As college students come to terms with a drastically different learning environment, some may also need to grapple with a smaller list of private student loan lenders from which to borrow. Wells Fargo, one of the largest private student loan lenders, has cut off new loan applicants. Instead, “beginning on July 1, 2020, only customers with an outstanding balance on a Wells Fargo Private Student Loan are eligible to be borrowers on a new private student loan for the 2020-2021 academic year,” Wells Fargo’s website states. “Wells Fargo has decided to narrow its student-lending focus,” said Manuel Venegas, a spokesperson for Wells. Students who don’t have a current loan with Wells Fargo are encouraged to contact their school’s financial aid office to consider other options, based on a frequently asked questions page on the lender’s website.
Private Student Loan Market
As of the March 31, 2020, 92 percent of student loans were owned by the Department of Education (DOE). This means that $1.54 trillion of the $1.67 trillion in outstanding student loan debt was owned by DOE, according to MeasureOne. Private student loans account for only eight percent, or $131.8 billion of the student loan market.
Private student loans declined immediately following the Great Recession as banks tightening their underwriting (unlike federal loans, private student lenders usually run a credit check on prospective borrowers). Competition from federal loans also increased as Congress allowed graduate students to borrow unlimited amounts in 2006 and as restrictions on parents loans were relaxed. However, more recently, the private student debt market has been booming and the amount of private student loans has grown 71 percent over the past decade.
Federal loans are generally preferable for most students as they don’t require a credit history or co-signer and offer post-graduation benefits like income-driven repayment and forgiveness options. However, private student loans may be attractive to some students, especially those with very high credit scores who may be able to secure a lower interest rate on their loans.
Wells Fargo Was One Of Largest Private Student Loan Lenders
Wells Fargo was a critical player in the private student loan market. According to the Student Borrower Protection Center, it had an 8 percent market share, with $10.6 billion in outstanding private student loan debt.
With potential disruptions to the 2020-2021 academic calendar and an uncertain economic recovery, Wells Fargo may be trying to cut its exposure to potentially higher loan defaults. As Bloomberg pointed out, “already, more than 40 million student-loan accounts were in deferment as of mid-June.”
While many other options remain, the loss of a leading player in the private student loan market will not be good for competition, with students potentially facing higher rates. Luckily, with the Federal Reserve slashing benchmark interest rates to near zero, federal student loans for the upcoming 2020-2021 academic year have fallen dramatically. It is yet another reason why students should prioritize federal loans over private ones.