Wells Considers Lending To Students With Government Debt

Wells Fargo might give its shrinking student lending business a boost by focusing on borrowers with U.S. government loans. The lender would offer loans to allow customers to retire their government-backed student debt, said Well Fargo’s Head of Personal Lending John Rasmussen, according to Bloomberg. The government holds about $1.4 trillion in student loans, representing more than 90 percent of the market.

“We continue to assess the needs of our customers on refinancing of federal loans into private,” Rasmussen said. “We’re sizing what that should look like, how we’d do that in a real customer-focused way.”

While no final decision has been made, the move would help the lender’s student-loan portfolio, which shrunk to $11.5 billion at the end of June from $12.2 billion a year earlier. The fallout from a series of consumer scandals and accelerated loan repayments, due to an improving economy, are the causes for the smaller portfolio, Rasmussen said.

In 2016, Wells Fargo agreed to pay $3.6 million to the Consumer Financial Protection Bureau (CFPB) to settle claims that its student loan business misled borrowers, illegally charged certain fees and processed payments in a way that was designed to maximize late fees.

Wells Fargo sees students as a fast-growing market as it deals with a punitive growth ban from the Federal Reserve. The penalty forbids the bank from boosting its total assets beyond year-end 2017 levels, and will remain in place until the bank addresses its pattern of abuses and lapses.

Compass Point analyst Michael Tarkan said the move to widen student lending makes sense for the bank, adding that there are many creditworthy borrowers paying more for government loans than in the private market.

“It’s possible that they would’ve looked to get into this space a year ago, but given what was going on with cross-selling, I think they may have put some of those initiatives on hold,” he said.