Senate Democrats

Reid Offers Bipartisan Proposal To Fund Student Loan Bill

Reid Proposes Pair of Bipartisan Ideas, One Modeled After Proposal That Recently Passed Senate 74-22

Reid: Offsets Should Enable Us To Pass Student Loan Bill “Immediately,” Prevent Rates from Doubling on July 1st

Washington, D.C. – In a letter to Speaker John Boehner and Minority Leader Mitch McConnell, Senate Majority Leader Harry Reid today offered two bipartisan proposals to pay for a one-year extension of student loan rates to prevent them from doubling on July 1st. The first proposal expands an offset that recently passed the Senate on a strong bipartisan vote of 74-22 as part of the transportation jobs bill. The combination offers a bipartisan path forward to break the impasse currently facing the student loan bill.

The letter outlines two proposals that have received bipartisan support:

  • Reforms to employer pension payment contributions. The proposal outlined by Senator Reid would create a “stabilization range” for employers to compute their pension liabilities. Instead of being forced to use the two-year corporate bond rates in computing their pension liabilities, the new proposal would allow them to compute liabilities using rates for a 25-year period within which the two-year rates must fall.  To the extent that the two-year rates fall outside this range, the company would be allowed to use a rate closest to the two-year rate that falls within the stabilization range to compute its pension funding requirements.  This more flexible approach would narrow fluctuations in computing pension contributions and result in businesses taking fewer tax deductions for contributions.
  • Change contributions to Pension Benefit Guarantee Corporation premiums. In addition, Senator Reid proposed increasing premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corporation.  Currently, employers pay a flat dollar premium of $35 per pension plan participant as well as a variable premium equal to $9 for each $1,000 that the plan is underfunded.  To help improve the PBGC’s finances, these premiums could be increased as part of this proposal.

“The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rate and reauthorization of the nation’s surface transportation programs,” Senator Reid writes in the letter.

“My preference would be to use the funds raised by these two proposals to pay for both measures, and pass them immediately – since as you know, both are critical to the economic security of middle class families, and both must be addressed before the end of June,” writes Senator Reid.  “However, if House Republicans are still not ready to pass the transportation jobs bill, I suggest that we use part of these offsets to pay for the student loan legislation, and pass that measure immediately so that middle class families will not see their interest rates double on July 1st.   The remainder of these offsets will still be available to finish completion of the transportation jobs bill once the conference committee completes its work.”

Full text of the letter is below and available as a PDF here. Identical copies of the letter were sent to Speaker Boehner and Minority Leader McConnell.

 

June 7, 2012
The Honorable
John A. Boehner
The Speaker of the House of Representatives
United States Capitol
Washington, D.C.  20515

The Honorable
Mitch McConnell
Senate Republican Leader
United States Capitol
Washington, D.C.  20510

Dear Mr. Speaker and Mr. Leader,

I read your letter of May 31 to President Obama on student loan interest rates, in which you said, “in the interest of finding common ground on a way to pay for a one year extension of the current student loan interest rate we are open to other solutions that we have all supported in the past.”  In that spirit, I want to offer another bipartisan proposal that recently passed the Senate with strong support from Republicans.

Employers compute their pension plan liabilities by discounting their future payments using an average of corporate bond interest rates over the past two years.  Under current law, the unusually low interest rates over the past few years will result in substantial increases in pension contributions for 2012.  That requirement will force businesses to redirect money away from job creation and business investment.

On a strong bipartisan vote of 74-22, the Senate passed legislation reauthorizing the nation’s surface transportation programs, which included a proposal to address this pension funding problem.  That proposal would continue to require companies to use the two-year corporate bond rates in computing their pension liabilities.  The proposal would also create a “stabilization range” computed using rates for a 25-year period within which the two-year rates must fall.  To the extent that the two-year rates fall outside this range, the company would be allowed to use a rate closest to the two-year rate that falls within the stabilization range to compute its pension funding requirements.  This more flexible approach would narrow fluctuations in computing pension contributions and result in businesses taking fewer tax deductions for contributions.

In addition, there has been bipartisan support for increasing premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corporation.  Currently, employers pay a flat dollar premium of $35 per pension plan participant as well as a variable premium equal to $9 for each $1,000 that the plan is underfunded.  To help improve the PBGC’s finances, these premiums could be increased as part of this proposal.

The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rate and reauthorization of the nation’s surface transportation programs.  My preference would be to use the funds raised by these two proposals to pay for both measures, and pass them immediately – since as you know, both are critical to the economic security of middle class families, and both must be addressed before the end of June.

However, if House Republicans are still not ready to pass the transportation jobs bill, I suggest that we use part of these offsets to pay for the student loan legislation, and pass that measure immediately so that middle class families will not see their interest rates double on July 1st.   The remainder of these offsets will still be available to finish completion of the transportation jobs bill once the conference committee completes its work.

I look forward to working with you further to pass this much-needed legislation.

Sincerely yours,

 

Harry Reid

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