Want to Buy a House? You Probably Shouldn't Go to College.

In a recent letter to Ed DeMarco, the head of the Federal Housing Finance Agency (FHFA), Massachusetts Senator Elizabeth Warren questioned why the U.S. government is backing expensive private student loans.  At issue are the FHFA's "Federal Home Loan Banks," one of which is a major provider to Sallie Mae. Sallie Mae, of course, is the largest provider of private student loans in the country.

With total student loan debt approaching $1 trillion, younger Americans are discovering that their debt prevents them from being able to afford housing. That is, unless they want to build their homes out of Kraft Mac n' Cheese boxes.

Warren wants to know why a federal agency is contributing to the problem:

The Federal Home Loan Banks were "intended to bolster the banks' support for the housing market—not to be a backdoor way to subsidize highly-profitable private student lenders," Warren wrote in a letter to DeMarco sent Monday. "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."

Sallie Mae has an $8.5 billion credit line from one of the FHL Banks at an interest rate between 0.23 and 0.34 percent. But Sallie Mae charges students taking out loans a rate that is 25 to 40 times higher. Sallie Mae "was able to borrow at less than one-quarter of one percent interest because the government's sponsorship of the Federal Home Loan Banks allows them extraordinarily cheap access to capital," and yet took in about $2.5 billion in student loan interest last year, Warren noted.

In the letter, Warren asked for documentation detailing FHL banks' funding of Sallie Mae and other private student lenders, and any analysis the FHFA has on the impact of student debt on homeownership. (A Consumer Financial Protection Bureau report found that student loan debt is a huge barrier for Americans trying to buy their first homes.)

It's hard to believe, but student loan rates are scheduled to double (!!!) from 3.4 percent to 6.8 percent on July 1st.

 

 

 

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Chaz Bolte
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