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 earlierthis week was used to fund private student loans and earn a largeprofit.

The Masschusetts Democrat questioned use of FHLB funds in a June24 letter to Federal Housing Finance Administration Acting DirectorEdward DeMarco, and brought up the topic again during a SenateBanking Committee hearing on private student loans Tuesday.

“It is deeply worrisome that the Federal Home Loan Banks may beundermining their mission by extending billions of dollars in cheapcredit to private student lenders,” Warren said.

In a June 25 response letter, Remondi said Sallie Mae'sutilization of the FHLB Facility has, and will continue to be, tofacilitate the efficient long-term capital markets funding forpreviously originated FFELP loans.

In 2008, Remondi said, the FHFA determined that all Federal HomeLoan Banks could make advances to members using federallyguaranteed education loans made through the Federal FamilyEducation Loan Program as collateral.

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

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

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

David Jeffers, executive vice president of policy and publicaffairs for the Council of Federal Home Loan Banks, told CreditUnion Times on Tuesday that the FHLBs provide members withfunding to serve the needs of their communities, which includeshousing but could also be used for other types of communitydevelopment.

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

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