Bank in $1.5trn student debt bid

By Hannah Levitt

US bank, Wells Fargo, is considering whether to jump-start its shrinking student-lending business by catering to borrowers holding US government loans.

The San Francisco-based firm would offer loans to let customers retire their government-backed student debt, John Rasmussen, the bank’s head of personal lending, said in an interview. Wells Fargo would keep the loans, as it already does with private student debt.

The government holds about $1.4trn (€1.22trn) in student loans, representing more than 90% of the $1.5 trillion market.

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

The move would help boost a student-loan portfolio that had shrunk to $11.5bn at the end of June, from $12.2bn a year earlier.

Wells Fargo’s reputational damage, from a series of US consumer scandals, as well as accelerated loan repayments, amid an improving economy, helped trim the portfolio.

The bank has identified students as a fast-growing market to tap, as it navigates a punitive growth ban from the Federal Reserve.

Along with deposit accounts, credit cards, and a mobile-banking app, the firm sees federal-loan refinancing as a way to build relationships with college-age consumers.

A US Federal Resreve penalty forbids Wells Fargo from boosting its total assets beyond year-end 2017 levels.

It remains in place until the bank addresses what the agency called a pattern of abuses and lapses.

Among the bank’s scandals, employees opened millions of fake customer accounts, as they pursued bonuses tied to the firm’s ‘cross-selling’ efforts.

Compass Point analyst, Michael Tarkan, said a push to widen student lending would make sense for the bank. There are plenty of creditworthy borrowers paying more for government loans than they would in the private market, he said.

“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,” Mr Tarkan said. By focusing on private education lending, the bank had confined itself to just 8% of the market.

About $1.5trn in total of student debt was outstanding as of March 31, according to MeasureOne, a student-loan data provider.

- Bloomberg