House Republicans in a letter to President Barack Obama offered to freeze the federal student loan rate for one year if federal employees would make higher pension contributions.
Under the Republican plan, federal workers would pay 1.2% of their salaries into the $377 billion Federal Employees Retirement System, Washington, up from the current rate of 0.8%. Unlike the one-year extension for student loans, the pension hike would be permanent.
The proposal comes on top of pension contribution hikes for newly hired workers approved by the House and Senate earlier this year to pay for extending the federal unemployment insurance program by having new federal hires contribute 3.1% of salary to their pensions.
The 3.4% subsidized student loan rate is slated to double on July 1.
Mr. Obama supports freezing student loan rates for another year, and his fiscal 2013 budget calls for federal employees to contribute 2% of salary after a three-year phase in, but the White House has not responded to the Republican letter, which is seen as a negotiating tactic as Democrats offer other ways to save the lower loan rate, including raising corporate taxes.
Extending the subsidy would add nearly $6 billion to the federal deficit over the 2012-2017 period, according to the Congressional Budget Office. The president's proposal to increase federal employee contributions would reduce the federal deficit by $8 billion, the CBO estimates.
Union leaders representing federal workers decried the Republican leaders' plan.
“It is fundamentally wrong for federal employees, yet again, to serve as the automated teller machine for the nation,” John Gage, national president of the American Federation of Government Employees, wrote to Mr. Obama. AFGE represents the largest federal employee union with 625,000 federal workers.