WFC Wells Fargo and Company

By AnnaMaria Andriotis 

Amazon.com Inc. is stepping into the student-loan marketplace.

The online retailer has entered into a partnership with San Francisco lender Wells Fargo & Co. in which the bank's student-lending arm will offer interest-rate discounts to select Amazon shoppers.

An Amazon spokeswoman said this is the first time members of the company's "Prime Student" service are receiving a student-loan offer by a lender through its site since that service was launched in 2010. The discount will be offered both to students who want loans to attend college and those who want to refinance existing loans.

The offer also represents the latest effort among private student lenders to stand out by discounting in an increasingly competitive market. Many offer discounts to customers who set up recurring payments to pay back their loans automatically or for loan refinancings by graduates who are members of professional associations.

Wells Fargo, the largest U.S. bank by market value and the second-largest private student lender by origination volume, will shave a half a percentage point off the interest rate on student loans it extends to applicants who are members of Amazon's Prime Student. The subscription-based service charges $49 a year, half the cost of Amazon Prime, and offers free two-day shipping and unlimited instant streaming of movies, among other perks.

Wells Fargo and Amazon have been in discussions for more than a year about the partnership, which is set to be announced and made available Thursday. The discount could be used to encourage more students to sign up for the Prime service. Prime Student members will receive information about the loan discount through several channels that the companies aren't disclosing yet.

The companies aren't compensating each other for what Wells Fargo describes as a multiyear agreement that will reach millions of potential borrowers. The Amazon spokeswoman said Wells Fargo is currently the only student lender that will provide loan offers to Prime Student members.

Private student lending, which plummeted during the recession, is rising again. Five of the largest private student lenders, including SLM Corp., better known as Sallie Mae, Wells Fargo and Discover Financial Services Inc., distributed $6.46 billion in loans between July 2015 and March 2016, up 7% from the same period a year earlier--and the fifth consecutive year of increases, according to data released this month by MeasureOne, a San Francisco firm that tracks the market.

Wells Fargo has remained in second place for a number of years, behind Sallie Mae, which leads by a wide margin. The bank has also been refinancing loans for more than a decade, but that market is increasingly composed of online lenders, led by Social Finance Inc.

The discount could give Wells Fargo a competitive advantage to other lenders. Its interest rates are close to the interest-rate ranges Discover and Citizens Financial Group, which has been rapidly expanding into student loans over the last couple of years, charge. A half-percentage-point discount could make its loans more affordable than competitors for some borrowers.

Unlike federal student loans where borrowers receive the same interest rates regardless of their credit scores, private student loan interest rates can vary significantly by borrower. Lenders determine whether to approve borrowers and what rates to charge them based on their credit scores and other underwriting criteria.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

July 22, 2016 02:47 ET (06:47 GMT)

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