Wells Fargo's New Fixed-Rate Student Loans Come With High Interest

NEW YORK (AP) — Wells Fargo is hoping to make its student loans more attractive to families.

The San Francisco-based bank says it is now offering fixed-rate student loans, which is a departure from the industry practice. Unlike federal student loans, the private student loans issued by banks typically come with variable interest rates that are tied to a benchmark rate.

Wells Fargo says its fixed rates will range from 7.75 percent to 14.25 percent, depending on the credit background of the applicant or co-signer, who is often a parent.

Even on the low end, however, Wells Fargo's fixed rates are higher than the 6.8 percent fixed rate on most federal student loans. Federal loans also offer safeguards that do not come with private student loans. For example, students who earn very modest salaries can enroll in programs that cap their monthly federal loan payments to a percentage of their income. Remaining balances are forgiven after 25 years of payments.

Federal loans also give borrowers the option to defer payments for set periods if they run into financial hardships, such as unemployment. With private loans, it's up to the lender to decide whether to grant deferment. And the deferment periods granted are typically shorter than the time permitted under federal student loans.

As a result, private student loans are widely regarded as a last resort after federal aid has been exhausted. Still, private lenders note that their loans can help bridge the gap in covering college costs after other resources have been tapped out.

Wells Fargo also said this week that it will give existing customers who take out new student loans a 1 percent discount on interest rates. If approved, all loan applicants will now be offered the option of either a fixed or variable rate. Variable rates range from 3.5 percent to 9.99 percent.

The announcement from Wells Fargo & Co. comes ahead of the peak season for private student lenders, when families are looking to bridge financing gaps leading into the fall semester.

The private student loan industry has nevertheless been shrinking in the past few years. After peaking at 25 percent of total loan volume between 2006 and 2008, private student loans declined to 8 percent of total loan volume in the 2009-2010 academic year, according to The College Board. Several factors, including higher federal loan limits and tightened liquidity in the private loan market, contributed to the decline.

Comments

[Thomas Driscoll]

04:00 AM on 06/22/2011

wrong

wells fargo comes with .25 off rate for graduating, .25 for autodebit and .25 or .5 off for a prior loan or other account

thats there worst loan and you shouldnt follow the feds robbery of students but thats 6.75 and no origin fee, which stafford has, plus loans at 7.9 and 4% fee

the prime isnt gonna move go variable, if it does fix it then. still be under 7%

government gets loans at 2.8 from the treasury, who sets the prime, and gives to students at 6.8/7.9

at 130 billion in loans a year thats a tidy profit, probably 50-60 billion over the average life of the loan. and now that they are federal loans, you can default, with the IBR the fed can garnish your wages at 15% for 25 years. interest compounding to make escape impossible.

this is vile, people were mislead in the housing crash but these are kids trying to get an education which not only is devalued now but turned against them as the fed gets 15% on top of their regular cut. unbelievable. ll the while they allow education costs to soar and mislead students into utility of certain education paths

you think the fed taking over after people got ripped off for subprime mortgages was an accident? just steal from their kids education now. plans began in 2007.

tight budgets make thieves, wall st and the government are always hand in hand

[The 14th Banker]

12:02 AM on 06/13/2011

How can such a big bank be so irrelevant?

[dbw53022]

09:08 AM on 06/10/2011

Two words Ally Bank

[chainsawmonkey]

09:26 PM on 06/09/2011

So wells fargo borrows money from the fed at

[jwoww]

09:24 AM on 06/10/2011

As Dean Wormer once said ZERO POINT ZERO

[Ed Baker]

05:54 PM on 06/09/2011

Let's do away with all student loans. Let's only give out grants. But instead of basing the grants on how financially poor the student is, let's base them on how good they are as students.

The European system of higher education being paid for based on performance is what we need.

We waste hundreds of millions of dollars on very bad students who just flunk out anyway. Let's make room, and save money, and educate real students.

[Ed Baker]

05:47 PM on 06/09/2011

So what's the "high interest catch?"

[teachone]

03:31 PM on 06/09/2011

All should avoid this crooked company Wells Fargo, I worked for them in the past and know how they operate...stay as far away from them as possible. You can go get your loans safely from the federal government, you can also get small loans from local credit unions. This bank and the other large crooked banks, but expecialy this one, have no concern for anyone and will stick it to you in anyway they can. They are a crooked group which consists of A.G.Edwards aka Wachovia Securites aka Wells Fargo. I will never use their services nor will I suggest them to my family or friends. I obtained my Series 7 license which is the license you need to be a financial advisor/stock broker and have two business degrees w/honors and many years of financial experience, but I graduated from a Christian University, so my ethics and morals are much different than those who work in this conglomerated bank. Please take heed, there are a million other options to get money for school. I don't want to see anyone taken advantage of by these parasites, do your research about them online and with the State Attorney Generals offices all over this country, then run the other way and find a honest place to get your funds.

