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Amazon.com has recently joined forces with banking giant Wells Fargo & Co to help it gain a competitive edge on the student loan market. Reportedly, the e-commerce giant will be able to offer lower interest rates to student loan borrowers under a new service called Amazon Prime Student.
A spokesperson for Wells Fargo deemed the new partnership a “tremendous opportunity” to bring two “great” companies together.
Under the new deal, students will see their interest rates cut by half a percentage point if they apply for any of the bank’s student loan products through Amazon Prime Student. Interest rates can get even lower if students opt for a loan repayment plan which runs automatically every month.
Wells has educational loan offers ranging from 5.94 percent to 11 percent in fixed-rate system. These rates can get slightly lower if the borrower enlists a co-signer.
The new Amazon service for students will cost $49 per year. The good news is that students won’t be forced to remain subscribers through their college years or until they repay their loan. Amazon hopes, however, for students to remain interested in the service after they graduate, while Wells hopes for more loans under the deal from that point on.
Nevertheless, Amazon and Wells Fargo are not the first case of retail and banking industry joining forces. Banks and retailers have been doing business for years. This is how supermarkets can offer discounts to credit-card users.
And the private student loan market leaves room for growth. Currently, the market accounts for just 7 percent of the $1.3-trillion educational loan market in the U.S. The market has been dominated by the U.S. government after the Obama administration decided to lend money directly to students six years ago.
However, private lenders lives are not easy as the competition is fierce and everyone is looking to offer tempting alternatives to the government’s Parent Plus loan program. Sallie Mae and Wells are currently the most prominent lenders in the nation. Both firms scored $6.4 billion in loans last quarter, which marks a 7 percent rise from last year.
Since the federal loan plan is the most affordable, parents go for private loans only when in need for extra cash as the federal government has put strict caps on the amount of cash to be borrowed for higher education.
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