Student loans, gov't pensions eyed by budgeteers

By David Espo

Associated Press

Published: Wednesday, May 18 2011 12:00 a.m. MDT

U.S. Treasury Secretary Timothy Geithner speaks to members and guests of The Harvard Club of New York City, Tuesday, May 17, 2011 in New York. Geithner said that if Republicans insist on passing their budget plan as a condition for approving an increase in the nation's borrowing limit, they will be responsible for the consequences.

Mary Altaffer, Associated Press

Enlarge photo»

WASHINGTON — The White House and key lawmakers are considering reductions in student loan subsidies, farm payments and support for federal workers' pensions as they search for cuts that can clear the way for an increase in the national debt limit, according to officials in both parties.

The negotiations are still in the early stages, with no final decisions made, these officials said Wednesday. While the amounts involved so far are relatively modest, the talks led by Vice President Joe Biden appear likely to assume greater public prominence with the evident collapse of a freelance attempt by the "Gang of Six" senators to produce a sweeping bipartisan plan to reduce red ink.

"We're talking (about cuts totaling) $200 billion, $150 billion and we have to get up into the trillion range or more," said Sen. Jon Kyl, R-Ariz., one of six other lawmakers taking part in the talks at Blair House across the street from the White House.

"We have a long way to go if we're struggling at this level with this amount," he said, adding that so far, the talks have generally focused on areas of agreement.

The group has yet to discuss military spending or deeper reductions in programs that already were trimmed in legislation that narrowly averted a partial government shutdown in April.

Any discussion about savings from Social Security, Medicare and possibly Medicaid is likely to be set aside for President Barack Obama and Speaker John Boehner, R-Ohio, to handle.

Treasury Secretary Tim Geithner has said Congress must raise the $14.3 trillion debt limit by Aug. 2 or risk a first-ever government default. Republican leaders, acknowledging the need for new borrowing authority, want cuts of at least the same magnitude as any increases as a way to gain control over future spending.

Some of the cuts under review were first advanced by the administration, and others were included in a budget that Republicans passed in the House last month. Negotiators are also looking to recommendations made by the National Commission on Fiscal Responsibility and Reform, appointed by Obama and headed by Erskine Bowles and former Sen. Alan Simpson. A separate plan produced by the highly regarded Bipartisan Policy Center also figures in the talks.

Obama's own budget proposes letting interest begin to accumulate on government loans to graduate students while they are still in school, rather than begin accruing when they finish. The savings for the government are estimated at $18.1 billion over a decade, money the White House wants to use to expand Pell Grants for education.

Going one step further, Republicans want to allow interest to accrue on loans to undergraduates still in school, at a savings estimated at an additional $46.5 billion over 10 years. Unlike the White House, the GOP would apply all of the savings to deficit reduction.

Obama's deficit commission called for eliminating the current in-school interest subsidy, citing a recent report by the College Board that said, "There is no evidence that eliminating in-school interest is critical" to the decision a student makes about enrolling in school.

Republicans have called for $27.7 billion in farm program savings through the end of the decade, as compared with about $5 billion in Obama's budget last February.

Both sides have called for savings from the crop insurance program and direct payment to farmers. Details are sketchy, because the House Republicans omitted many from their budget and the White House has not released several of the specific recommendations that comprise a 12-year deficit-cutting plan Obama unveiled last month.

As did Obama, the presidential deficit reduction commission and Bipartisan Policy Center recommended cutting payments to the largest farms.

The House budget written by Republicans recommends raising pension contributions by workers and cutting them for the government.

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