June 24, 2013

Sen. Warren Requests Information from FHFA on Federal Home Loan Bank Financing of Institutions Providing High-Interest Private Student Loans

Letter Precedes Senate Banking Committee Hearing Examining Private Student Loans

WASHINGTON, DC – In a letter sent today to Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco, Senator Elizabeth Warren requested information about the role of the Federal Home Loan Banks in providing financing to institutions that offer high-interest private loans to students.

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.  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.

The Federal Home Loan Banks were “intended to bolster the banks’ support for the housing market – not to be a backdoor way to subsidize highly-profitable private student lenders,” writes Senator Warren. “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 letter, sent the day before a Senate Banking Committee hearing to examine private student loans, requests:

(1)    All guidance provided to the Federal Home Loan Banks from the FHFA on funding private student lenders or their subsidiaries;

(2)    Any analysis that the FHFA maintains on the impact of student loan debt on homeownership;

(3)    Details of the line of credit extended to Sallie Mae or its subsidiary, HICA Education Loan Corporation, including all disbursements and interest rates charged;

(4)    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.