Stop the Student Loan Interest Rate Hike Act of 2012--Motion to Proceed

Floor Speech

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Mr. REED. Madam President, in less than 2 months--53 days--the interest rate on subsidized student loans will double to 6.8 percent unless Congress acts. If the rate on subsidized Stafford loans is allowed to rise, as many as 7.4 million students across the Nation, including approximately 43,000 students in Rhode Island, will pay about $1,000 more for each year that they borrow, and that is on top of already significant debt.

Some have argued, even while claiming to support keeping interest rates low, that the increase would not be a significant financial burden. Students and families beg to disagree. This would be a significant impediment to completing their education. For younger students starting their education, for those seeking educational opportunities for job transition in midlife, those opportunities would be frustrated also. Right now students and their families are sitting around the kitchen table making tough decisions about next year and whether they can afford to go to school if interest rates double.

One Rhode Island mother wrote me:

Please do not raise the interest rates on student loans. My son will be in his last year ..... I cannot afford to pay any more and fear that he will not be able to graduate and still have all the loans to pay back.

So in addition to frustrating educational advancement, it could leave many students across the country with lots of debt and no degree.

Hundreds of thousands of young people, parents, educators, and members of the faith community and other community leaders have come to us with one simple request: Don't double the rate.

Some on the other side have argued that low-cost Federal loans have contributed to rising college costs and increased student debt. This does not make sense. The maximum amount undergraduate students can borrow in subsidized loans has remained unchanged at $23,000 for the last 20 years. There are many causes that are accelerating tuition, but the amount of available, accessible subsidized Federal loans for students has remained unchanged for 20 years. But increasing the cost of these loans by doubling the interest rate will certainly make college more expensive for families and for students.

We need to address college costs, but having the Federal Government double the interest it charges for students, particularly the low- and moderate-income students, is not the solution. In fact, it complicates the problem dramatically.

My colleagues on the other side of the aisle say they want to stop this from happening. Governor Romney, the presumptive Presidential nominee, says he wants to stop this from happening. Yet they are blocking us from even moving forward procedurally so we can debate these things, so they could offer their proposals to pay for what we agree needs to be done, to stop the interest rate from doubling. They are blocking debate because they refuse as much on an ideological as on a practical basis to change the Tax Code and to close a loophole that is egregious and should be closed in order to allow us to help middle-income families. I think they have taken this pledge with respect to no new taxes to a degree that defeats a practical, pragmatic solution to a problem that they know has to be solved. It has to be solved before July 1.

This decision is fairly clear. It is a choice between allowing young people to get a college degree or fealty, to a pledge to never, ever raise anything that Grover Norquist says is remotely connected to a tax. It is that simple. Unfortunately, that simplicity is undercutting the hopes and dreams of thousands of American students, and that is what it is coming down to.

One of the other ironies in this debate is what we propose to do. Closing the subchapter S loophole for high-wage earners in professional endeavors is also something that has long been criticized by conservatives. In the 2004 Presidential campaign, the late conservative columnist Robert Novak described the subchapter S loophole as ``one of the last loopholes left in the Internal Revenue Service Code, and it is a big one.'' I don't think anyone would accuse the late Robert Novak as being anything but staunchly conservative in all his views.

The Wall Street Journal, calling out former Senator John Edwards for his use of this loophole in 2004, called it ``a clever tax dodge.''

Again we have a clever tax dodge pitted against helping students go to college. I think helping students go to college should win.

In fact, the Wall Street Journal editorial points out how in practice this loophole is used. In their words:

While making his fortune as a trial lawyer [referring to Senator Edwards] in 1995, he formed what is known as a `subchapter S,' corporation with himself as the sole shareholder. Instead of taking his $26.9 million as earnings directly in the following four years, he paid himself a salary of $360,000 a year and took the rest as corporate dividends.

Obviously at a much lower tax rate but also avoiding payroll taxes.

That is what we are trying to close here. I think it ought to be closed in fairness anyway, but the added benefit is that we are able, by closing this loophole, to prevent the doubling of the interest rate on student loans.

This is a loophole that should be closed. Again, this money will require people to pay directly to the Social Security trust fund and Medicare trust fund these funds which otherwise were avoided through subchapter S, so it doesn't weaken Social Security but it allows us, through the scoring mechanism, to prevent doubling of the interest rate on subsidized loans. It is a win-win proposition.

What they propose is going after the preventive care fund that was part of health reform. It seems to me it is sort of an unfortunate pitting of one program that benefits middle-income families versus another program that potentially benefits all, but particularly middle-class families. Frankly, I think there is another concept here which we all agree about in theory--if we do not enhance prevention opportunities, the cost of health care will be going up and up. What is unsustainable now will become more unsustainable. It is not an appropriate way to deal with this issue.

At a minimum, I hope we can at least get to a serious debate about this. If that is the proposal that Republicans have, let's get it on the table, let's take a vote. Let's take a vote whether you want to close loopholes for very specialized, very wealthy lobbyists and lawyers and professionals, or do you want to impact potential savings on health care through prevention.

I think and hope we can come to a bipartisan agreement. The clock is ticking. The time to act is now. Students and families are counting on us to do the right thing and fix this problem.

I yield the floor.

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Mr. REED. I have the utmost respect for the Senator from Tennessee. No one is as knowledgeable in education programs as he, the former Secretary of Education, and someone who has a deep commitment to education, not only with respect to his remarks on charter schools but on education in all ways. But he refers to what the House has done. The House, in the Ryan budget, maintains this increase, this doubling of the interest rate. They foresaw, anticipated, and supported the increase to 6.8 percent. Only recently have they apparently had a change of heart and decided that is not appropriate.

The other aspect I think is interesting to note about the House is they have proposed significant reductions in tax rates and they have said they would pay for them by closing loopholes. This is one of the most egregious loopholes that you can find and yet, of course, they will not use this to pay for something which makes a great deal of sense--which they now agree there should be no doubling of the student interest rate.

The Senator is absolutely right, this doubling will not apply to loans that are outstanding. It applies to loans going forward. But if we establish the principle which was embedded in the Ryan House budget, which I think was supported by most, if not all, of my colleagues on the other side, that this rate is going to be doubled to 6.8 percent going forward, that is going to have a significant impact on students who have years to go in college and on people who are contemplating going to college. So the $6 or $7 it may be per month becomes significant overall.

Again, we can get into a discussion about where does this money come from ultimately in terms of was it part of funds for health care, et cetera. But we are facing the choice today of helping students and closing an egregious loophole--one that benefits the wealthiest Americans; it has been criticized by the Wall Street Journal, criticized by Robert Novak, the late columnist--or practically going in and targeting prevention programs. I think we conceptually agree if we don't get a handle on prevention of diabetes, of cancer, of diseases that are costing us billions of dollars, then our task to deal with health care will be immensely more difficult. It is very clear.

What is also very clear is, I think, procedurally the answer is quite straightforward. Let's get on to the bill. Let us go ahead and put these two different proposals on the floor and take a vote. I hope the proposal to close the loophole would pass. But if it did not, at least we would be in a position of preventing the doubling of interest rates on student loans.

With great respect to the Senator from Tennessee, I hope we can move forward, have a vote on the different proposals to pay for it, and then move forward and let people know that their rates will not be doubled.

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