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May 07, 2012 06:54 PM EDT

Divided Congress likely to agree on student loans


By Thomas Ferraro

WASHINGTON (Reuters) - One way or another, the Congress seems certain to prevent a low interest rate for federal student loans from doubling on July 1, aides and analysts say, largely because lawmakers do not want to rile young voters before the November 6 elections.

Yet it remains unclear how - or even if - Congress will pay for a one-year-renewal of the 3.4 percent rate for about 7.4 million students, which would cost about $6 billion.

Senate Republicans on Tuesday are expected to block a proposal by President Barack Obama's Democrats to cover the cost by plugging what they call a tax loophole for the rich.

Senate Democrats are expected to reject a bill passed two weeks ago by the Republican-led House of Representatives to fund it by taking money away from Obama's healthcare overhaul.

Regardless, members of both sides voice confidence that someway, somehow, a bipartisan agreement will be reached before July 1, when the rate is set to double to 6.4 percent on subsidized student "Stafford" loans.

A senior Democratic aide predicted that bipartisan talks would begin on Tuesday after the anticipated Republican blocking of the Democratic funding proposal, and the Democratic rejection of the House-passed Republican bill.

A top Republican aide agreed, adding, "We have time. I fully expect us to reach a deal."

U.S. Education Secretary Arne Duncan, appearing on MSNBC's "Morning Joe Show," said on Monday, "We have to make sure that the chance to go to college remains a critical American dream.

"What we need to do is work in a bipartisan way," Duncan said. "The general public is tired of the disfunctionality of Congress. If there's anything that Congress can unite and do in a bipartisan way it has to be around education."

Greg Valliere of the Potomac Research Group, a private firm that tracks Congress for investors, said, "Congress will get a deal because the political consequences of not getting a deal would be huge with younger voters."

Strong support from young voters helped propel Obama to victory when he ran for president in 2008. He is hoping to mobilize that block of voters again this year.

Valliere said Congress may decide to renew the rate without paying for it, noting many in Washington have become weary of government spending cuts.

"The anti-austerity mood is growing in Washington, not just in Europe," Valliere said. "The path of least resistance is to extend the student loan program without offsets."

A senior aide said any possibility of a refusal by Republicans to go along with renewing the low-rate ended two weeks ago when Obama's presumptive Republican presidential challenger, Mitt Romney, came out in favor of renewal.

Despite claims to the contrary by Republicans, Democrats argue that Republicans had little, if any interest, in extending the 3.4 percent rate until Obama hammered them on it with campaign-style speeches on college campuses in recent weeks.

Obama took his effort to Twitter on Monday with a tweet saying "The Senate votes tomorrow on student loan rates-tell them to help keep college affordable" with the hash tag #DontDoubleMyRate.

House Speaker John Boehner has accused Obama of political grandstanding. But Boehner has also said that a way must be found to renew the low-rate, given that half of all recent college graduates are unemployed or underemployed because, he says, of Obama's economic policies.

Not all members of Boehner's party agree that the rate should be renewed.

Thirty Republicans broke ranks and voted against the House bill last month after the Club for Growth, an influential conservative advocacy group, came out against it.

"The government should not be in the business of subsidizing student loans," the organization said.

(Additional reporting by Susan Heavey; Editing by Bill Trott)

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