The Education Finance Council submitted a comment letter to a House Ways and Means Committee working group, urging it to revise tax law provisions to allow qualified scholarship funding corporations to use tax-exempt bonds to finance private student loan programs.

The EFC, which represents nonprofit and state agency student finance organizations, recommended modifying rules that are applicable to qualified scholarship funding bonds to the committee’s education and family benefits tax reform working group.

The committee announced the creation of 11 bipartisan working groups in February to further the discussion on tax reform.

Nonprofit student loan organizations are eligible to issue tax-exempt private-activity bonds to finance student loans. Under section 150 (d) in the federal tax code, some loan organizations are referred to as “qualified scholarship funding corporations” and they can only use tax-exempt financing to fund federally guaranteed student loans.

But the Health Care and Education Reconciliation Act of 2010 eliminated the federally guaranteed student loan program and mandated that all federal student loans be provided directly by the Department of Education.

The EFC recommended lawmakers modify the tax code to allow such qualified scholarship funding corporations to use municipal bonds to finance private student loan programs. With increasing tuition costs, the change to the tax code would allow nonprofit student loan organizations to continue accessing the municipal bond market and pass along the lower cost of tax-exempt financing to students in the form of lower borrowing costs, the group said. 

“Right now, nonprofit student loan providers have access to tax-exempt financing but can’t use it,” said Vince Sampson, EFC president. “Changing section 150(d) of the tax code will simply update it to meet its initial intent to allow nonprofits to utilize their unique access to low-cost funds and pass them on to students, in the form of low-cost alternative student loans.”

The EFC said that modifying the tax code would help reduce student loan costs and would be appropriate in the context of comprehensive tax reform.

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