A state agency that provides inexpensive tuition loans and grants to Pennsylvania college students is ponying up more than $12 million to settle an IRS investigation into proceeds from its bonds, which are not taxable.

The Pennsylvania Higher Education Assistance Agency, or PHEAA, disclosed the settlement in a filing with the Municipal Securities Rulemaking Board last month. Tax-exempt borrowers are not supposed to profit from bond proceeds, and generally required to pay any profits to the IRS.

PHEAA is the first student-loan agency to settle with the IRS, which has been conducting an investigation into the industry's practices, a PHEAA spokesman said. The agency admitted no wrongdoing in the settlement.

The investigation entailed more than $205 million of PHEAA's outstanding tax-exempt bonds. As part of the settlement, PHEAA said there is no change to the treatment of interest paid on the bonds.    - Staff Report