WASHINGTON (USA TODAY) - The Senate will vote Wednesday on a Democratic plan to scale back federally subsidized student loan rates, which doubled on July 1, but the proposal lacks enough support required to pass, leaving a divided Congress no closer to compromise.
The Democratic proposal would extend for one year the previous 3.4% rate, which has doubled to 6.8%, and pay for it by closing a tax loophole that benefits the wealthy. Supporters say the short-term patch would provide Congress more time to revamp the student loan system during reauthorization of the Higher Education Act next year.
"Let's extend this for a year," said Sen. Al Franken, D-Minn. "This will put more pressure on us to do the reauthorization, to get it done."
However, a similar effort last month by Senate Democrats to extend the lower rates for two years failed to meet the 60-vote threshold required for a vote because Republicans oppose a short-term fix. "Why in the world the Senate would leave 7 million middle-income families twisting in the wind when we have a chance for a permanent solution, I cannot imagine," said Sen. Lamar Alexander, R-Tenn.
A coalition of Senate Republicans and two Democrats, Sen. Joe Manchin, D-W.Va., and Sen. Tom Carper, D-Del., along with Sen. Angus King, I-Maine, have offered a competing proposal to tie interest rates to the financial markets and remove Congress' role in determining loan rates. They have asked Senate Majority Leader Harry Reid, D-Nev., for a vote on the proposal.
It is a similar plan to a House GOP-passed bill, but there is strong opposition to it among liberal Democrats, although the proposal is based on a policy endorsed in President Obama's budget.
The White House has taken a less aggressive role in this legislative dispute compared with the same battle last summer during President Obama's re-election race, when he campaigned on the issue and Congress extended the 3.4% rate for an additional year.
"The differences are not that significant," White House spokesman Jay Carney said Monday, calling on Congress to "fix this problem quickly."
House Speaker John Boehner, R-Ohio, accused Senate Democrats of seeking political advantages in the standoff. "When you have a bipartisan group in the Senate who had a solution that was not far off from our solution, and yet shot down by the majority leader, you begin to wonder whether they're looking for a solution," he said.
Under the GOP proposal, student loan rates would initially be well below the 6.8% current rate because interest rates are at historic lows, but opponents contend that the GOP plans would allow rates to rise above 6.8% in future years because they would be tied to market fluctuations. Interest rates are expected to rise as the economy improves.
"Democrats can't support a plan that would be worse for students than doing nothing at all," Reid said.
Democrats also continue to argue for tighter rate caps on individual loans, which the current proposals do not include. Manchin said negotiations are ongoing to include cap language that could bring more Democrats on board. "If we can make that happen, I think we can get something done," he said.
If Congress allows the current rates to stick, about 7 million college students would face the higher interest rates this year on subsidized loans.