NEW YORK — Wells Fargo is hoping to make its student loans more attractive to families.
The San Francisco-based bank says it is now offering fixed-rate student loans, which is a departure from the industry practice. Unlike federal student loans, the private student loans issued by banks typically come with variable interest rates that are tied to a benchmark rate.
Wells Fargo says its fixed rates will range from 7.75 percent to 14.25 percent, depending on the credit background of the applicant or co-signer, who is often a parent.
Even on the low end, however, Wells Fargo’s fixed rates are higher than the 6.8 percent fixed rate on most federal student loans. Federal loans also offer safeguards that do not come with private student loans. For example, students who earn very modest salaries can enroll in programs that cap their monthly federal loan payments to a percentage of their income. Remaining balances are forgiven after 25 years of payments.
Federal loans also give borrowers the option to defer payments for set periods if they run into financial hardships, such as unemployment. With private loans, it’s up to the lender to decide whether to grant deferment. And the deferment periods granted are typically shorter than the time permitted under federal student loans.
As a result, private student loans are widely regarded as a last resort after federal aid has been exhausted. Still, private lenders note that their loans can help bridge the gap in covering college costs after other resources have been tapped out.
Wells Fargo also said last week that it will give existing customers who take out new student loans a 1 percent discount on interest rates. If approved, all loan applicants will now be offered the option of either a fixed or variable rate. Variable rates range from 3.5 percent to 9.99 percent.