Student Loan Interest Bill We Can Live With
Student loan interest rates are set to rise in July unless Congress acts. Typically I'd be pushing for Congress to come up with a more permanent solution, but a temporary measure seems like the best we can get at this late hour, because the proposed longer term "solutions" are in fact a hit to the wallets of students and families. For instance, the bill the House passed last week is worse than doing nothing and actually makes things more expensive for students.
I applaud Senator Elizabeth Warren for introducing the Bank on Students Loan Fairness Act (S. 897), setting subsidized Stafford loan rates to the same rate that the U.S. government lends money to U.S. banks through the Federal Reserve discount window, or 0.75%, for a period of one year. Senator Warren is a champion for consumers and her bill adds immeasurably to the debate.
Because no one can imagine a world in which the current House would pass Senator Warren's bill, I'm favoring the Student Loan Affordability Act (S. 953), sponsored by Senator Jack Reed, and co-sponsored by Senators Tom Harkin, Dick Durbin, Harry Reid, Charles Schumer, and others.
The major provisions of the Student Loan Affordability Act:
The major provisions of the Student Loan Affordability Act:
Amends the Higher Education Act of 1965 to extend until June 30, 2015, thereby maintaining the current 3.4 percent interest rate on subsidized Federal Direct Stafford Loans for two years.
Funds the extension by changing these tax provisions:
- Tax-deferred accounts - Under current law, holders of IRAs and 401(k)-type accounts are required to begin taking taxable distributions from those accounts once they reach age 70-1/2. However, current tax law allows taxpayers to stretch those distributions over many years if they leave their account to a very young beneficiary. Under this revision, the retirement savings accounts must be distributed within five years of the death of the account holder, unless the beneficiary is within ten years of the account holder’s age, an individual with special needs or disabled, a minor, or the account holder’s spouse.
- Oil industry - This revision would eliminate a special tax loophole now enjoyed by the oil industry. Specifically, the Act would include oil from tar sands among the petroleum products that are subject to taxes that support the oil spill liability trust fund.
- Non-U.S. companies - Under current law, opportunities are available to inappropriately reduce the U.S. tax on income earned from U.S. operations through the use of foreign related-party debt. This revision would tighten the limitation on the deductibility of interest paid by an expatriated entity to related persons. The current law debt-to-equity safe harbor would be eliminated and the 50 percent adjusted taxable income limit that applies to net interest deductions would be reduced to 25 percent. In addition, the carry forward for disallowed interest would be limited to ten years, and the carry forward of excess limitation would be eliminated.
More on the various interest rate proposals
By Heather | Category: Student Loan Policy, Student Debt, Student Loan Repayment, Higher education funding
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