Senate blocks Obama’s student loan bill

Senators blocked President Obama’s student loan subsidy bill Tuesday, upping the chance of another deadline-busting battle this summer as both sides dig in over how to pay for continued government assistance to college students.

Most lawmakers on both sides of the aisle say they want to extend the government’s helping hand to students by keeping subsidized loan interest rates at 3.4 percent, which is half the rate it used to be. But the GOP and Democrats disagree over how to pay for the $6 billion cost for one year’s worth of subsidies.

The 52-45 party-line vote fell well shy of the 60 needed for action, leaving yet another of the president’s election-year demands in limbo.

The lower subsidized loan rate runs out June 30, but both sides spent much of Tuesday blaming each other for failing to cave.

“The Senate has ceased to be a place where problems are resolved. It’s become instead a place where Democrats produce campaign material,” said Sen. Mitch McConnell, the chamber’s Republican leader.

Mr. Obama has traveled the country in recent weeks telling college students he is fighting to keep their loan rates lower, and demanding the GOP join him. Students are viewed as a key part of his electoral coalition heading into the November elections.

The Republican-controlled House already has passed a one-year loan rate extension, which it paid for by slashing a preventive health fund established in the Democrats’ health care law. The 215-195 vote saw 13 Democrats vote in favor, but 30 Republicans vote against it.

The Senate vote was entirely partisan, with no Republicans voting for Democrats’ plan. Senate Majority Leader Harry Reid, Nevada Democrat, voted to block the proposal but that was a parliamentary maneuver so he could try to call up the bill later, if an agreement is reached.

Mr. Reid’s plan, offered on behalf of Democrats, would close a loophole that allows business partners to pay themselves in business income rather than salary, which means they end up paying less in Medicare payroll taxes than they would have done otherwise.

“If you can’t get rid of this loophole, there’s no loophole you can get rid of. This is so obviously a wrong-headed loophole,” said Sen. Al Franken, Minnesota Democrat. “I’d love to hear someone try to defend this.”

But business groups, led by the U.S. Chamber of Commerce, said raising taxes on those businesses would be a burden, and said any increase in payroll taxes should be kept within the Medicare system, not used to pay for other general government needs.

Total student loan debt recently topped $1 trillion and the default rate on student loans is particularly high. The most recent Education Department statistics put the rate at 8.8 percent, and that’s for students who defaulted within the first two years of beginning to pay their loans. Those who default later in the process aren’t counted.

The vote touched home for some lawmakers.

Sen. Marco Rubio, a freshman Republican from Florida, said he is still paying off his loans.

“I support a hundred percent making sure that the interest rates on student loans do not go up. I cannot support the way the Democrats want to do it, however, because, they want to do it by raising taxes on small businesses,” he said.

But White House press secretary Jay Carney said the GOP was protecting “a loophole that allows millionaires to dodge payroll taxes.”

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