Studen Loan Feast, Discover Financial Services Gobbles Up Citigroup Student Loans Portfolio

Discover Financial Services has come to an agreement with Citigroup Inc., which will see Discover gobble up an 80% stake in Student Loan Corp. as part of a $600 million multi-section deal.

The deal is expected to close by the end of the month and will add seven cents to the company’s 2012 earnings per share figure.

According to a federal filing Discover will pay a price equal to 99% of the principal and accrued interest balance on the loans.

Student Loan Corp. holds a vast majority of their portfolio in school-certified loans for four-year college students and graduate students, while 80% of their portfolio is held in active repayment.

Carlos Minetti, president of consumer banking and operations at Discover said in a statement:

“The acquisition of this portfolio further enhances our ability to achieve sustained, profitable growth in private student lending, which is a key component of our direct banking business.”

The statement goes on to add:

“Expanding our student loan portfolio provides Discover with opportunities to cross sell our direct banking products and … continue investing in competitive pricing, industry leading service and innovative products.”

For their part Citi gets to remove assets from their Citi Holdings unit, also known as their “bad-bank” a name given to the division because Citi has been trying to shrink those assets. Citi’s “bad bank” originally had $600 billion in assets but has been shrinking as the company sells off their non-core assets in small pieces.

Do you think Discover made a smart move by picking up a student loans portfolio.