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Wells Fargo and Company might offer student loan borrowers an option to refinance their government-held student loans. The company already handles private student debt, but adding in government loans would give it access to a $1.4 trillion market, approximately 90 percent of the student loan industry, Bloomberg reported.
John Rasmussen, Wells Fargo’s head of personal lending, told Bloomberg the company hasn’t made any decisions yet about whether it will definitely enter the market, but it is considering making the leap to refinancing government-held student loans.
Getting a segment of government-held refinanced student loans would help improve the company’s portfolio. Over the course of the past year, it had taken a hit, tumbling from $12.2 billion in June 2017 to $11.5 billion in June 2018. It had declined in part because better economic conditions have enabled borrowers to pay down their loans faster.
Another reason for the tumble is that Wells Fargo was involved in consumer scandals that resulted in a penalty from the Fed that says the company can’t increase its total assets to a level higher than it was at the close of 2017.
That penalty will last until Wells Fargo accounts for its scandals, some of which involved employees creating false customer accounts to take advantage of the company’s bonuses for “cross-selling,” according to Bloomberg.
The company also sees this as a way to establish a good working relationship with the younger generation who might consider Wells Fargo for other financial needs after doing business with them for their student loans.
What Borrowers Should Consider Before Refinancing
Borrowers who have great credit scores might want to consider refinancing their federal student loans into privately-held student loans because they can land a lower interest rate that could save them money or help them pay off their loans sooner.
But before deciding to pursue this option, borrowers might want to first consider whether they want to take advantage of any of the options federal student loans give to borrowers. Those options can include loan forgiveness, income-driven repayment, and the benefit of loan discharge in the event of the borrower’s death. If a borrower feels strongly they aren’t going to take advantage of these options and they will score a lower interest rate, it might make sense for them to refinance into a private loan.
But before signing, they should look at whether the new loan is a fixed or variable rate. With variable rate loans, their payment could become higher in the future and they need to decide if a possible higher payment is something they could handle financially.
Author: Shannon Serpette
Shannon Serpette is a mother of two and an award-winning journalist and freelancer who lives in Illinois. When she’s not spending time with her children, she is often pursuing her favorite hobbies – running, metal detecting, kayaking, and reading about personal finance.