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Democrats’ Split on Student Loans Breaks Into the Open

Senate Democrats battled among themselves over student loans Thursday, holding dueling news conferences about the right way to prevent interest rates from doubling in four days.

It was an unusual situation for the party with an issue on which it has typically been united. And the split all but guaranteed that the chamber will blow past the July 1 deadline, when new student loan applicants who receive need-based federal aid will see their interest rates rise from 3.4 percent to 6.8 percent.

But this week’s intraparty division is not especially surprising given that Senate Democrats have been simmering for months over President Barack Obama’s April budget proposal, which included a student loan proposal designed to foster bipartisan agreement. Now, that simmer has heated to a boil, with many congressional Democrats believing that the White House plan — which Republicans have largely adopted — pushed them too far to the right.

But while some Senate Democrats wanted to hold the line against both the White House and Republicans, others decided to try to forge their own bipartisan deal.

On Thursday, Sens. Joe Manchin III, D-W.Va., and Angus King, I-Maine, unveiled a student loan agreement with three Senate Republicans. Hours later, a group of a half dozen Democratic senators, led by Jack Reed of Rhode Island and Kay Hagan of North Carolina, announced their own one-year patch at the current rate level. At that second news conference, Reed and Sen. Tom Harkin, D-Iowa, illustrated their frustration with the bipartisan measure, holding up a giant poster of rates over time with the “Manchin” plan.

Later in the day, Reed and Manchin debated on the Senate floor the relative merits of each proposal, but Manchin left it to Republicans to object when Reed asked for consent to bring up his bill.

“We have two wonderful colleagues that are working hard — former governors, trying to solve problems and trying to do what they can to make a difference,” said Sen. Debbie Stabenow, D-Mich., who supports the Reed-Hagan plan. “They’ve been working very hard, but I think we probably agree that it’s been a very difficult, frustrating situation and that the ideal thing for us is to see a cap on rates, a long-term solution. That’s the overwhelming position of the Democrats and is something that certainly the White House supports in terms of how we move forward.”

The bill Manchin and King negotiated with the GOP is a non-starter for many Senate Democrats because it does not cap rates. Both groups are aiming for July 10 floor votes, though only Stabenow mentioned specifically that her group had an assurance from Majority Leader Harry Reid, D-Nev., on the timing of such votes.

Though Stabenow noted that the White House “is completely in support” of the one-year fix, the Obama budget document has given continued ammunition to Republicans on an issue Democrats traditionally own. A budget document, more than anything else, is a tool for messaging. But this year’s Obama budget, according to several Democratic sources, has destroyed the usual messaging tactics of Democrats.

The bill from Senate Republicans, Manchin and King would peg all newly issued student loans to the Treasury 10-year borrowing rate plus 1.85 percent for subsidized and unsubsidized undergraduate Stafford loans, plus 3.4 percent for graduate Stafford loans, and plus 4.4 percent for PLUS loans.

The interest rate would be fixed for the life of the loan, and the legislation would keep in place an option currently available that allows students to consolidate their loans and cap repayment interest rates at 8.25 percent. The Congressional Budget Office has determined the bill would reduce the deficit by $1 billion over 10 years.

“We followed the president’s lead,” said Sen. Richard M. Burr, R-N.C. “The president was bold in his budget to go out and say this needs to be tied to market rates. Our subsidies are a little bit different, but the framework of what the president proposed and the legislation we will introduce this morning are in fact the same.”

The Reed-Hagan plan, which has the support of 34 Democrats, would extend the current fixed rate for one year to provide lawmakers more time to negotiate a long-term market-based proposal. The $4.25 billion cost to extend the rate would be paid for by closing a tax loophole that currently allows those who inherit certain IRAs and 401(k)s to avoid paying the taxes on those accounts for many years.

Democrats hope that this offset will be more appealing to the GOP than an oil tax in another version, which Republicans blocked earlier this month.

“We’re notorious for not fixing anything,” Manchin said. “We’re notorious for kicking the can down the road. Enough is enough.”

“I have great respect and affection for the folks that I caucus with, and I know they have a proposal they’ll be putting forward today, but it’s another delay,” added King. “My question is: What will we know in a year that we don’t know now? We’re not going to get any new great data. We’re going to have the information that we have now, so let’s solve the problem.”

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