Business

Amazon Enters Student Loan Business

August 6, 2016

Online retail giant Amazon Inc. is expanding its operation and will enter the student loan business. According to reports, Amazon is partnering with Wells Fargo in a deal in which Wells Fargo’s student-lending arm will offer interest rate discounts to some Amazon shoppers.

According to an Amazon spokesperson, this is the first time that members of the company’s Prime Student service are receiving a student-loan offer by a lender through its site since Amazon Prime Student was launched in 2010.

Wells Fargo will shave half of a percentage point from its interest rate on student loans for select members of the Amazon Prime Student service, which will reduce the total amount of money the student has to pay back.

The Amazon Prime Student members will continue to receive the benefits that come with the subscription. Services like free 2-day shipping, and access to Amazon Prime’s video and music streaming catalog.

According to reports, Wells Fargo charges between 3.39 percent and 9.03 percent for a variable-rate student loan, and the company charges from 5.94 percent to 10.93 percent for a fixed-rate loan.

A Wells Fargo spokesperson said a student that qualifies for a 3.3% rate would be able to get a loan at a 2.89 percent rate by subscribing to Amazon Prime Student.

Under the terms of their deal with Wells Fargo, Amazon cannot work with other student lenders in similar deals. However, Wells Fargo can offer similar incentives to customers of Amazon competitors.

In a recent interview, John Rasmussen, head of Wells Fargo’s Personal Lending Group, said that the deal makes sense for both partied because Amazon is trying to increase the number of subscriptions to its Prime Student service, while Wells Fargo is looking for exposure to their products and services and awareness.

Rasmussen said Amazon does not receive any compensation from Wells Fargo, and Wells Fargo doesn’t get compensated by Amazon either.

By asset, Wells Fargo is the third largest bank in America, and the company had $12.2 billion in outstanding student loans at the end of 2015, which is significantly more than the $11.9 billion at the end of 2014.

As one of the largest private student lenders in the country, Wells Fargo sold substantially all of its government guaranteed student loan portfolio in 2014.

On Thursday, Citizens Financial Group Inc. Chief Executive Bruce Van Saun said that while government loans tend to have high default rates, lenders prefer the private side of the business because they can offer better pricing borrowers they feel are more creditworthy.

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