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Refinancing Authority
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Expand Refinancing Authority of Nonprofit & State-Based Education Loan Organizations

On November 13, 2015, the U.S. Treasury provided guidance that clarified Section 144(b) of the Internal Revenue Code, allowing state student loan programs to use tax-exempt bonds to fund parent loans for students and to use tax-exempt bonds to refinance loans for state residents or for students who attend a school in their state, regardless of the original lender.

While Notice 2015-78 makes important progress toward allowing more families to refinance high-interest loans at today’s low rates, three technical issues remain that are inhibiting state and nonprofit organizations from fully implementing valuable refinancing programs:

Clarify in the case of a refinancing of an original loan financed with tax-exempt bonds that the bonds issued for refinancing purposes will not be considered refunding bonds, particularly where the issuer is utilizing a new volume cap allocation to issue the bonds that will refinance the original loans.

Clarify the guidance to specify that an issuer to rely on self-certification by the borrower at the time of the refinancing along with meeting certain minimum due diligence requirements.

Clarify (a) that a former student may refinance an original loan that was a parent loan and vice versa; and (b) the student nexus requirement as it relates to a parent refinance loan.

Through either regulation or legislation, clarify three technical tax issues to allow nonprofit and state-based organizations to fully implement valuable refinancing programs.