Loan Failure - Relief from Reporting Loans as Deemed Distributions

The Plan Sponsor failed to start loan payments timely because they did not understand the process at their new financial institution.  The financial institution said they would refinance the loans if the client filed the loan failures under VCP.  The VCP filing is 99% complete, but I have one question.

Plan loan interest rate is Prime + 2%.  When the original loans were issued, the loans were amortized with a 6.5% interest rate.  Under refinance, the interest rate is 7.5%.  

In addition to covering the cost of unpaid accrued interest during the non-payment period, should the employer also be responsible for covering the difference in the dollar value of the loan interest had the loans been paid timely vs. the higher interest rate?

Why would you change the terms of the loan if the participant signed the loan agreement at 6.5%. 

We filed a number of these and never changed the original terms of the loan, even if the interest rate went down and was more favorable to the participant.  They were all accepted.

Thanks TG, but it wasn't our call.  Mass Mutual did the refinance, and we had to follow their rules.

Welll, if I'm filing the VCP then I get to drive the bus

Thank you for your thoughtful response.  It was genuinely helpful.