[sandiegoconservative]

02:47 PM on 06/09/2011

The solution is simple and can be accomplished in multiple ways. Avoid student loan debt if you can, and minimize it if you can't. Most of the student loan issues I saw in college were people taking out large loans to rent nice homes and apartments, and using the loans as income, instead of a necessity.

Go to community college for two years. Apply for any scholarships you can, even the $50-100 ones. Live with roommates or rent a room in a home from someone. Bulk shop and eat cheap. Avoid going out every week. Take AP courses in high school and take the tests for college credit. Start community college while in high school, yes, you can take some courses before you graduate. Work as an RA or the front desk of your dorms. You get paid and can possibly get priority registration and deals on campus meal plans. Even the detergent you use when doing laundry and the phone plan you have can all make a big difference in the long run.

It boggles my mind why people think college is so expensive.

[considerthis]

09:17 AM on 06/10/2011

coiuld be the $26K yearly tuition

[Hardyman1966]

12:19 PM on 06/09/2011

First rule for students (and everyone else for that matter):

AVOID THE "BIG 4" (WELLS, BANK OF AMERICA, CHASE, CITI) AT ALL COSTS!!!

[rancone]

09:35 AM on 06/09/2011

It is class warfare accept it.
The poor do not go to college in the same way as the elite.
But the elite are the R's - the royalists and the religious.
The writers of the constitution were leery of the mercantile class (capitalists) - we should be also.

[Ed Baker]

05:48 PM on 06/09/2011

Study your history - the writers of the Constitution were businessmen. :)

[Oakland]

05:41 AM on 06/09/2011

Even if students have to do their first two years in a community college, stay away from the loan sharks. Federal loans may be kinder, but it is no way to begin a life - broke, unemployed, and in debt. Anybody who accepts a loan from a private lender needs their head examined.

[Lemmy]

07:58 AM on 06/09/2011

Good point. Too many parents are indulging thier kids in the $30K a year experience while they major in "general studies" or wash out entirely. Send little Timmy to community college for a year or two and save some big $$.

[jwoww]

09:27 AM on 06/10/2011

there are very good reasonably priced 4 year colleges out there. but I agree, not everyone needs to go to the big 4 year schools.

[CPA 4 Life]

10:44 AM on 06/09/2011

Or be smart. 7 AP exams cost about $500 today and if you get all 4s or better (like I did) you can start college with 30 credits (1 year's worth).

[cyoohoos]

05:29 AM on 06/09/2011

14.25% interest on a student loan? Are you serious?

[Ed Baker]

05:50 PM on 06/09/2011

That's the cost of a bad credit history or high debt load. Higher risk, means higher interest rates.

[Dave Harpe]

02:50 AM on 06/09/2011

DON'T even THINK about taking out a student loan, especially at these usurious rates. Check out this story about the collection agency:
http://blog.alexanderhiggins.com/2011/06/08/swat-team-raids-mans-home-gunpoint-estranged-wifes-defaulted-student-loans-23861/

[Donald Rumsfeld XIV]

02:50 AM on 06/09/2011

Umm .... Wait a minute. Didn't we pass the Health Care AND EDUCATION Reconciliation Act in 2010?

Title II of the reconciliation bill deals with student loan reform. The language is very similar to the Student Aid and Fiscal Responsibility Act that passed the House in 2009; but with some slight variation. The reform package includes:
-Ends the process of the federal government giving subsidies to private banks to give out federally insured loans. Instead loans will be administered directly by the Department of Education.
-For new borrowers of loans starting in 2014, those who qualify will be able to cap the amount they must spend on loan repayment each month to 10% of their discretionary income (current cap is 15%.)
-Also, for new borrowers after 2014, loans will be eligible to be forgiven to those who make timely payments after 20 years (the current time-frame being 25 years).

This bill along with the Student Aid and Fiscal Responsibility Act of 2009 would save $ 101 billion over 10 years, simply because they take the private for-profit banks out of the game.

Stay away from big bank loans.

[cyoohoos]

05:28 AM on 06/09/2011

Stay away from big banks. Period

[Cipo]

01:24 PM on 06/09/2011

Stay away from student loan debt period.

[Ed Baker]

05:51 PM on 06/09/2011

The loans in this story are not insured loans, they are completely private.

[cccoyote]

02:29 AM on 06/09/2011

Another snapshot of the mythical finance reform.