Sallie Mae President/CEO Jack Remondi responded to Sen. Elizabeth Warren's criticism of the student lender's use of a Federal Home Loan Bank line of credit, which she said earlier this week was used to fund private student loans and earn a large profit.

The Masschusetts Democrat questioned use of FHLB funds in a June 24 letter to Federal Housing Finance Administration Acting Director Edward DeMarco, and brought up the topic again during a Senate Banking Committee hearing on private student loans Tuesday.

“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 said.

In a June 25 response letter, Remondi said Sallie Mae's 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.

In 2008, Remondi said, the FHFA determined that all Federal Home Loan Banks could make advances to members using federally guaranteed education loans made through the Federal Family Education Loan Program as collateral.

The move by the FHFA was in response to Congressional concerns about maintaining access to federal student loans, he said.

Since 2006, he continued, virtually all of Sallie Mae's private student loans have been funded by Sallie Mae Bank, a Utah-based industrial bank subsidiary that is regulated by the Utah Department of Financial Institutions and the FDIC.

He also clarified that the list of liquidity sources which Warren sourced in her letter to DeMarco included all material sources of liquidity available to Sallie Mae.

David Jeffers, executive vice president of policy and public affairs for the Council of Federal Home Loan Banks, told Credit Union Times on Tuesday that the FHLBs provide members with funding to serve the needs of their communities, which includes housing but could also be used for other types of community development.

“Because the Federal Home Loan Banks are not a high-profile group of institutions, it's not unusual to make that mistake, based on our name alone,” he said of Warren's comment questioning if the FHLBs were undermining their mission.

Approximately 500 credit unions participate in Sallie Mae's Smart Option Student Loan referral program.

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Sallie Mae CEO Remondi: FHLB Line Not Used for Private Student Loans

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