NEW YORK (MainStreet)On the eve of a Senate Banking Committee hearing to examine private student loans, Senator Elizabeth Warren, in a letter sent yesterday to Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, asked the FHFA to give up information about the role of the Federal Home Loan Banks in providing financing to institutions that offer high-interest private loans to studentsparticularly the Sallie Mae Corporation, a private provider of $180 billion in student loans to some 10 million borrowers.
A spokesperson for Warren could not be reached for comment, and it was not clear what specific documents were being sought. However, Warren said in a statement on her Senate website, "The FHFA's Federal Home Loan Bank System was established to fund local and community banks that offer home mortgages. Over the past few years, however, Sallie Mae has been borrowing from a Federal Home Loan Bank at a rate ranging from 0.23%-0.34% interest."
Warren added, "The rate Sallie Mae charges for fixed-rate student loans is 25-40 times higher. Private student loans have been increasingly cited by experts as limiting personal spending, and recent reports from the Consumer Financial Protection Bureau have suggested that student loan debt poses a significant barrier for people trying to buy their first homes."
Warren described the role of Federal Home Loan Banks as one that was supposed to "bolster the banks' support for the housing market not to be a backdoor way to subsidize highly-profitable private student lenders."
Warren added, "It is deeply worrisome that the Federal Home Loan Banks may be undermining their mission by extending billions of dollars in cheap credit to private student lenders."
The Senate Banking Committee hearing was expected to focus on private student loans in general. But introducing a second federal agency as a source of testimony could effectively expand the lines of inquiry.
Information that Warren has asked the FHFA for includes:
- All guidance provided to the Federal Home Loan Banks from the FHFA on funding private student lenders or their subsidiaries
- Any analysis that the FHFA maintains on the impact of student loan debt on home ownership
- Details of the line of credit extended to Sallie Mae or its subsidiary, HICA Education Loan Corporation, including all disbursements and interest rates charged
- Details of lines of credit extended to any other financial institutions (or subsidiaries of such institutions) that are substantially engaged in offering private loans to students.
Sallie Mae Spokesperson Nikki Lavoie could not be reach for comment, nor could Michelle Person of the Consumer Financial Protection Bureau, the federal agency that Warren helped found.
--Written by John Sandman for MainStreet