Wells Fargo is eyeing a piece of the $1.4 trillion student-debt pie

Wells Fargo & Co. is considering whether to jump-start its shrinking student-lending business by catering to borrowers holding U.S. government loans.

Wells Fargo sign
A Wells Fargo & Co. bank branch stands at night in New York, U.S., on Saturday, April 11, 2015. Wells Fargo & Co. is scheduled to release earnings figures on April 14. Photographer: Craig Warga/Bloomberg

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 $1.4 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.”

No decision to expand into federal-loan refinancing has been made, Rasmussen said. The move would help boost a student-loan portfolio that had shrunk to $11.5 billion at the end of June from $12.2 billion a year earlier. Wells Fargo’s reputational damage from a series of consumer scandals, as well as accelerated loan repayments amid an improving economy, helped trim the portfolio, Rasmussen said.

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.

The Fed 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 in an interview.

“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,” Tarkan said.

By focusing on private education lending, the bank had confined itself to just 8 percent of the market. About $1.5 trillion in total student debt was outstanding as of March 31, according to MeasureOne, a student-loan data provider.

Bloomberg News
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