Amazon.com certainly sells just about everything. Now, they’re getting into the business of selling student loans through an alliance with Wells Fargo Education Financial Services.
The online retailer has announced that Amazon Prime Student members will be eligible for an interest point reduction of 0.5 percentage points on private student loans. While that may amount to a good discount over time, it’s important to be aware of the overall loan market before borrowing through this program.
– Private loans like this are far more expensive than federal student loans. Undergrads with federal Stafford loans pay an average of 3.6% currently. By comparison, Wells Fargo student loans can charge more than 9% on variable rate instruments or even more than 10% on fixed rate loans.
– Private loans are risky. If a student gets into deep financial trouble, they are much tougher to escape through bankruptcy than credit cards.
– The federal loan program has several protections that can allow you to repay your balance through plans that take your income level into account. Most private loans don’t offer such options.
Experts noted that the Amazon program, like other private loan options, may be good for students who need to borrow more than they can get through federal programs. But be aware that when you see a marketing message saying that on top of your free shipping with Amazon Prime, you can get a discount on student loans. The discount will only apply to private students loans issued through Wells Fargo.