Amazon.com and Wells Fargo are the latest companies trying to attract retail customers by helping them with one of the nation's most vexing personal finance issues: paying the exorbitant cost of attending college.
Wells Fargo Education Financial Services said Thursday that customers of Amazon Prime Student can now get a 0.5 percentage point interest rate discount on its private student loan products. Customers can get that reduction on top of an interest rate cut of 0.25 percentage points if clients enroll in automatic monthly repayment, a common discount offered by private student loan providers.
“We are focused on innovation and meeting our customers where they are,” said John Rasmussen, head of Wells Fargo's personal lending group. “Increasingly, that is in the digital space.”
Like Amazon Prime, Amazon Prime Student offers free two-day shipping and other benefits to subscribers, but at half the cost of Amazon Prime, $49 a year. Subscribers also can get the first six months free. There is nothing in the terms of the loan that requires customers to continue with their Amazon Prime Student subscription after the loan is signed.
The two companies join a growing list of those announcing programs to address the nation's mounting student debt. About 40 million Americans owe a total of $1.3 trillion in student loans, according to the Federal Reserve Bank of New York. Home mortgages are the only greater source of debt for Americans.
The volume of student loans has risen as the cost of attending college has skyrocketed. Annual tuition and fees at a public university for the 2014-15 school year was $9,139 for an in-state resident and $22,598 for an out-of-state resident, according to the College Board. The average cost to attend a private university was $31,231.
It's easy to see why incentives that promise to lower the ultimate college bill would be attractive to students and parents helping to the foot the expense. But companies intend to profit as well.
“These offers are a wise way of getting someone in as a customer early,” said Wayne Zussman, partner at Bridgewater Wealth & Financial Management. “But if there's a reduction in fees or in rates, why not? It can be a win-win for both as long as there are no hooks.”
Anyone interested in the deals needs to explore the different options being offered and make sure the banking or other products are the right fit for the student, he said. For instance, if having an Amazon Prime Student membership is going to result in lots of additional spending, it may not be a good idea. Or canceling that subscription after securing the loan might be the way to go, he said.
Financial adviser Deborah Fox, founder of Fox Financial Planning, urged even more caution. She recommended looking closely at initiation and other fees, as well as interest rate terms that can be fixed or variable, to ensure loan seekers "are comparing apples to apples."
Incentives won't always add value to the total loan payments ultimately due, she said.
“Many times the interest rates and fees from particular lenders offering incentives will cause the student to end up with higher charges or overall loan payments than with a lender who doesn't offer such perks,” Ms. Fox said.
Financial advisers always recommend clients explore options for federal student loans before accepting private loan offers. The current interest rate for an undergraduate with direct subsidized or unsubsidized loans is 3.76%. Private loans, which account for less than 10% of student loan debt, have an average interest rate of 9% to12%, according to Alltuition.com, though top credit unions offer an average of about 5%.
Some of the other customer incentives being offered include those by Discover Bank, which markets no-fee student loans, which are not common. It also provides 1% cash back for those who earn grades of 3.0 or better during the period covered by the loan.
Citizens Bank has student debt refinancing loans with lower-than-average interest rates. The bank said these have saved customers $1,644 a year.
It also offers a 0.25 percentage point interest rate discount for those who have an account with the bank. It and Discover also offer the 0.25 percentage point discount for automatic payments.
Even smaller companies are getting into the game.
Last month, Boston-based Radius Bank and Gradifi, which has an employee-provided student loan paydown plan, announced it will begin offering a debit card in the fall that puts 1% of purchases toward paying down account holders' college debt.
The 1% rewards from the Gradifi Mastercard debit card, offered through a Radius checking account, will be applied via Gradifi's secure payment platform, the companies said.
“Partnering with Gradifi, we saw an opportunity to offer an innovative deposit product to be part of their solution to help pay down student debt while improving consumers' overall financial management," said Mike Butler, chief executive of Radius.