UPDATE 2-US Senate Republicans block Democratic student loan bill
* Low loan rate extension cost seen at $6 billion
* Bipartisan agreement expected, may be eleventh-hour deal
WASHINGTON, May 8 (Reuters) - U.S. Senate Republicans blocked on Tuesday a White House-backed bill that would end a tax break for the wealthy in order to pay for an extension of low-interest loan rates for federal student loans.
On a mostly party-line vote of 52-45, Democratic 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 on July 1 of the 3.4 percent interest rate on undergraduate Stafford loans for more than 7 million students.
That is largely because neither party wants anger young voters, who face escalating college costs, in advance of the Nov. 6 congressional and presidential elections. Th e White House said the higher loan rate could add $1,000 to students' debt.
"This is an issue that cries for bipartisan compromise," said Senate Republican Leader Mitch McConnell.
But Senate Democratic Leader Harry Reid questioned McConnell's interest in quickly reaching a deal. He said Republicans could have offered changes to the bill if they had permitted it to come up for a consideration.
In ripping into Republicans, Reid said, "They are sending the message that they would rather protect wealthy tax dodgers."
With the support of the White House, Senate Democrats proposed covering the $6 billion cost of extending the low rate for a year by ending a provision that now allows private companies, including hedge funds and law firms, to avoid paying payroll taxes.
Republicans complained that the measure would hurt "job creators" by raising taxes on some small businesses and undermine efforts to stimulate a struggling U.S. economy.
They prefer a bill passed by the House of Representatives last month that would pay for extending the 3.4 percent 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.
White House press secretary Jay Carney took a jab at Republicans for opposing the bill, but expressed hope a deal could be reached.
"We look forward to continuing to work with Congress to prevent rates from doubling and ensure that students continue to get a fair shot at an affordable education," Carney said.
Obama began putting pressure on Republicans in recent weeks to extend the low rate with campaign-style speeches at college campuses in key election states.
Republican leaders 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.
About two weeks ago, Mitt Romney, the presumptive Republican presidential nominee, added his voice to those saying the 3.4 percent rate should be extended.
A Republican aide voiced confidence a 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."
Democrats blamed the defeat of their bill, at least in part, on The Club for Growth, an influential conservative advocacy group.
It has urged lawmakers to oppose extension of the low-interest rate, declaring on its website, "The government should not be in the business of subsidizing student loans."