Indiana Secondary Market for Education Loans, Inc. entered into a voluntary closing agreement with the Internal Revenue Service over $221.65 million of student loan bonds issued from 2001 through 2004. Under the agreement, the issuer made a payment to the IRS and redeemed all outstanding bonds.
The issuer disclosed the agreement in an event notice filed with the Municipal Securities Rulemaking Board’s EMMA system on Thursday.
The event notice did not disclose the amount of the settlement but said that, as of Aug. 1, none of the bonds remain outstanding.
The agreement related to $30 million of 2001 bonds, $40 million of 2002 senior series bonds, $35 million of 2003-1 series of bonds, $43.6 million of 2003-2 series bonds, and $73.05 million of 2004 bonds.. The bonds were issued as auction rate certificates, according to the officials statements.
ISM Education Loans is a nonprofit that finances loans authorized under the Higher Education Act of 1965. The bonds issued in 2001, 2002 and 2004 were used to finance loans. The 2003 series were used to refund obligations.
Orrick, Herrington & Sutcliffe served as bond counsel for the sales, according to the bond documents. UBS served as underwriter, and Banc One Capital Markets also was an underwriter of the 2001 series.
An ISM Education Loans official did not respond to requests to discuss the agreement.
The ISM Education Loans settlement fell under an IRS voluntary closing agreement program for student loan bonds which was announced in 2012.
The IRS has been concerned that student-loan bond issuers have been tying higher-yielding student loans to higher-yielding bonds that were not used to finance the loans, so that the issuers don’t violate yield restriction requirements. Under federal tax rules, yields on student loans can’t be more than 2% greater than the yields on the bonds used to make the loans.
The special VCAP came about after the Pennsylvania Higher Education Assistance Agency paid $12.3 million to settle tax-law violations and protect the tax-exempt status of about $250 million student loan bonds.
In July, the New Hampshire Health and Education Facilities Authority became the first student loan issuer to disclose a withdrawal from the VCAP. The IRS had charged tax-law violations relating to $134.5 million of bonds issued in 2011.