CHAIR: Senator Warren.
WARREN: Thank you, Mr. Chairman.
As we’ve seen in recent studies, and as some of our witnesses have testified today, private student loans carry high interest rates, they’re difficult to restructure, and in many cases they have created a barrier for people trying to buy their first homes.
And that’s why I was surprised that a Federal Home Loan Bank has been making available an $8.5 billion line of credit to the nation’s largest private student loan company, Sallie Mae.
The Federal Home Loan Banks were established to expand homeownership, but now it seems that they are undermining that goal by helping finance more student loan debt.
In addition, the Federal Home Loan Banks get extraordinarily cheap access to capital thanks to government sponsorship, and that cheap capital was provided to Sallie Mae.
And let’s be specific on this.
Sallie Mae has been getting this line of credit for one-third of one percent interest and then turning around and lending money to students at a rate about 20 times higher than that.
So yesterday I sent a letter to FHFA acting director, Ed DeMarco, because he regulates the Federal Home Loan Banks, but you’re all experts so I want to ask you about this, too, does it make any sense for a Fortune 500 company that makes high-profit student loans to be able to borrow money for less than one-third of one percent from a program that has federal backing for homeownership?
Mr. Lyons, how about if we start with you?
LYONS: Senator, the OCC does not regulate (inaudible)—
WARREN: I understand that. I understand that.
LYONS: –so I’m not familiar with that program—
WARREN: But I’m asking you the fundamental question—
LYONS: The fundamental—
WARREN: You’re getting money at a third of one percent.
WARREN: And then turning around and lending it to students at many multiples of that.
LYONS: So, Senator, on national banks, can I please speak to national banks, they, the rates that the national banks are charging for private student loans today are comparable to what they’re being charged for federal loans, so there is a spread there.
National banks are offering rates LIBOR-plus, relatively the same as federal loans, so they’re offering– WARREN: So you’re telling me it’s like federal loans, which this year will make $51 billion in profits for the federal government.
I’m not sure I find that reassuring.
Ms. Eberley, you have any comment on the question about the Federal Home Loan Bank boards lending to Sallie Mae at a third of one percent?
EBERLEY: So I think the issue you’re raising is a public policy issue.
The Federal Home Loan Bank is authorized to make loans that are secured by the former federal loan program collateral, so loans that were issued by institutions with a federal guarantee, so that is allowed—
WARREN: I’m not asking the question whether or not they behaved illegally.
I’m really asking the question, if they’re there to promote homeownership, I think we’ve heard from our witnesses today that homeownership may be undermined, that there’s data suggesting that homeownership is undermined by the growing amount of student loan debt, and so I see the Federal Home Loan Bank board seems to be heading in opposite directions at the same time.
Mr. Chopra, you have any comment on this?
CHOPRA: (Off-mic) I have no idea—
WARREN: Hit your button.
CHOPRA: Oh, I’m sorry.
I have no idea about that, the appropriateness of that arrangement.
It is true, though, that data would suggest that student loan borrowers are now less likely to have a mortgage.
WARREN: All right.
Well, that’s a helpful point in it, but really worrisome about the policy that we’re following here.
Let me ask another question.
I understand when we first started why we called student loans subsidized, but this year the government will profit $51 billion from the student loan program.
The new loans will make a profit of $184 billion over the next 10 years.
And it turns out that even the so-called subsidized loans make a profit of about 14 cents on the dollar.
The student interest rate is scheduled to double July 1st, and so the question I have is, why do we call these loans subsidized?
I don’t get this.
Why are they called subsidized?
LYONS: Senator, you’re referring to the federal program that the national banks don’t lend into.
They lend into the private market.
So I’d be happy to discuss the private market. I …
WARREN: I take that as a no.
CHOPRA: Well, the reason why it is called subsidized is because in the old bank-based program, where they gave federal loans that were guaranteed, the government paid subsidies to the financial institutions for interest accrued during periods such as being in school.
WARREN: Are we doing that anymore?
CHOPRA: No. That program has ended.
So we call these subsidized loans even though today the program has been completely changed and, in fact, is making a profit for the U.S. government.
So I just want to say, you know, this just seems wrong to me, Mr. Chairman.
The government lends to banks at three-quarters of one percent interest, then does a huge markup on student loans, will make $51 billion in profits this year.
Sallie Mae borrows at one-third of one percent in a program that is supported by the federal government and then does a markup on student loans.
It’s time for the government to stop making a profit off our students.
Thank you, Mr. Chairman.
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