Sen. Elizabeth Warren, D-Mass., continues her charge against Sallie Mae.
At Senate Banking Committee hearing on private student loans Tuesday, she raised concerns about an $8.5 billion line of credit that the Federal Home Loan Bank of Des Moines has provided to Sallie Mae.
Regulators at the hearing largely demurred on discussing the matter, noting that it was out of their jurisdiction.
"The Federal Home Loan banks were established to expand homeownership, but now it seems they are undermining that goal by helping finance more student loan debt," Warren said, building on a letter she sent to the Federal Housing Finance Agency on Monday.
"In addition, the [Home Loan banks] get extraordinarily cheap access to capital thanks to government sponsorship, and that cheap capital was provided to Sallie Mae."
Warren also followed up her letter with a second directly to Sallie Mae on Tuesday, asking for more details from about its use of the line of credit.
Sallie Mae officials said Tuesday that the credit line is tied to its legacy portfolio of government-backed student loans, a business it exited in 2010. "Since the beginning of 2006, virtually all of our private education loans have been originated and funded by Sallie Mae Bank, a Utah industrial bank subsidiary … ," a Sallie Mae spokeswoman said. "Our utilization of the FHLB facility has and will continue to be to facilitate the efficient long-term capital markets funding for previously originated FFELP loans."
Sallie recently said it plans to split into two publicly traded companies: its $195 billion of private and federally backed student loans under management and Sallie Mae Bank.
The Des Moines Home Loan Bank said it began providing liquidity for federally guaranteed student loans of one of its members in 1999, and that a decade later — after the liquidity crunch hit — it expanded the use of such loans as collateral for advances to more member banks. Regulators authorized the effort, and other Home Loan banks accept such loans as collateral, it said.
"FHLB Des Moines does not accept private student loans as collateral," it said.
