Until this week, Amazon Prime Student subscribers who applied for any of the bank’s education loans were eligible to have their interest rate lowered by half a percentage point. The deal was a bit unusual. Though it’s not uncommon for banks to partner with retailers to offer credit card customers discounts on shopping or travel, loans are another thing.
(Amazon chief executive Jeffrey P. Bezos owns The Washington Post.)
At the time of the announcement in July, Wells Fargo’s head of education financial services, John Rasmussen, called the partnership “a tremendous opportunity to bring together two great brands.”
Advocacy groups, on the other hand, criticized the promotion for attempting to steer students into high-cost private loans that lack the consumer protections and flexible repayment options of federal student loans.
Interest rates on Wells undergraduate loans for four-year colleges range from 5.94 percent to nearly 11 percent on a fixed-rate loan and 3.39 percent to 9.03 percent on a variable-rate loan. Rates on the bank’s loans for community and for-profit colleges can climb to nearly 14 percent. That’s a far cry from the pricing the government offers.
The government charges undergraduates 3.76 percent interest and graduate students 5.31 percent interest on new loans for the 2016-2017 academic year. Federal loans are only offered at fixed rates, and students don’t need co-signers with stellar credit to qualify for the lowest rate. Borrowers can also take advantage of the government’s income-driven repayment plans that cap monthly payments to a percentage of their earnings.
“We congratulate Amazon for deciding to stop promoting Wells Fargo’s costly private education loans,” said Pauline Abernathy, executive vice president of the Institute for College Access and Success (TICAS). “Private loans are one of the riskiest ways to pay for college, with none of the flexible repayment options and consumer protections that come with federal student loans. Students should consider other schools if a school requires them to take out a private loan.”
The end of the promotion comes a week after Wells struck an agreement with the Consumer Financial Protection Bureau to pay $4 million in penalties for charging illegal fees on student loans, misrepresenting payments and failing to update inaccurate credit report information. The bank neither admitted or denied the charges.
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