President Obama was on the campaign trail this week, speaking to students at the University of North Carolina, the University of Colorado and the University of Iowa. He also appeared on NBC’s “Late Night with Jimmy Fallon” to appeal to the youth demographic by promoting his plan to stop the scheduled doubling of the interest rate on student loans. But Kentucky’s Senator Mitch McConnell believes the president is just playing “political games.”
Government-subsidized Stafford loan interest rates are scheduled to increase from 3.4% to 6.8% in July; an increase that would affect 7.4 million students. The White House estimates that the increase will require students with average student loan indebtedness to pay an additional $1,000 in interest, over the term of their loans.
Both Democrats and Republicans appear to agree that steps should be taken to limit the scheduled increase in student loan interest rates. Senate Democrats and the White House are seeking a one-year freeze in the interest rate. The $6 billion cost would be offset by limiting a tax provision that allows some owners of so-called S-corporations to avoid paying Medicare payroll taxes on their earnings.
According to Bloomberg Financial, millions of small, family owned-businesses around the country are classified as S-corporations, and would be caught up in this tax net for no reason other than that they are small, and successful. And this new, permanent tax on small businesses—$9 billion over 10 years according to the CBO—to fund the cost of just one year of the interest rate freeze ($6 billion), will merely be another example of the Democrats “kicking the can down the road.” A year from now, after the presidential election, the student loan interest problem will surface again.
The Republicans, on the other hand, are pushing a bill that would pay for the 3.4% student loan interest rate reduction by diverting Obmacare revenues from funds set aside for “prevention and public health fund for immunization campaigns, research, screenings and wellness education.” This fund was created by President Obama's health care overhaul law, and Republicans have dubbed it a "slush fund." Earlier this year, they succeeded in using some of the fund to help pay for maintaining doctors' Medicare reimbursements.
The Republican proposal is scheduled for a vote in the House of Representatives tomorrow, and Minority Leader Nancy Pelosi, (Dem., Calif.) told reporters she and other Democrats will oppose it. Pelosi said Republicans have decided, "'Let's take it out of our old favorite target, women's health,' and that's just wrong."