Senate Republicans block proposal to keep student loan rates low

WASHINGTON — The battle over President Obama’s plan to keep interest rates low on federal student loans escalated Tuesday as Senate Republicans blocked a Democratic proposal to tax higher-income individuals to pay for it.

Republicans also want to avoid raising the rate on college loans, but would pay for it by eliminating a public health fund in Obama’s new healthcare law.

The stalemate comes as both parties turn routine legislative votes into campaign debates. They can joust over the issue until July, when rates on new undergraduate student loans for 7 million students are set to double to 6.8%.

But the showdown carries risks for both parties at a time when middle-class families are struggling with college costs and Americans are tired of the brinkmanship in Congress.

The Senate majority favored the bill, 52 to 45, but fell short of the 60 votes needed to overcome a GOP filibuster. No Republicans supported the bill, but retiring Sen.Olympia J. Snoweof Maine voted present.

The White House called the outcome “extremely disappointing.”

Democrats contended the GOP was more sensitive to tea party conservatives and anti-tax stalwarts than to the financial needs of ordinary Americans.

“They are simply unwilling to allow the wealthiest Americans to pay a single penny more in the aid to the recovery of this economy,” said Sen. Patty Murray (D-Wash.).

Kentucky Sen. Mitch McConnell, the Republican leader, said the impasse could be easily resolved if Obama would leave the campaign trail and negotiate an alternative.

“Following the president’s lead, Senate Democrat leaders have decided to point the finger of blame instead of just solving the problem,” McConnell said, “which, of course, is ridiculous.”

Democrats have tapped the public health and prevention fund in the past, but they oppose the GOP plan to eliminate it to cover the $6-billion cost of extending 3.4% rates on Stafford loans for another year. The GOP version narrowly passed the House last month.

Instead, Democrats want to close a tax loophole that allows profits from so-called S corporations, usually firms run by a few people, to escape certain employment taxes.

The proposal would tax profits for shareholders who have adjusted incomes of more than $200,000, or $250,000 if married, and work for an S corporation that has three or fewer shareholders.

The likely GOP presidential nominee, Mitt Romney, supports keeping student loan interest rates low.

Senate Majority Leader Harry Reid (D-Nev.) suggested that Romney “pick up the phone and call Sen. McConnell.”

The loan rates are set to rise with the expiration of a bill passed in 2007 by a Democratic-led Congress and signed into law by then-President George W. Bush.

lisa.mascaro@latimes.com