§936b Sale or prepayment of direct or insured loans

Summary

Loans made under this law usually cannot be sold or paid off for less than the unpaid principal. But an electric loan (or part of one) that was made before May 1, 1992, or that has been in place for at least 2 years, can be sold to or paid off by the borrower for the smaller of the unpaid balance or the loan’s present value. The present value uses a discount rate set by the Secretary. That discount rate must equal the Treasury Department’s current cost to borrow for a period like the loan’s remaining life. If the borrower uses tax-exempt financing, the discount is adjusted so the borrower gets the same benefit as with taxable financing. The borrower must say in writing if the financing is tax-exempt and follow any reasonable rules the Secretary sets. A borrower who prepays still can get help later, but if the prepayment used the Treasury-based discount the borrower cannot get new loans for 120 months (10 years) unless the Secretary permits. If a borrower prepaid before October 21, 1992, using a larger discount, the ineligibility is 180 months (15 years) unless the Secretary allows, or until the borrower repays the excess discount plus interest at the Treasury’s average annual borrowing cost. Mergers with organizations that prepaid before October 1, 1987 have a special one-year window to prepay under similar rules. Definitions: “Direct loan” = a loan under section 904. “Insured loan” = a loan under section 935.