If the deal emerges from Congress intact, Obama is likely to take credit for having forced the issue to the front of the agenda, but Republicans have countered that an agreement could have been reached weeks ago had Democrats not decided to make it a campaign issue. Republicans say that Democrats slow-walked the negotiations to allow the president to paint the GOP as the recalcitrant party.
The deal was announced Tuesday by Senate Majority Leader Harry Reid (D., Nev.) and Senate Minority Leader Mitch McConnell (R., Ky.), who told reporters that they had worked out the arrangement but were still discussing how to push it through Congress in the final busy days before the weeklong Fourth of July holiday.
The proposal's passage will be contingent upon an embrace from the GOP-held House, although McConnell indicated that he thinks the chamber's leaders will favor the deal.
Reid told reporters Tuesday: "We basically have the student-loan issue worked out. The next question is: What do we put it on to make sure we can complete it?"
McConnell said that he and Reid "have an understanding we think will be acceptable to the House."
In a statement, White House press secretary Jay Carney praised the agreement.
"We're pleased that the Senate has reached a deal to keep rates low and continue offering hardworking students a fair shot at an affordable education," he said. "Higher education has never been more important to getting a good job. That's why President Obama has made stopping this rate hike and saving 7.4 million students an average of $1,000 a priority since his State of the Union and has repeatedly called on Congress to act."
The compromise has appeared a near-inevitability for weeks - since Republican presidential candidate Mitt Romney joined Obama in calling for Congress to keep rates from doubling on July 1.
Democrats think the issue has energized the youth vote and allowed the party to build support with students' middle-class parents.
McConnell reiterated Tuesday that Obama has been "largely uninvolved" in student-loan talks.
Reid countered that the president's leadership has been key to keeping the issue alive, noting his repeated public comments on the subject, including at a high school in New Hampshire on Monday. He said that House Speaker John A. Boehner had told fellow Republicans in a private meeting late last month that he did not expect to reach a deal on the matter before July 1.
"We're not willing to give up on this issue, and I am glad that my Republican colleagues have agreed we shouldn't give up on this issue," Reid said.
The House had approved a GOP-backed bill to pay for the rate freeze by eliminating a preventive health-care fund created by Obama's health-care law. That measure did not receive the 60 votes necessary to advance in the Senate. But neither did a competing Democratic proposal to pay for the loan item by closing a tax loophole that allows some small business executives to avoid payroll taxes.
The extension would be paid for by raising premiums for federal pension insurance, an idea acceptable to businesses because rules on how companies calculate their pension liabilities would be changed.
A senior Democratic aide said the pension proposals, which came from Reid, would generate $5.5 billion.
Meanwhile, students would be limited in how long they could receive a federally subsidized loan to 150 percent of their program length - so, six years for a four-year undergraduate degree - a suggestion from Republicans. An aide said that proposal would raise $1.2 billion.