Student-loan interest rates set to double

WASHINGTON, May 25 (UPI) -- U.S. student-loan interest rates are set to double in five weeks after the Senate rejected Democratic and Republican proposals to keep them at 3.4 percent.

The lawmakers left Washington for a weeklong Memorial Day break after shooting down dueling measures that offered different ways of paying the $5.9 billion price tag to extend the current interest rate on subsidized Stafford student loans for a year.

The loans are annually taken out by nearly 8 million students.

The Democratic proposal fell nine votes shy of the 60 needed to advance, while the Republican plan fell 26 votes shy.

Democrats proposed paying for the additional year of subsidies by ending a tax provision that lets some small business executives avoid paying payroll taxes on part of their income by counting it as business profits instead of wages. Republicans argued this amounted to a tax increase on those best positioned create jobs in the sluggish economy, The Washington Post said.

The Republican proposal would have paid for the loan-rate freeze by ending the preventative healthcare fund created in the 2010 healthcare reform law. Republicans called it a slush fund but Democrats argued the preventive healthcare fund's programs are helping bring down healthcare costs.

Leaders in both parties, as well as President Barack Obama and presumptive Republican presidential nominee Mitt Romney, have said they want the loan rates to freeze for another year.

"We already know how this story ends," Senate Minority Leader Mitch McConnell, R-Ky., said Thursday. "So why are Democrats forcing us to vote on their failed proposal yet again? Because, as I've said, they're more interested in drawing our opposition -- and of creating a bad guy -- than in actually solving the problem."

After the vote, White House spokesman Jay Carney said Senate Republicans "still have not proven that they're serious about resolving this problem."

"Now is not the time to refight old political battles, and certainly not the time to cut preventive healthcare measures," Carney said.

Senate Majority Leader Harry Reid, D-Nev., said he would raise the issue again after senators return a week from Monday.

The House -- which will be in session next week after taking this week off -- passed a Republican-backed bill to freeze the interest rates April 27 but the Senate rejected that bill.

The two chambers will likely try to negotiate a deal on the issue next month, the Post said.