WASHINGTON – After a proposal to extend current federally subsidized student loan interest rates failed in the Senate, Sen. Mike Johanns (R-Neb.) today called for a vote on legislation he is cosponsoring which would extend the current 3.4 percent rate in a more fiscally responsible manner. Johanns opposed today's bill, offered by Majority Leader Harry Reid (D-Nev.), which would pay for the loan rate extension by increasing the payroll tax on job creators. This would divert funds which would otherwise go to the Medicare and Social Security Trust Funds. The bill needed 60 votes to pass, and failed, 52-45.
The legislation Johanns supports, the Student Loan Interest Rate Reduction Act, was offered by Sen. Lamar Alexander (R-Tenn.) and would offset the cost by eliminating a fund created by the 2010 health care law. President Obama has previously signed legislation that is paid for by reductions in this fund and proposed reducing it in a deficit reduction package.
A law was passed in 2007 which lowered federal undergraduate student loan rates from 6.8 to 3.4 percent. The health care law later took over the student loan industry and used a portion of the budget savings to fund some of the health care law's costs instead of using that money to address the doubling of student loan interest rates.
In order to prevent this rate from returning to 6.8 percent in July, the legislation Johanns is cosponsoring would keep the rate at 3.4 for one year and offset the cost by eliminating a fund in the health care law that gives nearly unlimited power to the Secretary of Health and Human Services – the same fund previously cut by the President himself.