Senate Democrats will meet Thursday with Education Secretary Arne Duncan and top Obama economic adviser Gene Sperling at their weekly policy luncheon to discuss a potential compromise on student loans.

Senate Majority Leader Harry Reid, D-Nev., announced the meeting with administration officials on Tuesday, just one day after senators involved in forging the potential deal met in his Capitol suite with Democratic leaders. Among the lawmakers involved in the Senate Democrats’ efforts on the issue are freshman Elizabeth Warren of Massachusetts, Joe Manchin III of West Virginia and Democratic-leaning independent Angus King of Maine. If Congress fails to strike a deal by July 1, subsidized Stafford student loan rates are set to double from 3.4 percent to 6.8 percent.

“All of them are working really hard to try to get something that’s good for young men and women,” Reid said of the negotiating group. “We’re not there yet.”

According to multiple sources, the most significant sticking point for Senate Democrats is the inclusion of caps on future student loan rates. As the White House and Senate GOP plans are pegged to Treasury note prices, Democrats are concerned that in a good economy, rates would increase above levels students would be able to pay. The key selling point at this juncture for Democrats is their complaint that without caps, the government would be using the increased funds from students to pay down the deficit.

Our colleague Lauren Smith at CQ has been reporting extensively on this issue as well, and has some nice details about Duncan’s position on the talks and where compromise could be found.

Duncan, who was in the Senate Tuesday testifying before the Budget Committee, said he’s “hopeful” that Congress can come to an agreement.

“Everyone is trying to find middle ground,” Duncan said. “We have some work to do, but doing nothing would be untenable. No guarantees in any of this, but I’m hopeful. I know people are sincerely committed to doing the right thing here.”

The statements from both sides of the aisle that negotiations have been productive marks the first serious attempt in the Senate to stave off the interest rate hike that would cost more than 7 million students approximately $1,000 apiece more in loan repayments per year.

…

Senate Democrats have backed a bill that would peg interest rates to the 91-day Treasury note rate plus a percent decided by the Education secretary. It would cap interest rates for the subsidized portion of the loan at 6.8 percent and the unsubsidized portion and graduate loan at 8.25 percent. It also includes the White House proposal to expand the income-contingent loan repayment plan.

A source tracking the Senate Democratic talks tells #WGDB that leadership has just recently requested a score from the non-partisan Congressional Budget Office and an agreement could be announced in the coming days.