Discover Financial Services Weighs Sale of Student-Loan Business

Discover Financial Services is reportedly exploring the possibility of selling its student-loan business as part of its ongoing efforts to streamline operations following a series of regulatory issues.

The unit, which holds a portfolio of private student loans valued at $10.2 billion, could attract interest from alternative asset managers or rival student-loan platforms, Bloomberg reported Friday (Sept. 15), citing unnamed sources. However, a final decision is yet to be made, and the company may opt to retain the business.

Discover Financial Services did not immediately reply to PYMNTS’ request for comment.

The consideration of a sale comes in the wake of a leadership change at Discover Financial Services last month, with CEO Roger Hochschild stepping down and John Owen taking over as interim CEO. The company had previously suspended stock buybacks due to compliance concerns and is currently undergoing an internal review of compliance, risk management and corporate governance.

Discover Financial Services is among the few lenders that continue to offer private student loans, the report said. The company has benefited from the federal moratorium on payments for federal student loans, as it allowed borrowers to allocate more funds towards paying down their private loans.

Regulatory filings indicate that the student-loan portfolio has a lower write-off rate compared to Discover’s credit-card and personal-loan books, per the report. However, analysts question whether the company intends to continue operating in the student-loan business as it seeks to simplify its offerings.

Discover’s student-loan business has faced regulatory scrutiny in the past, according to the report. In 2015, the company reached a consent order with the Consumer Financial Protection Bureau (CFPB) regarding its private student-loan servicing practices.

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

The 2015 case stemmed from an earlier investigation from CFPB, which found that Discover had been misstating the minimum amounts due on billing statements along with tax info customers needed to help get federal income tax benefits, PYMNTS reported at the time.