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Refinancing Authority
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Expand Low-Cost Refinancing Loan Programs

EFC urges the Treasury Department to clarify three technical tax issues to allow nonprofit and state-based organizations to fully implement valuable refinancing programs.

Treasury Guidance Needed

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.