Like it or not, some brand names – Amazon or Tesla, for example – are just guaranteed to generate buzz.
And no doubt, it would be tough to team a premium electric sedan with a student loan. But hooking up Amazon with a bank that offers private student loans? It’s cutting-edge marketing that’s bound to trigger a second look at private student loans offered through Wells Fargo Education Financial Services.
Wells Fargo is offering a 0.5 percent discount to Amazon Prime Student customers – customers who are already spending $49 a year in order to save money on college textbooks and other items. And that discount can be on top of other discounts, such as a 0.25 percent interest rate reduction that’s possible if you enroll in an automatic monthly loan repayment plan and interest rate discount tied to other promotions.
The Amazon-related discount is apply only to new loan applications received on or after July 21, 2016.
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But what do you need to know beyond the buzz?
What rate would you pay?
When it comes to private student loans, the rate you’d pay very much depends on your credit history and the credit history of your co-signer, if you have one.
It can be highly annoying to spot some 3 percent private student loan rate only to realize that this is like a zero percent car loan promotion that applies only to top-of-the-line borrowers.
Often, high school graduates going on to college don’t have an established credit history, which is why a co-signer can be needed to snag a more attractive, low rate. At the same time, some parents or grandparents don’t want to cosign for loans out of concerns that the student could miss payments and damage the cosigner’s credit score.
At its online site, Wells Fargo recently listed the lowest discounted variable annual percentage rate at 3.49 percent and its highest variable APR at 9.03 percent.
The Amazon-related discount applied would reduce what is listed on the website, said Jason A. Vasquez, a spokesman for Wells Fargo Consumer Lending Communications.
So it’s possible for those with strong credit to get the rate down to as low as 2.89 percent with the Amazon-related discount and then to 2.64 percent with the added discount for auto-debit.
Variable rates can go up over time and lead to higher monthly payments.
“Few lenders other than the federal government provide up-front pricing. So, you can only know how much you'll have to pay if you apply for the loan,” said Mark Kantrowitz, publisher and vice president of strategy for Cappex.com.
He noted that Wells Fargo’s discount to Amazon Prime Student customers is attractive, especially on top of the other discounts.
But it doesn’t mean that you should give up shopping around for the best rate to see what’s offered to you.
“It is possible that you'll pay less with another lender even without the discount,” Kantrowitz said.
If you’re shopping online, it can help to know that after you apply, the lender will provide information on your interest rate before you sign the promissory note. Interest rates are provided after an application is submitted for credit underwriting and is approved.
From there, lenders say, applicants have the opportunity to review their rate and accept loan terms. After that step, the loan would then be sent to the school for certification. Approved applicants who have accepted the loan terms still have the opportunity to cancel the loan (without accruing interest or fees) within a cancellation period.
Websites, such as the LoanFinder at Bankrate.com, also can help you review and compare what private loans might be available from various lenders.
Do other lenders offer discounts?
Yes. For example, Discover’s new private student loans have one-time 1 percent cash-back offer on the loan amount, if the college student maintains at least a 3.0 grade point average.
You’d need to redeem the Discover Rewards for Good Grades within 6 months after the academic term covered by the loan has ended, according to Discover.
The cash-back offer applies to students who received a Discover Undergraduate, Health Professions, Law, MBA or Graduate Loan on or after May 1, 2014. Other rules apply, as well.
Is there another way to save?
Some private student loans offer lower rates or ways to lower your overall costs, if you opt for an in-school payment plan.
The Sallie Mae Smart Option Student Loan for Undergraduate Students has a repayment plan where students can pay $25 a month while in school or make monthly interest payments while in school to reduce overall borrowing costs.
Undergraduates who choose to make monthly interest-only payments while in school on a Sallie Mae Smart Option Student Loan get a rate that’s one percentage point lower than those who defer payments. Freshmen save 25 percent on total loan costs when choosing this option, said Richard Castellano, vice president of corporate communications for Sallie Mae.
Undergrads who opt to pay a fixed $25 a month while in school receive an interest rate that is 0.5 percentage points lower than those who defer payments until they graduate or leave school. A freshman borrower who makes monthly fixed payments while in school saves roughly 12 percent on total loan costs compared with those who defer payments until after school.
Castellano said more than half of Sallie Mae’s borrowers choose either the fixed $25 payment in school or the interest-only payment while in school.
Sallie Mae – like Wells Fargo and Discover – also offers a 0.25 percentage point reduction for auto-debit of payments.
Where are the best deals?
For most people, the answer remains with the federal student loan program where you can get bargain-basement rates without worrying about a credit score.
Federal student loan interest rates on new loans disbursed after July 1 are at an all-time low. We’re looking at 3.76 percent for undergraduate students and 5.31 percent for graduate students.
Another bonus: Federal loans have some favorable repayment programs, especially if you start out with a job that doesn’t pay much. And we’re talking about a fixed rate here that won’t go up.
The Parent PLUS loan rate is 6.31 percent. So experts note that parents with strong credit might be able to find a better rate by shopping for a private student loan or cosigning with a student for a private student loan.
Can borrowing get out of line?
Many times, college students turn to private student loans to fill the gaps after they hit the annual limits for federal student loans.
A private student loan often is a better option than simply borrowing money for books on a high-rate credit card. But if you don’t keep track of your debt, you’re heading for trouble.
“Unlike federal student loans which have annual limits, private student loans do not. Students and their families are able to borrow as much as they get approved for, which can cause a lot of problems if it leads to a high debt load without a high-paying job at the other end,” said Greg McBride, chief financial analyst for Bankrate.com.
Consider how much money you’re likely to make after graduation. In general, college students should aim to make sure that all the student loan debt that they build up in college adds up to less than their annual starting salary, Kantrowitz says.
Don’t know what you plan to major in yet?
Then, you might want to low-ball your expected salary to be safe. Plan for the possibility that you might make $35,000 or $40,000 a year starting out of college.
If borrowing is getting out of hand, students can consider ways to cut costs or generate more cash.