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Republicans make new offer in student loan stalemate

By Lisa Mascaro, Tribune Washington Bureau –

WASHINGTON — With a stalemate in Congress threatening a student loan interest-rate increase, congressional Republicans proposed a new way to keep federally subsidized loan rates low in a counter-offer to the White House to break the standoff.

Democrats and Republicans say they want to avoid a rate increase on new undergraduate loans that is scheduled for July 1, but they have been at odds over how to pay the $6 billion cost.

The Republican leaders of the House and Senate suggested two new options in a letter Thursday to President Barack Obama.

“There is no reason we cannot quickly and in a bipartisan manner enact fiscally responsible legislation,” wrote House Speaker John A. Boehner, R-Ohio; House Majority Leader Eric Cantor, R-Va.; Sen. Mitch McConnell of Kentucky, the Republican leader; and Sen. Jon Kyl of Arizona, the No. 2 Republican in the Senate.

The movement came after Democrats criticized House Republicans, who had essentially moved away from the issue after passing a bill to keep rates low. That legislation was rejected by Democrats in the Senate, and Obama threatened a veto because it would have gutted a public health and prevention fund to pay for the loan subsidy.

A spokesman for Rep. Nancy Pelosi, D-Calif., the House minority leader, called the counteroffer “a complete and utter ruse.”

“This letter is nothing but a damage-control effort to try to hide the disdain the House Republican leadership continues to show for the millions of American students who are struggling to afford to pay for college,” said Drew Hammill, a spokesman for Pelosi.

Under the proposal, Republicans suggested raising the amount federal employees contribute toward their retirements, a proposal Obama had included in his budget for the coming fiscal year, but is unlikely to get broad support from Democrats, who have argued that benefits for government workers have been cut and their pay frozen for the past several years.

Republicans also suggested a second option that would cut off the loan subsidy – and allow interest to start accruing – for students who attend college part-time or take longer to finish college. The second option would also adjust Medicaid payments to the states.

Democrats in the Senate had proposed paying for the loan costs by imposing a new tax on higher-income households that earn tax-free income from businesses organized as S corporations. But Republicans have opposed new taxes.

Interest rates on new student loans are set to double, to 6.8 percent, next month if Congress does not act under legislation signed into law in 2007.

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