Last week Amazon announced that they would be partnering with Wells Fargo to provide student loans to their prime customers. At first glance, the deal seems like a powerhouse combination. The financial resources of the two companies, Wells Fargo’s extensive lending experience, and the highly regarded Amazon prices and customer service could combine to create some exciting features in the student loan marketplace.
Unfortunately, this high-potential collaboration is a dud.
Rather than providing any sort of innovation or even offering a great product, Wells Fargo is simply offering a .5% discount to Amazon Prime customer on their student loans.
Isn’t .5% better than nothing?
If you are already an Amazon customer AND a Wells Fargo borrower, the .5% might be a nice perk. Otherwise, it probably isn’t worth pursuing.
For starters, it is worth noting that many lenders already offer a .25% discount for having a checking with their bank and another .25% discount for automatic withdrawals. The idea of an interest rate discount is pretty standard at this point.
There is also the cost of Amazon Prime to consider. For college students it is $49 per year and once they graduate it jumps to $99 per year. The cost of the service makes the discount even less valuable. (Note: Amazon Prime does offer a number of great services, as a Prime customer, I’m a huge fan… however, this minor interest rate discount hardly justifies signing up).
The big danger here is that Amazon Prime customers chase after these loans instead of opting for the far better federal loans. Not only do federal loans currently offer lower interest rates, but they have much better features as well, including loan forgiveness and income driven repayment plans.
For customers maxed out on federal loans who need a private loan, this option still is probably a dud. Wells Fargo private loan interest rates currently start at over 6%. This number is not competitive with many of the other lenders in the market. As always, customers need to shop around a bit in order to find the lenders with the best rates.
At the end of the day, this deal is essentially a minor discount on an overpriced product. Sadly, nothing here to get excited about.
Why even bother?
Why consumers would pursue this deal is unclear at best, but for Amazon and Wells Fargo, the deal could be very lucrative. Wells Fargo wants access to Amazon’s customer base and Amazon wants access to Wells Fargo’s customer base. By partnering, Amazon can get some new Prime customers and Wells Fargo can find more borrowers.