Hill bargainers: Student loan deal seems near

New York University commencement ceremony
Graduating students celebrate at New York University's commencement ceremony at Yankee Stadium on May 16, 2012 in the Bronx borough of New York City.
Mario Tama/Getty Images

By ALAN FRAM
Associated Press

WASHINGTON (AP) — Congressional bargainers seem near an agreement that would avert a July 1 doubling of interest rates on federal loans to 7.4 million college students and end an election-year battle between President Barack Obama and Congress, Senate aides from both parties said Friday.

Both sides said they were moving toward a deal on how to pay the measure's $6 billion price tag, the chief source of partisan conflict.

The goal is to push legislation through Congress next week so that the current 3.4 percent interest rate on subsidized Stafford loans can be preserved for another year. A 2007 law gradually reduced interest rates on the loans but required them to balloon back to 6.8 percent this July 1 in a cost-saving maneuver.

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On another front, the two sides were also close to an agreement to overhaul federal transportation programs, according to House and Senate aides from both parties. Negotiations were expected to continue through the weekend, with votes expected next week on either a major transportation bill or an extension of current programs, said the aides, who spoke on condition of anonymity to discuss details of the talks.

For weeks, Obama has ridiculed Republicans for not moving quickly to prevent student loan interest rates from doubling, a stance that Democrats have hoped will boost his support among young voters who broadly backed him in the 2008 election.

Though some rank-and-file GOP lawmakers have opposed letting the government set the rates, Republican presidential challenger Mitt Romney and GOP congressional leaders have backed the one-year extension. The remaining dispute has been over how to pay for it.

Republicans have accused Obama of creating a phony issue and drawing out the battle in an attempt to reap political points. In late May, they proposed several options to pay for the measure, all of which were culled from budget savings Obama himself had proposed in the past, but they said the White House was ignoring them.

"Even though the White House refuses to respond to our bipartisan approach, Senate Democrats are finally working with us, and a solution is within reach — despite the president's failure to act," said Don Stewart, spokesman for Senate Minority Leader Mitch McConnell, R-Ky.

The talks have involved aides to McConnell and Senate Majority Leader Harry Reid, D-Nev.

Negotiators are approaching a deal to cover the bill's costs by charging companies more to insure pensions, changing rules so companies take fewer tax deductions for their pension contributions, and limiting federal subsidies of undergraduates' loans to six years, according to Democratic aides who spoke on condition of anonymity to reveal the details.

AP reporter Joan Lowy contributed to this report.