Low student loan interest rates in limbo after Democrats' bill stalls in Senate

The Senate on Tuesday rejected a motion to advance legislation that would prevent student loans from doubling, sparking a fresh round of partisan finger-pointing.

President Obama and congressional Democrats accused Republicans of obstructing the bill, which was blocked along party lines. Republicans countered by noting the House recently acted on similar legislation, and said Democrats are needlessly politicizing the issue.

Democratic leaders called on presumptive 2012 Republican presidential nominee Mitt Romney to become more engaged in the debate.

“Mitt Romney says he supports what we’re trying to do. I would suggest he pick up the phone and call Sen. [Mitch] McConnell [R-Ky.] and tell him he favors what we’re trying to do,” said Senate Majority Leader Harry Reid (D-Nev.).

While both parties agree on the merits of the bill, they are miles apart on how to pay for its $6 billion price tag. 

Romney has not embraced a specific proposal, but has said he does not want student loan rates to increase this year.

Sixty votes were needed to move to a debate on the legislation, but Democrats and Republicans were unable to reach a deal to prevent a GOP filibuster. 

The failure leaves the Senate with an unclear path going forward on keeping the interest rates from doubling. If Congress does not act, the rate on federal student loans would rise from 3.4 percent to 6.8 on July 1. 

Obama has sought to turn the issue of student loans against Republicans, but the Senate’s failure to pass its own bill will make that more challenging.

The House late last month approved legislation that would keep the interest rate stable, though Obama has threatened to veto that measure. Obama supports extending the low interest loans but opposes the House GOP offset, which would cut from a preventive healthcare fund set up by the 2010 healthcare reform law. 

The legislation offered by Senate Democrats would pay for the $6 billion extension of low-interest loans by closing tax loopholes on shareholders of S-corporations. Republicans are strongly opposed to that pay-for. 

Speaker John Boehner (R-Ohio) in April said the president is using the loan bill as a campaign weapon, and his spokesman Brendan Buck noted in a Twitter message that the tally on passing bills to keep student loans low is: Republican House 1, Democratic Senate 0. 

After the vote, Reid accused Republicans of standing in the way.

“Unfortunately, it appears that Republicans appear more interested in obstruction than progress,” he said.

The vote fell along party lines. All Democrats voted to move the bill forward while all Republicans voted against the bill except for retiring Sen. Olympia Snowe (R-Maine), who voted present. 

Reid initially voted to move the bill forward but then changed his vote to preserve his right under Senate rules to bring the legislation up again. 

“Now that [Sen. Charles] Schumer’s [D-N.Y.] fake vote is behind us, we’re hoping Democrats will join Republicans in a real effort to fix the problem,” a Senate Republican aide said after the vote. 

GOP officials argued that the Democrats’ extension plan would hinder job creation by raising taxes on some businesses. 

Sen. Mike Johanns (R-Neb.) said the Democrats’ proposal “lacked reality.” 

Sen. Lamar Alexander (R-Tenn.), who sponsored a Senate version of the House student loan bill, urged his colleagues to take up his measure. 

“Let’s at least move the bill,” Alexander said in reference to his legislation, ahead of the noon vote. 

Sen. Al Franken (D-Minn.), defending his party’s plan, called the tax loophole Democrats sought to eliminate “wrongheaded.” Franken said that if this loophole couldn’t be closed, “there’s no loophole that you can get rid of.” 

Democrats said Republicans were being led by anti-tax activist Grover Norquist and his tax pledge, which is signed by most GOP lawmakers in the House and Senate.

Senate Majority Whip Dick Durbin (D-Ill.) said, “Grover is watching.” He also noted that not one Republican voted for the motion to proceed, in what appeared to highlight Sen. Scott Brown’s (R-Mass.) stance. Brown, who has broken with his leaders on some high-profile matters, is in a tough reelection race.

Schumer cited The Wall Street Journal’s editorial page, the late right-leaning journalist Bob Novak and Romney in making his case for the Democrats’ offset. Schumer said Romney closed a similar loophole when he was governor of Massachusetts. 

He added that the House-passed Republican budget called for student loans to increase this summer.

The New York Democrat added that former Sen. John Edwards (D-N.C.), who is on trial for alleged campaign finance violations, used the tax loophole that congressional Democrats are seeking to close. 

Reid promised that there “definitely” will be more votes on student loans in the weeks to come.

— Updated at 7:44 p.m.