WASHINGTON Sen. Elizabeth Warren is turning up the heat on the Federal Home Loan Banks for offering cheap financing to private student loan provider Sallie Mae.
The Massachusetts Democrat wrote to the Federal Housing Finance Agency on Monday, asking about its oversight of the Federal Home Loan Banks' activities in the student lending market. The banks typically provide financing to community institutions for home mortgages.
The Federal Home Loan Bank of Des Moines has made an $8.5 billion line of credit available to Sallie Mae, according to Warren.
"According to its corporate filings, Sallie Mae was initially able to borrow on that line of credit for 0.23%. It was able to borrow at less than one-quarter of one percent interest because the government's sponsorship of the Federal Home Loan banks allows them extraordinarily cheap access to capital," Warren wrote. "That government sponsorship, however, was intended to bolster the banks' support for the housing market not to be a backdoor way to subsidize highly-profitable private student lenders."
Warren asked the FHFA to provide information on any guidance it gave to the Federal Home Loan banks about funding private student lenders, any analyses it has completed on how student loan debt impacts homeownership and details about the line of credit the bank has extended to Sallie Mae and other financial institutions involved in private student lending.
According to Sallie Mae's most recent securities filing, the student lender entered into a borrowing agreement with the Des Moines Home Loan Bank in January 2010. As of Dec. 31, 2012, Sallie Mae has borrowed $2.1 billion from the bank, secured by roughly $2.7 billion in federally guaranteed student loans.
A Sallie Mae spokeswoman did not immediately comment on the letter.
A spokesman for the Des Moines Home Loan Bank did not return calls seeking comment, while a spokesman for the Council of Federal Home Loan Banks declined to comment.
While Home Loan banks do generally focus on bolstering the housing market, the law was changed in 1999 to allow them to also assist with small business loans, among other lending. Congress also passed a law in 2008 that expressed a "sense of Congress" that Home Loan banks should "consider using available authorities to assist in ensuring continued access to federal student loans."
Warren's letter comes ahead of a Senate Banking Committee hearing Tuesday on the private student loan market, where the issue is likely to attract additional attention. Warren has separately been engaged in efforts to stop government-subsidized student loan rates from doubling next month, offering a bill that would temporarily lower rates to match the rate at which big banks borrow from the Federal Reserve.
The hearing will also tackle a recent Consumer Financial Protection Bureau report that called for private student lenders and the government to help lower payments for borrowers after the agency received thousands of complaints from consumers.