WASHINGTON, DC – In an effort to protect taxpayers and shield college students from a sharp increase in federal Stafford loan interest rates, three U.S. Senators will introduce a bill today to ensure student loan interest rates for more than 7 million undergrad uate students do not dramatically increase this year. Senator Patty Murray (D-WA) is an original cosponsor of this bill
The current fixed interest rate on Stafford federal subsidized loans is 3.4 percent, but that rate will double to 6.8 percent on July 1, 2013 unless Congress takes action. However, Congress is not expected to begin consideration of the reauthorization of the Higher Education Act, the primary law governing federal investment in higher education, until after the “doubling” deadline.
The Student Loan Affordability Act of 2013 (S. 953) would freeze need-based student loan interest rates for two years while Congress works on a long-term solution to slow the rapid accumulation of student-loan debt, and is fully paid for by closing three egregious tax loopholes. Specifically, the bill would: limit the use of tax-deferred retirement accounts as a complicated estate planning tool; close a corporate offshore tax loophole by restricting “earnings stripping” by expatriated entities; and close an oil and gas industry tax loophole by treating oil from tar sands the same as other petroleum products.
“Maintaining affordable student loan interest rates in the current economic environment is a critical investment, and this legislation would close unfair tax loopholes for special interests to help students who need financial aid to pursue their education,” said Murray, a member of the Senate Health, Education, Labor, and Pensions Committee. “This bill doesn’t fix the problem of college affordability, but it does give Congress an opportunity to work on a long-term solution to the skyrocketing costs of higher education, and it does that without cutting other important student aid programs.”
The rising tide of total student debt, which has crested above $1 trillion for the first time in our nation’s history, has passed credit cards and auto loans to become the second-largest type of consumer debt behind mortgages. Research by FICO Labs found that in 2005 the average student loan debt was just over $17,000. In 2012 it rose above $27,250 – a 58% increase in just seven years.
The ballooning student debt rate is creating a drag on the U.S. economy. As student loan debt has risen, home ownership and car ownership have declined for young households. Keeping the cost of borrowing low will help reduce the amount students owe and help give them purchasing power that can improve our overall economy.
Late last night, the Senate began the “Rule 14” process of placing the Student Loan Affordability Act directly on the calendar to expedite consideration of the bill.
SUMMARY: The Student Loan Affordability Act of 2013
The bill would extend and fully pay for an additional two years of the current 3.4 percent interest rate on subsidized Federal Direct Stafford Loans, which is set to double on July 1st by closing several tax loopholes:
Closing a Loophole for 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, a loophole in the tax law allows taxpayers to stretch those distributions over many years if they leave their account to a very young beneficiary. When the account holder dies, the taxation of the account is then delayed as it is spread over the life of the beneficiary. The Student Loan Affordability Act would require the retirement savings accounts to 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. This provision saves taxpayers approximately $4.6 billion over ten years.
Closing an Oil Industry Tax Loophole: The Student Loan Affordability Act eliminates 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. In 2011, the IRS determined that the definition of crude oil for purposes of the oil spill liability trust fund does not include tar sands or oil sands. Yet there is no good reason for this special exclusion. Tar sands are refined using the same processes as those used in the refining of crude oil, and oil spill liability trust fund revenues are used to clean up oil spills from oil derived from tar and oil sands. No distinction exists between finished products refined from crude oil or those refined from tar sands. This provision saves taxpayers approximately $1.3 billion over ten years.
Closing a Loophole for 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. In its 2007 study of earnings stripping, the Treasury Department found strong evidence of the use of such techniques by expatriated entities. The Student Loan Affordability Act 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 carryforward for disallowed interest would be limited to ten years, and the carryforward of excess limitation would be eliminated. This provision saves taxpayers approximately $2.7 billion over ten years.
In addition to Senator Murray, the bill currently has 11 other cosponsors, including: Senate Majority Leader Harry Reid, U.S. Senators Dick Durbin (D-IL), Chuck Schumer (D-NY), John Rockefeller (D-WV), Jack Reed (D-RI), Tom Harkin (D-IA), Tammy Baldwin (D-WI), Al Franken (D-MN), Sherrod Brown (D-OH), Christopher Murphy (D-CT), and Kirsten Gillibrand (D-NY).