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Tax-Exempt Bond Financing
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Preserve Tax-Exempt Bond Financing (Private Activity Bonds) for Education Loans

Many middle-income families require financing beyond the federal student loan program. Nonprofit and state-based student loan funding providers have the unique ability to utilize tax-exempt bond financing — in the form of Private Activity Bonds — to offer lower borrowing costs to students and families. There are currently 19 nonprofit or state-based organizations, many of whom issue qualified student loan bonds to offer alternative education loan programs to help cover the cost of higher education — funding the gap between federal loans, grants, and scholarships and the total cost of attendance. 

During their 2015-16 fiscal year, these organizations made more than 87,000 loans to more than 76,000 borrowers, totaling $1.1 billion. Collectively, their outstanding portfolios include 1.56 million in loans totaling $11.25 billion, representing more than 628,000 borrowers. Repealing the tax exemption would dramatically increase the cost of these education loans, adversely affecting middle-income students and families, who already bear the burden of $1.3 trillion in student loan debt. 

EFC strongly supports maintaining the ability of nonprofit and state-based student loan providers to utilize tax-exempt bond financing to offer student loans, which often carry lower interest rates than federal loans.

EFC additionally supports the proposed elimination of the Alternative Minimum Tax (AMT), which would minimize costs to education loan borrowers. Congress’ previous temporary elimination of the AMT on income earned from Private Activity Bonds resulted in lower borrowing rates for student loan issuers, with those savings passed directly to student loan borrowers. For example, a student borrowing $20,000 could save $500 or more in lower interest payments on a ten-year loan with the elimination of the AMT.