- Associated Press - Thursday, May 31, 2012

Top congressional Republicans made a new offer to President Obama on Thursday in their fight over heading off a doubling of interest rates on federal college loans for 7.4 million students, proposing fresh ways to cover the effort’s $6 billion cost.

The Republican ideas were modeled on savings that Mr. Obama himself had included in his budget for this year, suggesting that negotiations over ending the election-year impasse could take a serious turn.

Until now, both sides have favored extending today’s 3.4 percent interest rates on subsidized Stafford loans for another year but clashed over how to pay for it.

House Speaker John A. Boehner, Senate Minority Leader Mitch McConnell and other top Republicans made their proposals in a letter to Mr. Obama. They included savings from making it harder for states to collect some federal Medicaid reimbursements.

“There is no reason we cannot quickly and in a bipartisan manner enact fiscally responsible legislation,” the letter said.

“The president will work with members of both parties to prevent the interest rate from doubling,” White House spokesman Matt Lehrich said.

A 2007 law gradually reduced Stafford interest rates but let them bounce back to 6.8 percent on July 1 in a money-saving move.

In their letter to Mr. Obama, Mr. Boehner and Mr. McConnell, Kentucky Republican, suggested that one way of paying to extend student loan interest rates would be to gradually increase the amount that federal workers contribute to their pensions by 1.2 percent over the next three years.

That suggestion, included in Mr. Obama’s budget, has run into opposition in the past from lawmakers from areas with many civil servants.

As another option, the Republican leaders suggested combining three ideas.

The largest would limit the taxes most states impose on hospitals, nursing homes and other providers that are used to qualify for higher federal Medicaid payments. States can impose taxes of up to 6 percent on providers, but under a House-approved provision that threshold would be reduced to 5.5 percent, in effect reducing federal Medicaid reimbursements to states. The administration has proposed reducing the level to 3.5 percent.

The Republicans also proposed two other savings embraced by Mr. Obama.

One would limit to six years the time during which students in four-year undergraduate programs could receive federal subsidies on Stafford loans. Until now, students have not been charged interest on their Stafford loans while they were still studying, even if they were in school for longer than six years.

The second would require state and local pension officials to report more information about their civil servants to Washington so federal officials could better identify whether any were receiving Social Security benefits to which they are not entitled.

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