WASHINGTON — The Internal Revenue Service has told the Pennsylvania Higher Education Assistance Agency that if it wants to settle a bond-related tax dispute, the settlement will have to cover all $700 million of its outstanding student loan debt.

In the dispute, which has ramifications for other student loan bond issuers, the IRS has taken the position that student loans should not be reallocated to different bond issues and that consolidation-loan rebate fees should not be considered as qualified expenses for rebate purposes. Market participants have noted that the IRS’ concerns about the PHEAA’s bonds would also apply to many other student-loan bond deals.

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