WASHINGTON – Sen. Chuck Grassley (R-Iowa), Sen. Jack Reed (D-R.I.), Rep. Todd Young (R-Ind.), Rep. John Larson (D-Conn.) are leading a bipartisan, bicameral group in urging the IRS and Treasury Department to lift barriers preventing nonprofit student lenders from offering refinancing options for student debt amid the growing student debt problem. Currently, a handful of for-profit lenders offer refinancing of student loans to qualified borrowers. Clarifying that nonprofit lenders can use tax-exempt bonds to refinance student loans will expand the pool of lenders offering refinancing of student loans. The members praised prior agency action in clarifying that such options are available and sought removal of remaining specific barriers to make even more students and their families potentially eligible for refinancing student debt at lower interest rates via tax-exempt bonds.
“Expanding the ability of non-profit lenders to refinance student loans will result in more options and a better deal for more Americans working to pay down their student debt,” Grassley, Reed, Young, Larson and their colleagues wrote to Treasury Secretary Jacob Lew and IRS Commissioner John Koskinen.
The members expressed appreciation for agency guidance clarifying to a greater extent how tax-exempt bonds may be used for refinancing purposes. They asked for further clarification of three barriers “to fully allow state-approved programs to take advantage of this guidance and offer refinancing programs to help education loan borrowers across the country.”
The barriers are:
--Clarifying 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. This is necessary to ease confusion and make sure borrowers are able to use tax-exempt bonds to refinance original loans under federal or state administered student loan programs, which generally rely on tax-exempt bond financing.
--Clarifying guidance as to facts and/or circumstances that an issuer for refinancing purposes may rely on to safely determine that the original loan met the loan size limitation required for the use of tax-exempt financing. Requiring an issuer in the case of a refinancing loan to retroactively self-verify that an original loan was in compliance with the loan size limitation would be a highly burdensome and time consuming process that could hamper any refinancing program.
--Clarifying (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. The current guidance does not address whether a student can refinance a parent’s loan or whether a parent can refinance a student’s loan. Given that financing the costs of higher education is a family responsibility, and that financial situations are likely to change between the original loan and the refinancing loan, it would make sense for refinancing loans to be available to either, without regard to original loan borrower status. Current guidance helpfully recognizes that students may change their state of residence from the state of residence or school attendance at the time of the original loan. The same recognition should apply to parent borrowers, who are equally mobile.
The senators and House members sent an identical letter from each chamber. A signed version of each letter is available here and here.
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