Wells Fargo is lowering the interest rates on its student loans. But families should think twice before jumping at the offer.
The bank said Thursday the fixed interest rates on its basic loans for undergraduates will now start at 7.24 percent, down from the previous 7.75 percent. But the reduced rate is only reserved for those with the best credit scores; the rate can still go as high as 13.99 percent.
Federal student loans, by contrast, offer a fixed rate of 6.8 percent regardless of the student's credit profile.
Private student loans from banks are widely recommended to be used as a last resort, only after grants, scholarships and federal loans have been exhausted. That's because federal student loans come with greater protections for borrowers who can't make payments because of unemployment, economic hardship or other unforeseen circumstances.
Federal student loans are also eligible for programs that lower monthly payments and forgive debt after 10 or 25 years of repayment.
Although private student loans typically come with variable interest rates, Wells Fargo added fixed rate loans to its menu of offerings in May.
Wells Fargo said it is also reducing the fixed rates on student loans for parents, consolidation loans and loans for those in career or community colleges. The rate reductions range from .25 percent to .51 percent.
The San Francisco bank notes that borrowers may also be eligible for additional rate reductions. For example, existing Wells Fargo customers can get discounts of up to .50 percent on new loans and those who set up automatic payments can get a reduction of .25 percent.
When applying for a private loan from a bank, students usually need a parent or relative as a co-signer. The interest rate of the loan is largely based on the credit history of the co-signer, who is also liable for the debt.