In January 2021, Wells Fargo announced that the company was exiting the student loan business and selling and transitioning current loans to a new servicer, Firstmark Services, a division of Nelnet.
Wells Fargo stopped taking applications for private student loans and loan consolidations on Jan. 28. But the financial services company began exiting the student loan business in June 2020, partly because of COVID-19 disruption. That month, Wells Fargo said that it was narrowing its student loan focus.
Even before the pandemic, reports show that private student loans were a shrinking part of the Wells Fargo portfolio. But in 2020, Wells Fargo had 8% of the market share on private student loans, worth $10.61 billion, according to a report by the Student Borrower Protection Center, making it the third-largest private student loan lender behind Sallie Mae and Navient.
The large market share may be why the bank was eager to sell these assets, analysts say. The pandemic created a financial ripple effect felt by many private student loan holders.
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While the CARES Act provided a reprieve from payments and interest on federal student loans, extended through September 2021 by President Joe Biden, private loan holders had no federal break.
Instead, private loan borrowers had to navigate a patchwork of loan-specific forbearance relief and state-specific agreements. This created a greater likelihood of default, making student loans potentially riskier for lenders than they had been.
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What If I Have Student Loans From Wells Fargo?
If you have loans from Wells Fargo, you should have received communication about the transfer detailing what would and would not change regarding your student loan agreement.
Wells Fargo says the repayment terms of your loan will stay the same. This includes loans in forbearance. But one of the key things borrowers should be aware of is that they will no longer be billed by Wells Fargo. They may need to set up online access to the new service provider and make sure that they read any communication from the new provider.
It’s also a good idea to make sure you understand the transfer timeline and continue to pay Wells Fargo until it’s indicated that you need to pay the new loan provider.
While Wells Fargo makes it clear that the rights and responsibilities laid out in your promissory note remain the same, it’s important to address any specific questions you may have with your new lender. It can also be a good idea to look at the new lender’s policies surrounding student loan payment relief so you won’t be surprised if your new lender has different policies than your former lender did.
After the transition occurs, your loan will no longer appear under your Wells Fargo account, and if your loan was the only account open under the bank’s umbrella, you will no longer have log-in access to the bank.
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What Does the News Mean for Private Loan Holders?
It’s not uncommon for banks to sell certain aspects of their business, and it’s not a sign that anything is “wrong” with the loan or the lender it originated from. But it can be a time to reassess what’s working and what isn’t about your current loan, and to make sure you understand the terms from the new lender.
The pandemic and subsequent financial shakeout have meant that many banks and private lenders may be reassessing certain aspects of their business, including student loans.
With interest rates at historic lows and payments on federal loans suspended, some private loan holders are considering repayment options. One key element of refinancing is to compare rates from several providers, but it can also be important to compare policies.
These include the following.
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1. Payment Relief
If you were unable to pay your loan after a job loss or other situation that arose, what would you do? Some student loan lenders offer unemployment protection for borrowers with loans in good standing.
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There may be fees to take out a loan or to refinance loans, including an origination fee and late payment fee. It’s best to make sure you understand any fees, how they are incurred and how much they might add to the overall cost of the loan.
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3. Forfeiture of Loan Terms and Conditions
When you refinance loans from one provider to another, you are essentially cancelling a contract with the former provider and creating a new contract.
This means that any conditions or protections offered by your prior lender are no longer relevant. This doesn’t apply if your lender sold your private student loan, as in the case of Wells Fargo, but is something to consider when deciding whether to refinance your loans.
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4. Refinance Some or All of Your Debt?
This is a question that becomes especially relevant if you hold federal and private student loans.
Federal loans have certain benefits, including the current government forbearance, that would be forfeited if you were to refinance your public student loans into a private loan. You’d also lose access to federal income-driven repayment plans and forgiveness.
Biden has expressed support for $10,000 in student loan forgiveness, but the ongoing conversation around the topic has not specified whether forgiveness would apply only to federal loans or would include private student loans as well.
One point for borrowers to celebrate applies to both: The latest COVID relief bill includes a provision that makes any canceled student loan debt non-taxable through Jan. 1, 2026 (previously, any money forgiven was taxed at the borrower’s income tax rate). The exemption covers government-held federal student loans, federally guaranteed FFEL Program student loans and private student loans.
In theory, the provision would cover any broad student debt cancellation enacted by Biden or Congress until 2026. (State taxing officials could still consider student loan forgiveness sums taxable.)
These exclusions and differentiations can help you assess which, if any, of your loans make sense to refinance. Some borrowers may decide to refinance only private debt without touching their federal loans. Weighing the options and knowing the terms you’d be leaving — and the terms you’d be obtaining — can help you navigate the best path for your circumstances.
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If You’re Struggling to Pay
The pandemic shifted fundamental parts of the student loan business and may have affected your ability to repay your loans.
It’s important to speak with your loan servicer if you have any concerns, and if you’re experiencing hardship, you may want to take advantage of any programs your lender or state offer.
It can also be good to periodically assess your loan interest rates and length.
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Wells Fargo exited the private student loan business the same month that forbearance of federal student loans was extended. Private student loans and refinancing of those loans remain a good option for some, who would do well to compare rates, terms, fees, and protections before sealing the deal.
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