Senators left town Thursday without reaching a deal on student loans, meaning rates will double Monday as Democrats continued to balk at the solution proposed by President Obama and Republicans.
The chamber was under pressure to strike a deal on subsidized Stafford loans before current rates expire and jump from 3.4 percent to 6.8 percent, affecting 7 million students.
Negotiations hinged on whether Senate Democrats thought the government was making money off the loans — a concept they dislike.
A bipartisan compromise bill had not wrested enough interest from Democrats who wanted to extend current rates for a year and debate them as part of broader reforms to higher education next year.
On Thursday, senators seemed resigned to fixing the problem, retroactively, when they return from a weeklong July Fourth vacation.
The group of lawmakers who forged the bipartisan deal — Republican Sens. Richard Burr of North Carolina, Tom Coburn of Oklahoma and Lamar Alexander of Tennessee along with Sens. Joe Manchin III, West Virginia Democrat, and Angus S. King Jr., Maine independent — argued Thursday that lawmakers should immediately amend the rates.
“What will we know in a year that we don’t know now?” Mr. King said.
Their proposal would tie rates for all types of student loans to Treasury notes — the method put forth by the House GOP and President Obama — and lock in rates for the life of each loan while capping the rate on consolidated loans at 8.25 percent.
For weeks, House Republicans have ribbed Democrats for failing to follow Mr. Obama, who proposed a market-based solution in his budget proposal for the coming year.
Senate Majority Leader Harry Reid, Nevada Democrat, said midweek that no deal had emerged on the issue.
Sen. Tom Harkin, the Iowa Democrat who has led talks on the issue, has said the best solution is to extend the rates, even if it is done retroactively.
Authors of the compromise legislation countered it is time to lock in savings and certainty for all students and taxpayers, and not just on subsidized government loans that account for less than half of all college borrowing.
“We’re notorious for not fixing anything,” Mr. Manchin told reporters. “We’re notorious for kicking the can down the road.”
They said students frequently have to take out unsubsidized loans at higher interest rates to meet their obligations. Given that trend, they said their bill would be a win-win for all borrowers and taxpayers by balancing out the financial burden.
Specifically, their proposal would set newly issued loans at the Treasury 10-year borrowing rate, plus 1.85 percent for subsidized and unsubsidized Stafford loans among undergraduates; plus 3.4 percent for Stafford loans among graduate students; and plus 4.4 percent for PLUS loans.