Deadlines Approach for Student Loans and Highways

Jun 27, 2012 | Other Spending

UPDATE: Congress has reached a deal on a two-year highway bill.

There is a lot happening this week in addition to the Supreme Court's decision on the health care reform law. Both the current highway bill and the 3.4 percent interest rate on Stafford loans are set to expire at in the next three days. The Senate has reached a deal on a pay-for for the interest rate extension, but it has not yet been agreed to by the House. By contrast, the highway bill's status is more urgent and up-in-the-air, with Senate Majority Leader Harry Reid (D-NV) saying that a deal had to be done by today or a bill would not be passed in time.

On transportation, the Senate passed a highway bill three months ago, a bill that closes the Highway Trust Fund's financing gap with some small revenue measures, but mostly relies on general revenue transfers. We commented before that that is not good for the long-term solvency of the HTF, but at this point, passing the Senate bill would be better than passing no bill in the short term. Why? Once the current authorization expires, the federal government will not be able to collect 14.2 cents of the 18.3 cent gas tax. With most of the HTF's revenue source gone but an estimated $50 billion of pre-approved spending still needing to be financed, that money would have to come from general revenue, thus worsening the budget situation.

In addition, the expiration date would create a funding cliff for the HTF since no new money would be allowed to be obligated or spent after June 30. Thus, even a stopgap measure would be preferable than letting the authorization expire.

In terms of student loans, the Senate reached a deal to offset the $6 billion cost of extending the 3.4 percent interest rate (set to go to 6.8 percent) on federal Stafford loans for a year with an increase in premiums charged by the Pension Benefit Guaranty Corporation. In addition, the length of loans would be limited to 150 percent of the program's length--for example, six years for a four-year undergraduate proram. The House has not yet signed on to this deal, but they have only three days to either do just that, come up with alternative offsets, or let the rate go back to 6.8 percent. It is disappointing, though, that the Congress seems primed to turn the 3.4 percent interest rate into another temporary extender.

As always, it will come down to the last minute for deals on both highway funding and student loans--if they happen at all.