Federal Relations

July 8, 2013

Congress Back to Work this Week

Congress returns today after a weeklong recess period to begin a four-week work schedule leading into the August recess. The next four weeks will focus largely on FY14 spending bills. But this week the Senate Democrats will certainly attempt to reverse an interest rate hike on federal student loans that kicked in July 1st and House Republicans will launch multiple inquiries into the Obama administration’s July 2nd decision to delay the part of the health-care law requiring employers with 50 or more full-time workers to pay a penalty if they do not offer health insurance. Prepare for a lot of partisan messaging coming out of these two issues.

FY14 Appropriations:  House and Senate appropriators are continuing to advance FY14 spending bills, even with no clear picture yet of how the budget impasse will be solved by the end of the federal fiscal year on September 30th.  House Appropriations panels will move three bills this week – Energy-Water, Commerce-Justice-State, and Financial Services. Defense, Transportation-Housing and Urban Development, and Agriculture bills may follow. House Appropriations has not yet announced when it will mark up three of its most controversial measures-the Interior-Environment, Labor-Health and Human Services-Education and State-Foreign Operations bills. Senate Appropriations will hold a subcommittee markup on July 9th of its Labor-HHS-Education bill and a full committee markup on July 11th. Senate Appropriations Chairwoman Barbara Mikulski (D-MD) has said that she will bring forward the Commerce-Justice-Science bill the week of July 16th.

Student Loans: Senate Democrats’ have identified student loan interest rates as their top priority this week, and will try to take retroactive action to reverse the doubling of federal student loan interest rates that took effect July 1st.

Senate Leader Harry Reid (D-NV) will try to schedule a vote on a bill (S 1238) that would extend the old fixed rate of 3.4 percent for one year to give Congress more time to negotiate a long-term proposal tied to market rates. This bill would offset the $4.25 billion cost of the rate extension by changing the tax treatment of certain inherited IRAs and 401(k)s. It is unclear if this measure will attract any Republican votes. Republicans are opposed to a stand-alone short-term fix in the one-year extension because it contains “permanent tax increases” — the closure of a loophole for inherited retirement accounts. A vote on the one-year fix is tentatively scheduled for Wednesday and expected to fail, although a deal could be struck before then. As written, the one-year extension would also go nowhere in the House.

The Senate Republicans appear to be leaning toward support for a competing plan that would permanently reform all federal loan rates and take the issue off Washington’s plate year after year. It would peg subsidized and unsubsidized loans to 10-year Treasury notes plus 1.85 percent, with higher percentages for graduate student loans. The interest rates would be locked in for the life of the loan, a key requirement of the president’s that was not met in the House bill. The biggest issue is that the bill caps rates only on consolidated loans at 8.25 percent; Democratic leaders want a cap on individual rates as well. The legislation would also include $1 billion in deficit reduction, which some Democrats say is paid for by students in the form of higher-than-necessary rates. A tweak to that bill in the form of a rate cap and deficit neutrality could forge a middle ground on an issue whose elusiveness has surprised everyone.

The US Department of Education has addressed the student loan interest rate hike in a recent blog post. Readers are encouraged to submit their questions for clarification as many students and parents are still confused about what this all means for them and their specific loan situations.

The Office of Federal Relations continues to reiterate our request that Congress address this issue with a permanent solution.