WASHINGTON – A proposal to extend lower interest rates for some federal student loans failed for the second time in the Senate on Wednesday, putting new pressure on Democrats to reach a compromise on the issue.

A unanimous bloc of Republicans, joined by West Virginia Democrat Joe Manchin and independent Angus King of Maine, voted against a procedural step that would have allowed the approach favored by Senate Democratic leaders to move forward. Their bill would reinstate for one year the 3.4% interest rate for subsidized Stafford loans that expired June 30. With no action in Congress so far, the rate has doubled to 6.8%.

With Senate Majority Leader Harry Reid voting no for procedural reasons, the 51-49 vote was nine shy of the threshold needed to end debate and allow the bill to proceed.

An identical plan faced a similar vote more than a month ago, but Democrats had wanted to try again to advance the plan. The Republican-controlled House has passed its own plan, which Republican leaders say is closer to the approach President Obama outlined earlier this year.


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Senate Democrats argued that the one-year extension made sense because Congress is set to take up the reauthorization of the Higher Education Act later this year. By extending the lower interest rates, lawmakers could consider a long-term fix for student loans at the same time they considered other federal aid programs for higher education, including Pell Grants.

The House bill would link student loan interest rates to bond-market rates. Many Democrats oppose that idea, saying that predicted increases would ultimately cause borrowers to face much higher interest on their loans.

But in his 2014 budget proposal, Obama also proposed a market-based plan. His called for restructuring student loan interest rates and linking them to the 10-year Treasury rate, with differing surcharges for subsidized and unsubsidized Stafford loans and PLUS graduate loans.


The House plan, which passed that chamber in May, would involve slightly higher surcharges but would set an overall cap of 8.5% to protect student borrowers against significant rate increases. Under the president’s plan, rates would be locked in for the life of a loan, while under the House plan they would reset each year.

A compromise plan proposed by Manchin, King, Lamar Alexander (R-Tenn.) and others would also tie student loan interest to the 10-year borrowing rate and would lock the rate for the life of the loan. It would give borrowers the option of consolidating all federal loans at a rate of 8.25%.

As with Obama’s plan, the compromise proposal would allow borrowers to repay their loans at a lower rate based on their income, with any debt remaining after 25 years being forgiven.

Reid said Wednesday that negotiations between Democratic leaders and the sponsors of the compromise plan were advancing.


“While imperfect … it will be a way for us to move forward,” Reid said.

Sen. Richard Burr (R-N.C.), another key negotiator, said the Congressional Budget Office was now reviewing variations of the initial plan that emerged from new talks.

“I think we’ve got some options that pique a lot of interest in a bipartisan way,” he said.

Senate aides said a revised version of the plan could come to a vote within a week.


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michael.memoli@latimes.com

Twitter: @mikememoli