Wells Fargo has broken with typical student loan tradition by launching a private loan with a fixed interest rate. Normally the preserve of federal government student loans, fixed rates can eliminate the uncertainty which variable rates apply, but could work out more expensive in the long term than opting for a variable rate with the same lender.
The lender has not rolled out a new range of private student loans. Instead Wells Fargo is offering borrowers the option of choosing between a variable or fixed rate on some of its existing package of student loans. Neither fixed nor variable rates are set at one level only, but are dependent on the applicants, and in most cases the applicants co-signers, credit.
To obtain the lowest rates excellent credit is required, thus even a student who has amassed a good credit reputation can still obtain a preferential rate if a co-signer with an established credit history is willing to stand as guarantor.
The Wells Fargo Collegiate loan is the preferred choice for undergraduates pursuing a college degree as it has no origination fee. It has a 15 year repayment term and offers four years deferment whilst the student is in college, and a six months grace period upon graduation.
The fixed rates on offer are between 7.29% APR and 12.765% APR. The fixed rates are much higher than the variable rates which range between 3.4% APR and 9.24% APR. The variable rate offers a saving of $44 per month, assuming the difference between the lowest variable rate and the lowest fixed rate. However the fixed rate will appeal to those who like the certainty of knowing the payment levels will be fixed for 15 years, during which time the variable rate could have shifted much higher.
The New York Times describes the advent of the Wells Fargo fixed rate thus: “Borrowers now have a choice similar to people buying homes. Those who want certainty can pay extra for it, while those who wish to roll the dice and hope interest rates don’t rise too much can do that, too.”
Well’s Fargo offers a number of discounts applicable to both the fixed and variable rates. Those who meet the criteria to qualify for each of the discounts offered can earn a 1% reduction on their rate. The Wells Fargo Student Graduate Benefit gives 0.25% discount to loan holders who graduate. A further 0.25% discount is available to those who opt to use automated payments to repay their loans.
If the applicant of co-signer has a PMA package with Wells Fargo or a prior student loan with the lender then a further 0.5% discount is available. The lack of origination fees is an important element of Wells Fargo student loan.
Borrowers can obtain loans up to $25,000 but are always advised to apply for the maximum amount of federal student loans before approaching a private lender. Private student loans should be avoided if the degree course chosen does not offer the possibility of a graduate salary commensurate with the level of loan obligations undertaken.