U.S. Senator Tammy Baldwin Calls for Congressional Action to Prevent Student Loan Interest Rate Hike

Washington D.C. – With student loan interests rates set to double on July 1, U.S. Senator Tammy Baldwin called on Congress to act and pass legislation she has co-sponsored to close wasteful special interest tax loopholes in order to prevent a hike in student loan interest rates for over 80,000 Wisconsin students. Without Congressional Action, need-based student loan interest rates will double on July 1st, from 3.4 percent to 6.8 percent, meaning students will pay an additional $1000 for each loan.

“Wisconsin families and students cannot afford to have student loan interests rates double. It is time for Congress to take action. This is a common sense solution that is built on fairness,” Baldwin said, “By closing special interest tax loopholes we can ensure college affordability and strengthen the economic security of Wisconsin families and students.”

Audio of Senator Baldwin’s statement.

The Student Loan Affordability Act of 2013 (S. 953) prevents need-based student loan interest rates from doubling on July 1^st. The bill protects students by freezing need-based student loan interest rates at 3.4 percent for two years. The legislation is fully paid for by closing three 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.

According to University of Wisconsin System data, 72 percent of UW System resident students graduated with loan debt in 2011-12, with an average loan debt of $28,002 for these students. In addition, the UW System estimates that if a student borrows the maximum allowable amount of $23,000 for Subsidized Stafford Loans over their college career at 6.8 percent instead of 3.4 percent, the impact would be an additional $4,600 in interest charges.

Background

Subsidized Stafford LoansbyUW System School 2011-12

UW Institution                                    Recipients                   Loan $

UW-Parkside                                      2,583                            $9,812,289

UW-Rock County                                    651                             $1,968,698

UW-Madison                                      12,776                          $69,035,152

UW-Baraboo/Sauk County                  288                                 $908,739

UW-Eau Claire                                   5,042                            $20,580,637

UW-La Crosse                                    4,579                           $19,758,117

UW-Platteville                                    4,188                             $16,701,499

UW-River Falls                                   3,695                            $15,210,225

UW-Stevens Point                              5,131                            $20,824,825

UW-Stout                                              4,919                            $21,006,186

UW-Richland Center                             227                                  $683,410

UW-Milwaukee                                  16,715                            $76,466,193

UW-Whitewater                                    5,876                            $25,758,319

UW-Washington County                        358                              $1,040,467

UW-Waukesha                                        683                              $1,938,605

UW-Oshkosh                                         6,203                           $24,924,680

UW-Fond du Lac                                      333                                 $990,817

UW-Fox Valley                                           686                              $2,069,590

UW-Manitowoc                                          317                                  $943,075

UW-Sheboygan                                         359                               $1,061,109

UW-Superior                                           1,720                               $7,050,882

UW-Barron County                                    294                                   $864,018

UW-Marathon County                                576                               $1,751,468

UW-Marshfield/Wood County                   247                                  $750,025

UW-Green Bay                                         3,457                            $13,384,138

UW-Marinette                                              171                                  $503,719

Total                                                    82,277                         $356,617,455

SUMMARY: The Student Loan Affordability Act of 2013

U.S. Senators Tom Harkin (D-IA), who chairs the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Jack Reed (D-RI) have introduced the legislation along with Majority Leader Harry Reid (D-NV), U.S. Senators Dick Durbin (D-IL), Chuck Schumer (D-NY), Patty Murray (D-WA), John Rockefeller (D-WV), Al Franken (D-MN), Sherrod Brown (D-OH), Christopher Murphy (D-CT), Kirsten Gillibrand (D-NY), and Senator Baldwin.

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.