Sen. Elizabeth Warren isn’t letting up on Sallie Mae and how the Newark, Del.-based student lender may be benefitting from an inexpensive Federal Home Loan Bank credit line. The Massachusetts Democrat and consumer protection champion sent Sallie Mae President/CEO Jack Remondi a letter Friday that compared the lender’s use of the funds to how big banks benefitted from TARP funds.
When Warren served as chair of the Congressional Oversight Panel for TARP, she said she learned that government cash infusions into private companies, along with direct and indirect subsidies, can raise complex questions about which activities are being supported. Additionally, she said she learned to question whether companies receiving assistance are being entirely forthright in its description of the impact of such support.
“While I understand one of the key goals of the FHLBs is to finance economic growth, it is troubling to me that, based upon your representations, Sallie Mae’s use of the credit line does not appear to lead to the origination of any new loans or assist troubled student borrowers,” Warren said. “If that is the case, then I am having difficulty understanding how the line of credit to Sallie Mae meets the FHLB’s stated goals.”
Warren also said she’s concerned that Sallie Mae, which was originally chartered as a government-sponsored entity but is now a private company, continues to receive indirect and direct government-supported subsidies, including some that extend well beyond the FHLB credit line.
“At the same time, students continue to pay high interest rates on their loans,” she said.
Warren has been a supporter of low-rate student loans, introducing a short-term plan earlier this year that would have dropped rates on federally guaranteed loans for needy students. Democratic attempts to extend temporarily low student loan rates failed in Congress, and rates will double from 3.4% to 6.8% on July 1 for federally guaranteed student loans.
Warren criticized Sallie Mae for profiting from selling federally guaranteed student loans to the government and borrowing billions from a Department of Education created asset-backed commercial paper facility at a rate of 0.82%.
“Sallie Mae’s corporate filings state that it may choose to refinance that amount to an astonishing low 0.34% using the FHLB credit line,” she said. “This piling on of government-supported benefits is in addition to the big fees Sallie Mae generates as a servicer and debt collector on federal student loans.”
The senator said she finds the practice disturbing because while Sallie Mae profits from government programs, borrowers are paying interest rates “far in excess of the low cost of funds supported by the U.S. taxpayers.”
A Sallie Mae spokesperson did not immediately respond to a request for comment.