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College loan rate drawing interest; Congress is split on how to extend cut

Upwards of 60,000 students in Western New York could see the interest rate on their college loans double this summer unless Congress acts -- and that's just what Sen. Charles E. Schumer and Rep. Kathleen C. Hochul are urging lawmakers to do.

With President Obama pushing the same issue on college campuses this week, college loans took center stage in Congress on Wednesday, with Republicans and Democrats offering competing solutions to the problem.

To students, though, it's an issue that transcends party politics, as Hochul found out at a round-table discussion earlier this week at Daemen College.

"You had to look at their faces and right into their eyes to see the worry these young people had," Hochul said on the House floor Wednesday. "We talked about the biggest concerns they had, and it wasn't their final exams. It was whether they could pay for their education next year."

Hochul cited two students who told her they might not be able to return to school next fall if interest rates increase.

Another told the congresswoman that she may need a fourth job just to pay back the debt she already owes.

Hearing similar comments from lawmakers from around the country, House Speaker John A. Boehner, R-Ohio, told reporters that the House will vote Friday on a proposal to extend the low interest rate for a year, with the $5.9 billion price tag to be paid for by cuts to Obama's health care reform effort.

"We can and will fix the problem without a bunch of campaign-style theatrics," Boehner said.

The issue arises because in 2007, Congress halved the interest on federally backed Stafford student loans from 6.8 percent to 3.4 percent -- but only for five years.

That rate cut runs out July 1, potentially leaving college students nationwide with dramatically higher debts once they leave college.

According to Schumer's office, 62,533 students in Western New York receive the federally backed loans. Some 12,170 attend the University at Buffalo. The rest are spread among the area's other colleges and universities.

Schumer said he fears some students will give up on college if they see the interest rate double.

"With the July 1 deadline for a rate hike looming, Congress must act to extend these low-interest rates to keep the dream of going to college alive for hundreds of thousands of students in New York," Schumer said.

To that end, before Boehner announced his proposal, Schumer and other Senate Democrats proposed legislation that would keep the loan rate at 3.4 percent for another year.

To pay for the $5.9 billion cost of that move, Senate Democrats propose increasing payroll taxes on some privately held businesses.

But that, of course, runs headlong into the Republican Party's opposition to higher taxes.

"Let's be honest," Senate Minority Leader Mitch McConnell, R-Ky., said on the Senate floor. "The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election."

Arguing that the payroll tax hike could stop some businesses from hiring workers, McConnell said Obama has to negotiate with Republicans over the issue and "choose results over rallies."

Wednesday, however, Obama chose a rally on a college campus in Iowa City, Iowa, to make his point about the student loan issue.

"For each year that Congress doesn't act, the average student with these loans will rack up an additional $1,000 in debt," Obama said at the University of Iowa, his third college campus visit in two days. "That's basically a $1,000 tax hike on more than 7 million students around America."

Despite Obama's dire warnings and McConnell's comments, other Republicans said they expect to find a compromise with Democrats on the issue, for several reasons.

For one thing, the presumptive Republican presidential nominee, former Massachusetts Gov. Mitt Romney, is siding with Obama and saying the lower interest rate should be extended for a year.

For another, many Republicans agree with Democrats that the lower college interest rate is a good investment.

"We've been working on this issue because the rising cost for tuition for higher education is very much a concern of ours," said Rep. Tom Reed, R-Corning, who predicted Congress will vote to keep the interest rate at its current level.

"From what I see, there's broad support for it on both sides of the aisle," Reed said. "I see it as something that's likely to get done sooner rather than later."