Sen. Elizabeth Warren (D-Mass.) recently requested that the Federal Housing Finance Agency provide information about the role of Federal Home Loan Banks in extending financing to institutions that offer high-interest private student loans.
The FHFA’s Home Loan Bank System was set up to fund community banks that offer home mortgages. Though Sallie Mae has been borrowing from the program at a rate ranging from 0.23 percent to 0.34 percent, it has charged a student loan rate 25 to 40 times higher than that at which it borrows.
“As you know, private student loans carry high interest rates and are difficult to restructure when students are struggling to meet their payments,” Warren said in the letter, which was sent in advance of a Senate Banking Committee hearing on private student loans. “Increasingly, experts cite mounting student debt as limiting personal spending and a growing threat to our economy. In addition…reports from the CFPB [show] student loan debt poses a significant barrier for Americans trying to buy their first homes. 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.”
Warren requested that the FHFA provide all guidance provided to Federal Home Loan Banks on funding private student lenders, details of credit extended to Sallie Mae and its subsidiary, analysis that the FHFA maintains on the impact of student loan debt on homeownership and details of lines of credit extended to any financial institution engaged in offering private student loans.