Should You Borrow Student Loan Money From Amazon Prime?

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Amazon Prime has several money-saving benefits for students, including discounted student memberships and textbook rentals. Now, Amazon Prime is offering discounted student loans to its list of perks.

Hold up — Amazon is selling student loans right alongside a yodeling pickle and unicorn meat? Is that even legal?

Amazon is not the actual lender of these loans. Instead, Amazon is partnering with Wells Fargo to offer Student Prime members loans at a discounted rate of 0.5%.

See also: 7 Amazon Prime Perks You've Forgotten to Use

Is There a Catch?

Both Amazon and Wells Fargo are for-profit businesses that are continually looking for creative strategies to increase profits. It was a smart move for both companies, since Amazon will be able to use this perk to increase student prime membership to $49 a year, while also gaining free media coverage. Wells Fargo also benefits from being connected to the largest e-commerce business and its loyal customers.

The partnership will allow the bank to have better access to student consumers who can be targeted for many banking products. Overall, it is a win-win partnership for both companies, but will these loans actually benefit borrowers?

Are Student Loans Through Amazon a Good Deal?

Don't get too distracted by the discount Amazon is offering. The loan is still a private student loan through Wells Fargo. Private loans are not eligible for debt forgiveness programs like many federal loans, and sometimes federal loans even have better rates.

Private student loans shouldn't be your first choice when seeking to finance a college education. Students should exercise all of their options before driving into debt, including the following:

• Federal aid through FAFSA;
• Scholarships;
• Grants;
• Accomplishing the first two years of their degree at a community college;
• Choosing a state university rather than a private university;
• Work-study programs;
• Employment tuition reimbursement programs;
• Paid internships.

After all of these options are exhausted, then it is best to apply for federal student loans, which have more flexible payment options after graduation. Of course, federal loans have limits on how much a student can borrow, which is why many students turn to private loans.

The Problem With Amazon's Student Loans

Don't be blinded by a discounted interest rate. The 0.5% discount is subtracted from Wells Fargo's usual rates, which are not the lowest among private lenders.

Many credit unions will offer discounted rates for being members and enrolling into autoplay, so if private loans are something you are considering, shop around before settling for the Wells Fargo loan.

See also: 16 Amazon Deal Hacks You May Not Already Know

What You Need to Know About Private Student Loans

After graduation, many uncontrollable issues can come up. For example, graduates can struggle getting a job, make less than they expect, or even have a period of illness or disability that does not make work possible. Graduates with federal loans are granted forbearance or deferment. Federal loans can also be eligible for income-based repayment plans to make the monthly payments affordable for each borrower.

Many private lenders have forbearance programs in place for cases of unemployment or disability, but acceptance to the program is dependent on the lender. Also, most private lenders will limit the duration of forbearance for unemployment and some might even charge forbearance "fees." And income-based repayment programs are limited to federal loans.

Is foregoing these benefits a risk you're willing to take?

UPDATE (September 02, 2016)

Just six weeks after announcing their partnership, Amazon and Wells Fargo have ended their private student loan program. Although specific reasons were not given, the end of the partnership was announced shortly after Wells Fargo revealed it had agreed to pay a $4 million penalty to the Consumer Financial Protection Bureau in response to allegations of illegal student loan servicing practices.

For more information about private student loans and how to find the best financing for your college degree, please see the following helpful articles:

• 6 Things Every College Student Must Know About Private Student Loans
• 3 Things You Must Know About Repaying Your Private Student Loans
• 3 Private Lenders That Can Really Save You Money on Your Student Loans

What do you think of Amazon and Wells Fargo's partnership to offer discounted student loans?