Student loans: GOP filibuster blocks Senate move to freeze low rates

Student loans will cost more come July 1 unless Congress acts. While both parties say they support extending low rates on federally subsidized loans, election-year politics have intervened.

Senate Republicans successfully filibustered a Democratic proposal to extend low rates on student loans Tuesday. While both parties say they want the legislation passed, it has fallen prey to polarized election-year politics.

As with seemingly every issue in Congress, the question remains how the two parties aim to pay for the measure’s estimated $6 billion cost over the next year. Without a fix, the interest rates on federally subsidized student loans would double from 3.4 percent to 6.8 percent come July 1.

Republicans largely held together in a party-line, 52-to-45 vote that fell short of the 60 votes needed to move the bill to full consideration. Sen. Olympia Snowe (R) of Maine voted “present” while Senate majority leader Harry Reid voted against the measure for procedural reasons.

“For the life of me I don’t understand why the Republicans don’t even want to go to the bill,” said Sen. Tom Harkin (D) of Iowa, one of the measure’s sponsors, before the vote. “Perhaps they’re afraid if the vote comes down to the bill itself and the ‘offset,’ maybe my friends on the other side of the aisle would think that students are more important than the wealthy in this country.”

The devil, of course, is in the “offset.” Senate Democrats proposed what they call the “Newt Gingrich/John Edwards rule,” that would prevent wealthy individuals from shielding some of their income from payroll taxes by incorporating themselves as S corporations. The rule was so named because Mr. Gingrich and Mr. Edwards both used this financial device.

Democrats say that in Edwards’s case, according to financial records released during the 2004 campaign, such incorporation allowed him to pay himself a $360,000 salary (subject to payroll taxes) but take profit distributions of $26.9 million (not subject to payroll taxes) for his work as a trial lawyer. In doing so, he allegedly avoided some $600,000 in taxes that fund Medicare and Social Security, among other programs.

Republicans, on the other hand, see this approach as not only raising taxes, an absolute dead letter among their caucus, but as short-circuiting a needed student loan extension by connecting it to payroll taxes that should go elsewhere.

“The bill we will vote on taxes small businesses and raids funds that would otherwise go to shore up the Social Security and Medicare trust funds,” said Sen. Mike Johanns (R) of Nebraska on the Senate floor. “Providing relief for students, protecting seniors benefits, and fueling our nation’s jobs engine should not be mutually exclusive goals.”

In the GOP’s case, legislation sponsored by Sen. Lamar Alexander (R) of Tennessee would eliminate a public and preventive health services fund created by President Obama’s health-care law to pay for the extension. Similar legislation was passed by the House on a narrow 215-195 vote two weeks ago.

The issue became a hot-button political battle after Mr. Obama and congressional Democrats began emphasizing student loans several weeks ago. Obama has taken a campaign-style trip through universities in three key swing states to keep a high-intensity spotlight on the student loan deadline.

Republican presidential hopeful Mitt Romney has also endorsed a loan rate extension, but on Capitol Hill the issue is now the subject of intense, presidential election-year partisan sniping.

Said Senate minority leader Mitch McConnell: “It’s not exactly a state secret that Senate Democrats have turned the Senate floor into an extension of the Obama campaign over the past few months.... Today’s vote on student loan rates is a perfect example of this cynical election-year strategy in action. Rather than working with Republicans to help young people in this country weather the effects of the Obama Economy, Democrats have sought to distract them from it.”

Said Sen. Kristen Gillibrand (D) of New York in a statement: “By putting their politics ahead of affordable college, Senate Republicans are standing in the way” of young people’s pursuit of opportunity.

What’s next for a bill that everybody wants but both parties can’t agree to pay for?

A game of telephone.

First, Senator McConnell suggested Senator Reid should call House Speaker John Boehner and work out a compromise bill.

Then, scoffing that “Boehner has no votes over here,” Reid suggested Romney call Senate Republicans to get them to back votes on the bill.

But before any of those calls are going to get made, Democratic leaders made it clear that they would take their bill’s temporary procedural defeat as an opportunity to rip Republicans on the floor of the Senate.

Would Democrats schedule more votes on a bill even absent compromise legislation?

“Definitely,” Reid said.