UPDATE 2-US lawmakers close to deals on transportation, student loans

Tue Jun 26, 2012 3:18pm EDT

* Reid says chances 50-50 on a transportation bill

* Student loans to be added, passed at same time

* Keystone provision still major sticking point

By Roberta Rampton and Thomas Ferraro

WASHINGTON, June 26 (Reuters) - Democratic and Republican negotiators neared a pair of election-year deals on Tuesday - one for a massive transportation bill, the other to prevent a doubling of interest rates on federal student loans, said U.S. Senate Majority Leader Harry Reid.

Reid, a Democrat, said it was possible that final bipartisan agreements could be reached on both long-stalled pieces of legislation before lawmakers leave at the end of the week for a holiday recess.

"We are very close to having everything done," Reid told reporters.

Jon Kyl, the No. 2 Republican in the Senate, told reporters the student loan funding issue had been settled.

"We've reached an agreement on the bill, and the only thing that would be holding that up is the politics of the highway bill," Kyl said.

Senate aides said the two bills could be combined, passed together and presented to President Barack Obama as a package.

One major stumbling block still remains: how to deal with House of Representatives Republican demands to include accelerated approval of the Keystone XL crude oil pipeline from Canada to the United States as part of the highway bill.

Federal funding for road, bridge and rail projects - and as many as 3 million construction jobs - expires on Saturday, putting lawmakers under pressure to either come to an agreement on a two-year package proposed by the Senate, or craft a short-term extension at current funding levels.

The political stakes are high. Neither Democrats nor Republicans want to be blamed for stalling the bill, a move that would hurt the economy ahead of the Nov. 6 general election.

"I think its chances today are better than 50-50 that we can get a bill done," Reid said, adding that he needed a hand from the top Republican in the House.

"But, we're still looking at Speaker (John) Boehner to help us get that over the finish line so we will see what happens on that," Reid said.

KEYSTONE ISSUE REMAINS

The starting point for talks was a two-year, $109 billion transportation package passed by the Senate. Republicans have won some concessions to streamline environmental reviews for certain types of road projects, and to ease proposed regulations for coal ash, a power-plant byproduct used in cement.

On Monday, senators involved in the talks, which are continuing, said they might need to work through a Friday deadline to finish the package, or pass a very short-term extension to give staff a week or two to draft text.

"There is a light at the end of the tunnel on the highway bill and it doesn't appear to be a train," said Chris Krueger and Joanne Thornton, analysts with Guggenheim Partners, in a note to clients.

But the analysts said it was not clear House Republicans would support the bill if did not include approval for the Keystone pipeline, which Obama put on hold earlier this year pending further environmental review.

Boehner spokesman Michael Steel said, "House negotiators ... are continuing to work towards a bill that includes real reforms in the way we spend taxpayers' highway dollars - and common-sense jobs initiatives" such as the Keystone pipeline project.

Obama has threatened to veto legislation that would overturn his decision on the Keystone pipeline.

Democrats have sought to separate the issue from the highway bill, and negotiators have discussed ways to hold a separate vote on the pipeline.

"You've got it down to a number of issues where now leadership really kind of makes the final call, and we'll see what's in and what's out," said Senator John Hoeven, a Republican who has pushed hard for the expedited approval.

Lawmakers must move fast to prevent a doubling of the interest rate on federal Stafford student loans to 6.8 percent that would take place on July 1.

In recent months, each side has swapped and rejected competing proposals to cover the $6 billion cost of extending the current interest rate of 3.4 percent for another year.

Failure to reach an agreement would cost an estimated 7.4 million students an average of about $1,000 each in added costs over the life of their college loans, the White House estimates.

Obama began cranking up pressure on Congress in April with campaign-style speeches at college campuses urging it to extend the low-rate for student loans.

Republican presidential challenger Mitt Romney subsequently said that he, too, believes that the rate should be renewed, but Democratic and Republican lawmakers have wrestled for months over how to fund it without adding to budget deficits.

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