* Bill covers transportation, student loans, flood insurance
* House, Senate votes set for Friday
By John Crawley and Roberta Rampton
WASHINGTON, June 28 (Reuters) - Congressional negotiators have cleared the way for votes on legislation covering transportation construction, student loan rates, and flood insurance after finalizing a compromise agreement on how to pay for those priorities.
The House and Senate were set to consider the measure on Friday, one day before temporary funding for highway, bridge and transit projects was to expire and three days before an increase in federal student loan rates was set to take effect.
"We have a number of issues we're trying to work through," Senate Majority Leader Harry Reid said, expressing disappointment that Congress would not act on the legislation Thursday night. "That's the way it is."
Congress took more than two years to reach a transportation bill covering millions of construction jobs, and did so only because the potential consequences of inaction in a shaky economy proved too risky in an election year.
Ambitious proposals to shore up U.S. infrastructure gave way to a bill that basically keeps transportation funding at current levels. The blueprint was based on a bipartisan proposal by the Democratic-led Senate that is supported by the Obama administration.
The federal government spends more than $50 billion annually on road, bridge and transit construction projects. The measure heading for approval, barring an unforeseen development, would cover spending for a little more than two years.
The last transportation bill expired in 2009 and construction programs have survived since then through a series of short-term funding extensions. The current extension ends on Saturday.
One of the most liberal senators worked with one of the most conservative to convince other lawmakers to accept the deal, defying analysts who had predicted Congress in an overheated political climate would again settle for a short-term funding option rather than a longer-term bill.
"This agreement provides stability and flexibility for the nation's transportation planners," Democratic Senator Barbara Boxer, who chaired the negotiations, said in a statement.
Senator James Inhofe, the top Republican on the Environment and Public Works Committee, has been credited with working with fiscally conservative House Republicans to find common ground.
"As with any compromise, we didn't get everything we wanted, but I believe we truly have a good bill - one conservatives can be proud to support," Inhofe said.
The resolution was praised by business groups like the U.S. Chamber of Commerce. But environmental interests were unhappy that Republicans won some concessions on environmental reviews of highway projects.
The proposal also includes a one-year, $6 billion fix to prevent a doubling of interest rates on federal student loans to 6.8 percent on July 1, a jump that would have added costs for many already pinched by steadily increasing education expenses.
Student loans for 7.4 million people cover the largest component of household debt after mortgages. They rose 3.4 percent to $904 billion in the first quarter of this year, compared with the final three months of 2011, the New York Federal Reserve Bank said in a recent report.
Finally, the bill would extend funding for the National Flood Insurance Program to September 30, 2017. It had been set to expire at the end of July, in the middle of hurricane season.
The flood insurance program has been a political football in Washington for years, particularly because of the unsustainable debt load it took on in the wake of Hurricane Katrina in 2005.
Like the transportation law, the program has remained in business through repeated short-term extensions.
Federal law requires that homes in designated flood-risk areas have flood insurance before a mortgage can be completed. Because the floor insurance program is effectively the only flood insurance available in the United States, a lapse in the program means home sales can not close in designated flood areas.
Jettisoned in the final days of talks was a politically charged plan pushed by House Republicans to defy President Barack Obama and move ahead with the Keystone XL oil pipeline, which would run from Canada to Texas.