Bloomberg News

Senate Democrats Propose Pension Offset for Student Loans

June 08, 2012

Company pension contribution rules should be modified and pension insurance premiums increased to cover the cost of a one-year freeze in the 3.4 percent student loan interest rate, U.S. Senate Majority Leader Harry Reid proposed.

Reid urged raising the premiums companies pay to the Pension Benefit Guaranty Corp. and letting companies contribute less to retirement plans that provide a defined benefit level. The Nevada Democrat put the idea in a letter to House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans.

“I suggest we use part of these offsets to pay for the student loan legislation and pass that measure immediately so that middle-class families will not see their interest rates double on July 1,” Reid said.

Unless Congress acts, interest rates on government subsidized student loans will double to 6.8 percent in July. Republicans and Democrats have been unable to agree on how to cover the $5.9 billion cost of the rate freeze.

In a May 31 letter to President Barack Obama, McConnell of Kentucky and Boehner of Ohio proposed various methods to pay for the freeze, including higher pension contributions by federal workers and a plan to prevent overpaying Social Security benefits to retired state and municipal workers who receive pensions.

Reid’s proposal would head off an increase in companies’ pension contributions caused by low corporate bond interest rates. Because companies take tax deductions for contributions to their employees’ pension accounts, the change would result in more money flowing to the U.S. Treasury.

Highway Bill

That part of Reid’s proposal was included in a highway bill the Senate passed in March.

Reid spokesman Adam Jentleson wouldn’t say when Reid might seek a vote on the plan.

“We’re hoping Republicans will engage on this proposal, but of course we will try to avoid the rate hike on July 1,” Jentleson said.

Obama kept up his campaign to prod Congress to avert a rate increase when he spoke yesterday to students, faculty and local officials at the University of Nevada, Las Vegas. The president blamed Republicans for inaction.

“These guys say that students like you should pay more” for student loans to trim the deficit, while continuing tax breaks for high earners and oil companies, Obama said. “It’s wrong, it’s wrong.”

Senate Republicans on May 8 blocked Democrats’ proposal to cover the cost of the one-year freeze in government student loan interest rates by requiring some professional services firms to pay withholding taxes on their income.

Health Fund

The House passed a bill that would cover the cost by abolishing a public-health fund created by Obama’s health-care overhaul.

McConnell spokesman Don Stewart said Reid’s latest offering may be a sign of progress.

“While we still haven’t heard from the White House on our bipartisan proposal, we are encouraged to see the majority leader drop his insistence on taxing job creators,” Stewart said in an e-mailed statement. “We will review these new proposals and hope that they will finally review the bipartisan proposals we sent a week ago.”

White House press secretary Jay Carney told reporters yesterday that the president thinks “there has been progress and we will get this done, that Congress will eventually do the right thing.”

Also, two Senate Republicans -- Richard Burr of North Carolina and Tom Coburn of Oklahoma -- introduced legislation that would restructure interest rates for government-backed student loans.

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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