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economic justice | education

Wells Fargo and Student Loans

Congress has repeatedly exempted the student loan industry from standard consumer protection laws. The result is a predatory lending system that abuses student loan borrowers and co-signers. Wells Fargo is a major player in the student loan industry, offering both Federally-guaranteed and private student loans.
There are numerous consumer complaints about Wells Fargo Education Financial Services, including high variable interest rates, failure to send statements, failure to send bills, selling loans to abusive third parties, over-the-phone-payment fees, failure to acknowledge faxed enrollment forms, a student loan co-signer denied mortgage refinancing, harassing and abusive phone calls at all hours of the day and on weekends, harassing phone calls to fiancÚ's phone, work and family, a branch manager calling the police on a man trying to resolve an unacknowledged payment, failure to apply payments to principal reduction, returning payment checks, failure to send requested forbearance paperwork, offering inaccurate information about deferments for private loans, customer service representatives giving conflicting information, refusal to restructure or modify loans in arrears, a Wells Fargo EFS agent who refuses to give his last name, denial of refinancing of student loans, sending the wrong forms, and failure to process forbearance forms. Many co-signers complain that by the time Wells Fargo notifies them of missed payments, the loan is deep in default and has been assessed large penalty fees. Many borrowers believe the system is designed for them to miss payments and go into default.

Wells Fargo advises student borrowers "You can use a Wells Fargo private student loan to borrow up to the entire cost of your education." When it comes time to repay, Wells Fargo suggests considering an interest-only payment option, which means the principal is not reduced, a plan that is highly profitable to Wells Fargo.

Wells Fargo says "Our Commitment To Students/Families" is "We will be trusted advisors to you" and "We will make it easy for you to do business with us." Their pledge rings hollow after you read the numerous complaints about them at ConsumerAffairs.com.

In a presentation made to investors in 2007 about their student loan business, Wells Fargo includes a chart that shows that college tuition has more than doubled in 15 years. What Wells Fargo fails to mention is that it is the tsunami of bank-created debt-money pouring into the eduction market that is causing costs to increase. As more and more bank money comes into the market, tuition will keep expanding like a sponge to soak up all that money. And in a section about changing enrollment demographics, Wells Fargo charts the "increasing percentage of non-traditional students". These students tend to be older, have children, and are working part time or full time. Apparently they are most in need of profitable financing "services."

Wells Fargo doesn't just sit on student loans or sell them to third parties. Wells Fargo is also active in "securitizing" student loans. They package student loans into special purpose vehicles known as "asset-backed securities". These are bonds which are then marketed to insurance companies, pension funds, mutual funds, and other institutional investors. Sounds a lot like mortgage securitization, doesn't it? In 2009 Wells Fargo created $2.6 billion worth of these securities. In their annual report, Wells Fargo makes sure to point out that "we typically retain the servicing rights from these sales . . ." The right to assess late fees and penalties is often the most profitable part of this industry, so why give that up?

In their 2010 annual report, Wells Fargo notes that they don't care about the FICO scores (credit scores) of student loan borrowers. "FICO is not available for certain loan types and may not be obtained if we deem it unnecessary due to strong collateral and other borrower attributes, primarily for government guaranteed student loans of $17.5 billion . . ." Student loans are not dischargable in bankruptcy court, so this debt is permanent. Student borrowers are modern-day indentured servants. It is a very low risk industry to the lenders. Also, Wells Fargo has the right to sell many of its student loans to the Education Department for 97% of face value.

 link to sec.edgar-online.com