728x90 AdSpace

Latest News
July 22, 2016

Amazon and Wells Fargo Entice New Prime Members with Student Loans

On the off chance the US didn't already have a big enough problem thanks to a staggering $1.3 trillion in student loans which contrary to White House' claims, are crushing an entire generation under their interest expense weight, earlier today none other than billionaire Jeff Bezos announced he was entering the student loan business, when Amazon unveiled a partnership with Wells Fargo in which the bank’s student-lending arm would offer interest-rate discounts to select Amazon shoppers.
In Amazon's latest attempt to entice shoppers into its premium Prime pro
gram, Wells Fargo will cut half a percentage point from its interest rate on student loans to Amazon customers who pay for a "Prime Student" subscription, which provides the traditional Prime benefits such as free two-day shipping and access to movies, television shows and photo storage. The subscription-based service will cost $49 a year, half the regular Amazon Prime fee.
Wells Fargo, Buffet's favorite US bank, will benefit by expanding the size of its student loan portfolio. The third largest U.S. bank by assets and the second-largest private student lender by origination volume, is interested in "meeting our customers where they are – and increasingly that is in the digital space," John Rasmussen, head of Wells Fargo's Personal Lending Group, said in a news release. The bank had $12.2 billion in student loans outstanding at the end of 2015, compared with $11.9 billion at the end of 2014.
WSJ adds that Wells Fargo and Amazon have been in discussions for more than a year about the partnership, which is set to be announced and made available Thursday. As the WSJ muses, "the discount could be used to encourage more students to sign up for the Prime service." Incidentally, this is precisely what the offer is all about: to get a sticky annuity in the form of student borrowers who have to pay not only the student loan interest, but also an annual fee to Amazon.
According to the details of the agrement, the companies aren’t compensating each other for what Wells Fargo describes as a multiyear agreement that will reach millions of potential borrowers. The Amazon spokeswoman said Wells Fargo is currently the only student lender that will provide loan offers to Prime Student members.
While the government's takeover of the student loan industry has been extensively documented, private student lending, which plummeted during the recession, is rising again. Five of the largest private student lenders, including Sallie Mae, Wells Fargo and Discover Financial Services distributed $6.46 billion in loans between July 2015 and March 2016, up 7% from the same period a year earlier–and the fifth consecutive year of increases, according to data released this month by MeasureOne, a San Francisco firm that tracks the market.
In their hopes of catching up to government issuance levels, the lenders are now resorting to gimmicks such as this one.  WSJ adds that Wells Fargo has remained in second place for a number of years, behind Sallie Mae, which leads by a wide margin. The bank has also been refinancing loans for more than a decade, but that market is increasingly composed of online lenders, led by Social Finance Inc.
The discount could give Wells Fargo a competitive advantage to other lenders. Its interest rates are close to the interest-rate ranges Discover and Citizens Financial Group, which has been rapidly expanding into student loans over the last couple of years, charge.
A half-percentage-point discount could make its loans more affordable than competitors for some borrowers, which is good however one wonders if an enticement for young Americans to take out even more student loans, is what the US economy - whose severe deterioration in productivity is causing quiet panic among Federal Reserve economists - really needs. What is certain is that as a result of this arrangement, Amazon's billionaire founder get be even richer, as millions of Americans get even more in debt, meanwhile...
Courtesy Tyler Durden, founder of Zero Hedge
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle

  • Blogger Comments
  • Facebook Comments
Item Reviewed: Amazon and Wells Fargo Entice New Prime Members with Student Loans Rating: 5 Reviewed By: EconMatters