Ah, it was just a summer fling.
Amazon and Wells Fargo gave an unceremonious kiss-off to their student loan hookup this week, which would give Amazon Student Prime subscribers a 0.5% discount on student loans from the San Francisco-based financial behemoth.
No one knows why the pair went their separate ways, an event first reported by Bloomberg. Indeed, many wondered why they ever joined forces.
From the start, the skeptics were vocal about the deal. Alexander Holt of thinktank New America told Insider Higher Ed in July: “Amazon is taking a reputational risk for a very low payoff. It’s a big market. But it’s not huge and it’s always run extreme reputational risk for the companies involved.”
Pauline Abernathy, executive vice president, the Institute for Collage Access & Success, applauded the dissolution of the union: ““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, with none of the flexible repayment options and consumer protections that come with federal student loans.”
When the Wall Street Journal first published news of the deal in July, Abernathy put out a statement “Wells Fargo/Amazon Deal to Dupe Students into Taking Private Loans.” Others warned against piling on expensive debt on top of the federal loans.
And then many wondered why Amazon would risk so much on a relatively small opportunity: Private student loans account for about 7.5% of a $1 trillion-plus market that is growing faster than credit card debt. Student loans are getting blamed for many millennial woes. They can’t afford to buy new homes because they are starting life burdened with debt. The private market is also far more expensive than the federal market, which also offers considerable flexibility in repayments. The Wells offerings ran as high as 11% before the 0.5% discount — well above the federal average rate of 3.76%. Refinancing theses loans is a huge business itself, as witnessed by the rise of SoFi.
The private loan market exists only because the feds put a cap on how much any one student can borrow. Many lenders had abandoned the troubled market, but Wells Fargo has been doubling down and is one of the biggest lenders in the space. Even among private lenders, Wells appears to be pricey. It didn’t make it into a recent Student Loan Hero survey: “6 Best Banks to Refinance and Consolidate Loans in 2016.”
Back in July, when the summer heat obscured the flaws of the Wells/Amazon match, CNBC commentators waxed poetic about millennials flocking to Amazon Prime for their student loan discounts. Amazon would be a beautiful conduit, marketing the Wells wares. A win-win — millennials would buy books, shampoo, movies, and college and remain forever in its walled garden. And for Wells, the student loan would be a stepping stone for millennials who would soon enough need credit cards, mortgages, and more.
The hint of autumn seems to have cooled someone’s ardor. The Twitterati spoke:
— Mike Dudas (@mdudas) September 1, 2016
as well as
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People are definitely getting fired for this. https://t.co/cGDATF0AJY
— stacy-marie ishmael (@s_m_i) September 1, 2016