Just over a month ago, on July 21, we reported that Amazon and Wells Fargo had launched a partnership which they dubbed at the time a “tremendous opportunity”, to offer college students an even greater incentive to get buried under student loans when Wells Fargo announced it would offer a discount on private student loans to members of Amazon’s “Prime Student” program.
“We are focused on innovation and meeting our customers where they are—and increasingly that is in the digital space,” John Rasmussen, a Wells Fargo executive, said in a July 21 news release. “This is a tremendous opportunity to bring together two great brands.”
As we said then, “in Amazon’s latest attempt to entice shoppers into its premium Prime program, Wells Fargo will cut half a percentage point from its interest rate on student loans to Amazon customers who pay for a “Prime Student” subscription, which provides the traditional Prime benefits such as free two-day shipping and access to movies, television shows and photo storage. The subscription-based service will cost $49 a year, half the regular Amazon Prime fee.”
Meanwhile, Wells Fargo, Buffet’s favorite US bank, would benefit by expanding the size of its student loan portfolio. The third largest U.S. bank by assets and the second-largest private student lender by origination volume, is interested in “meeting our customers where they are – and increasingly that is in the digital space,” John Rasmussen, head of Wells Fargo’s Personal Lending Group, said in a news release. The bank had $12.2 billion in student loans outstanding at the end of 2015, compared with $11.9 billion at the end of 2014.
Apparently, Wells was not interested enough, because just six weeks after revealing said “tremendous opportunity”, the two companies unexpectedly ended their partnership.
As Bloomberg recaps our previous thoughts, “the deal between the giant online retailer and the nation’s third-largest bank by assets represented Amazon’s first foray into the competitive market of lending to college students. For Wells Fargo, which has aggressively tried to build up its student loan business, the partnership was meant to help the bank reach millions of potential customers who shop on Amazon and might be enticed by the bank’s half-percentage point discount on its higher-education loans.”
There was little justification for the abrupt deal failure: Catherine B. Pulley, a Wells Fargo spokeswoman, said Wednesday that the “promotion for Prime Student members has ended.” She didn’t immediately respond to messages seeking further details. Deborah Bass of Amazon e-mailed the same statement in response to questions but did not immediately respond to a message seeking additional information.
As Bloomberg adds, as of today, Amazon no longer features Wells Fargo on its student-focused website, and the bank’s Amazon-focused site now redirects visitors to Wells Fargo’s general student loan section. The two companies had been talking about the partnership for more than a year, according to a July report in the Wall Street Journal.
While there is no information at all on what causedthe abrupt end in the relationship, consumer advocates should be delighted: they quickly assailed the partnership between the two companies after it was announced in July. Pauline Abernathy, a former official in Bill Clinton’s White House who now works for the Institute for College Access & Success, described the arrangement as “the kind of misleading private loan marketing that was rampant before the financial crisis.”She said both companies buried the otherwise high costs and inflexible repayment terms that she said are standard in private student loans and that the deal was a “cynical attempt to dupe current students.”
“We congratulate Amazon for deciding to stop promoting Wells Fargo’s costly private education loans. Private loans are one of the riskiest ways to pay for college,” Abernathy said Wednesday.
Come to think of it, she is not wrong.
Undergraduate students can borrow from the feds at a 3.76% interest rate, a loan that effectively acts as an entitlement thanks to virtually no underwriting requirements. But the government caps student borrowing, leaving many to rely on private student loans to fill the gap between college costs and federal loan limits. A review of Wells Fargo’s website shows student loans that carry interest rates as high as 10.93%.
Which explains why both Amazon and Wells Fargo had so much to gain, and nothing to lose form their partnership, and which makes the sudden, unexplained collapse of this arrangement all the more curious and surprising.
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