Senate Republicans on Tuesday blocked a White House-backed bill that would end a tax break for the wealthy to fund an extension of low-interest rates for federal student loans.
On a mostly party-line vote of 52-45, backers of the measure fell eight votes short of the 60 needed to clear a Republican procedural roadblock.
Regardless, both sides are expected to reach a compromise to prevent a doubling of the 3.4 percent interest rate by July 1, largely because lawmakers do not want to rile young voters in advance of the November 6 congressional and presidential elections.
Republicans denounced the Senate Democratic tax proposal, saying it would hurt job creators and undermine efforts to stimulate the struggling U.S. economy.
The Senate Democrats proposed covering the cost of extending the low rate by ending a provision that allows wealthy professional and private firms to avoid paying payroll taxes.
Senate Democratic Leader Harry Reid, in ripping into Republicans for blocking the measure, said, "They are sending the message that they would rather protect wealthy tax dodgers."
Republicans prefer a bill passed by the House of Representatives last month that would cover the $6 billion cost of a one-year renewal of the 3.4 percent student loan rate by taking money from President Barack Obama's healthcare overhaul.
Democrats have opposed this approach, saying it would end vital preventative healthcare efforts to combat chronic illnesses such as heart disease and cancer.
Democrats and Republicans have until July 1 to reach a bipartisan agreement. That is when the 3.4 percent interest rate is set to double for more than 7 million students.
Obama in recent weeks to began putting pressure on Republicans to extend the low-rate rate with campaign-style speeches at college campuses in key election states.
Republicans have accused the president of political grandstanding, but have also said that the rate must be renewed for the good of students suffering from what they denounce as Obama's failed economic policies.
A Republican aide voiced confidence that a bipartisan deal would be reached. "We have time," the aide said.
A Democratic aide said, "My guess is that we go right up to the deadline. But we will get there."