Discover to Sell $10.1 Billion Private Student Loan Portfolio

Discover Financial Services plans to sell its $10.1 billion private student loan portfolio.

The company’s Discover Bank entered into an agreement to sell the portfolio to one or more strategic partnerships made up of funds and accounts managed by global investment firms Carlyle and KKR, Discover said in a Wednesday (July 17) press release.

The purchase price is expected to be up to $10.8 billion, according to the release.

Subject to customary closing conditions, the transaction is expected to be completed by the end of 2024, the release said.

When sold, the portfolio will be serviced by Nelnet’s Firstmark Services division, per the release.

In a separate press release issued Wednesday by Carlyle and KKR, Dan Capozzi, executive vice president and president of consumer banking at Discover, said: “This agreement represents an important milestone in our journey to simplify our operations and business mix.”

Representatives of Carlyle and KKR said in the release that the acquisition highlights a trend among private lenders.

“As the lending space evolves, we believe private markets are well-positioned to offer financial institutions increased flexibility amidst this transformation,” Akhil Bansal, head of credit strategic solutions at Carlyle, said in the release.

RJ Madden, a managing director at KKR, said in the release: “This transaction demonstrates the value that scaled private lenders can bring to key areas of the economy as the priorities of traditional lenders continue to evolve.”

It was reported in September that Discover was exploring the possibility of selling its student-loan business as part of its ongoing efforts to streamline operations following a series of regulatory issues.

Discover is among the few lenders that continue to offer private student loans, and analysts questioned whether the company intended to continue operating in the student-loan business as it seeks to simplify its offerings, Bloomberg reported Sept. 15.

The company’s student-loan business has faced regulatory scrutiny in the past, reaching a consent order with the Consumer Financial Protection Bureau (CFPB) in 2015 after that regulator found that Discover had been misstating the minimum amounts due on billing statements along with tax information customers needed to help get federal income tax benefits.

Five years later, the CFPB found that Discover had not been compliant with an order from that investigation and required the company to implement a compliance plan and pay $35 million in penalties and redress for consumers.