Members voted 56 to 38 Wednesday, failing to reach the 60 votes need to invoke cloture and proceed with debate on the Bank on Students Emergency Loan Refinancing Act.
The bill, sponsored by Massachusetts Democrat Elizabeth Warren, would have allowed borrowers to refinance their federal student loans down to 3.86 percent -- the interest rate approved by Congress last summer. An assessment from the Congressional Budget Office found the bill was fully paid for by closing the so-called millionaire's loophole, known as the Buffett Rule.
The Buffett Rule, which would require people to pay a higher tax rate on income over $1 million, has been offered as pay-fors in a number of bills put up by Democrats in the past few years, and rejected each time.
At a rally at the Capitol Tuesday, Warren and several of her Democrat cosponsors told students that the fight was "about economics."
"Millions of borrowers could save hundreds of dollars a year," she said. "It's a question of who this government works for."
Sen. Chuck Schumer, D-N.Y., promised Tuesday that if the bill failed on the floor, they would continue to bring it back.
"We're going to win this fight," he said. "If we don't win it tomorrow, we're going to win it sooner or later."
Schumer said that if Republicans don't like the pay-fors, Democrats are eager to hear of other options.
"We're waiting and we're sincere about other alternatives to pay for this," he said.
The bill's supporters have positioned the issue of student loan debt as an "economic emergency," blaming the debt burden for a depressed housing market, reducing entrepreneurship and holding a generation of Americans back.
"They can't make the economic decisions that move their lives forward and move the economy forward," Warren said.
Earlier this week, President Obama urged the passage of Warren's bill, and signed an executive order that would allow borrowers to cap their monthly loan payments at 10 percent of their monthly income.