for it. The Congressional Budget Office has estimated that extending the 3.4-percent rate for one year would cost an estimated $6-billion.

Democrats have not revealed details of their bill yet, but according to news reports, it would finance the extension by raising payroll taxes on some corporations. The National Journal quoted Sen. Sen. Tom Harkin, Democrat of Iowa, as saying that the bill would require entities known as “S corporations” with three or fewer shareholders who declare income of at least $250,000 a year to pay employment taxes.

President Obama, who is on a two-day tour of college campuses, spoke at the University of North Carolina at Chapel Hill on Tuesday afternoon and urged students to contact their members of Congress and ask them to block the interest-rate increase. The president is also scheduled to visit universities in Colorado and Iowa during his tour.

The interest-rate problem stems from 2007, when Congress voted with bipartisan support to cut the interest rate on subsidized Stafford loans in half by 2011, from 6.8 percent to 3.4 percent. The lower rate is set to expire on July 1.