SECTION 2. BACKGROUND

Section 144(b)(1) defines a “qualified student loan bond” for which tax-exempt private activity bonds may be issued to mean any bond issued as part of an issue the applicable percentage of the proceeds of which are to be used directly or indirectly to make or finance student loans (that is, loans to pay the costs of postsecondary education) under two types of loan programs.

The first type of loan program, described in § 144(b)(1)(A), is the Federal Family Education Loan Program under the Higher Education Act of 1965, Pub. L. No. 89–329, 79 Stat 1219 (Higher Education Act), under which education loans are indirectly Federally guaranteed (FFELP loans). The FFELP loans that are eligible for tax-exempt bond financing under § 144(b)(1)(A) include, among other types of loans, loans made to parents of undergraduate students under the program known as the “PLUS” loan program. H.R. Conf. Rep. No. 99–841, at II–712 (1986); Sen. Rep. No. 99–313, at 842 (1986). The

FFELP guarantee authority extends only to loans originated before July 1, 2010, and was discontinued for loans originated on or after that date. Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111–152, § 2201, 124 Stat 1029, 1074 (2010). The second type of loan program, described in § 144(b)(1)(B), is for State Supplemental Loans. Section 144(b)(1)(B) describes a State Supplemental Loan program as a program of general application approved by the State if no loan under such program exceeds the difference between (1) the total cost of attendance and (2) subject to certain stated exceptions, the other forms of student assistance for which the student borrower may be eligible. A program shall not be treated as described in § 144(b)(1)(B) if such program is described in § 144(b)(1)(A).

The student nexus requirement applies to both FFELP loans and State Supplemental Loans financed with proceeds of qualified student loan bonds. Section 144(b)(3) provides that a student loan shall be treated as being made or financed under a program described in § 144(b)(1) with respect to an issue only if the student is (1) a resident of the State from which the volume cap under § 146 for such loan was derived, or (2) enrolled at an educational institution located in such State.

Several questions have arisen concerning loans made by State Supplemental Loan programs that are eligible to be financed with the proceeds of qualified student loan bonds. Specifically, questions have arisen regarding (1) the eligibility of parents to borrow for their child’s education; (2) how the student nexus requirement applies in the context of refinancing loans; (3) the loan size limitation; and (4) the types of student loans that may be refinanced with a State Supplemental Loan.