Student loan rates about to double?

Republican senators Tuesday blocked further discussion of a Democratic proposal to extend the 3.4% federal student loan rate for another year. If Congress does not act soon, the rate that more than 7 million college students pay for new Stafford loans will double July 1. Lawmakers said that that translates to students' owing about $1,000 more a year. Republicans have said they support continuing the lower rate, but they won't agree to the Democratic solution of paying the nearly $6 billion cost of the extension by closing a tax break that allows certain S corporations to avoid paying some Social Security and Medicare taxes. The GOP supports taking funds earmarked for a preventative public health fund called for in the health care overhaul law to pay for the loan extension. The House of Representatives approved such a measure April 27, but the White House has said that President Barack Obama won't sign legislation that would take the money from the health care fund. The president supports S 2343, which Senate Majority Leader Harry Reid, D-Nev., introduced last month. That measure Tuesday failed to make it to a vote. “Democrats have proposed legislation to freeze student loan interest rates at current levels for a year without adding a penny to the deficit,” Mr. Reid said. “[Republicans] are sending a clear message [that] they would rather protect wealthy tax dodgers than help promising students achieve their dreams of higher education.” Republicans said the Democratic approach to funding the lower student loan rate for 12 more months is shortsighted and bad for the economy. “They would use an irresponsible tax increase on small businesses when we need these employers to create jobs so college students have employment opportunities when they graduate,” said Sen. Mike Enzi, R-Wyo. Senate Republicans released a list of 37 business groups, including the Financial Planning Association and Financial Services Institute Inc., that oppose additional taxes for S corporations. Democrats said their proposal is aimed at limiting the discretion that doctors, lobbyists and other professionals have in deciding how much of their business profits they can claim as shareholder earnings, instead of wages. Wages require payment of Social Security and Medicare taxes. Sen. Jack Reed, D-R.I., told reporters the payment provision would close “a [Government Accountability Office]-identified loophole and will apply only to a small subset of Chapter S corporations that are being essentially used to avoid employment tax.” It would apply to singles making more than $200,000 a year or a couple making above $250,000. The stalemate comes as American students and their parents already are struggling with soaring college costs and about $1 trillion in debt. The student loan default rate also is on the rise, reaching nearly 9% for the two-year period ending in 2010, up from 7% the previous period. “It's crunch time for Congress, which has 66 days to act,” Mr. Reed told reporters at a press briefing at the Capitol. “Both parties have to work together to find a fair and rational way of keeping the student loan interest rate in check.”