September 1, 2011 / 1:45 PM / 6 years ago

Discover buys $2.5 billion student loans from Citi

NEW YORK (Reuters) - Credit card company Discover Financial Services (DFS.N) said it is buying $2.5 billion of private student loans from Citigroup Inc (C.N) as it expands its banking business.

The purchase price for the loans is 99 percent of the outstanding balance and accrued interest, Discover said.

The deal follows Discover’s agreement in September 2010 to buy Citi’s 80 percent stake in Student Loan Corp for $600 million. Discover picked up $4.2 billion of student loans with that deal.

The new transaction is to close at the end of this month and is expected to add about 7 cents a share to 2012 earnings, Discover said in a filing with the Securities and Exchange Commission.

The acquisition is part of Discover’s push to “achieve sustained, profitable growth in private student lending,” Carlos Minetti, Discover’s president of consumer banking and operations, said.

Minetti called student lending “a key component of our direct banking business.”

Discover is also building up its base of deposits and is expanding in home mortgage lending.

About 80 percent of the new portfolio from Citi consists of loans to four-year college or graduate students, Discover said in its filing. The rest is for other education loans such as consolidation loans. Nearly 70 percent are co-signed.

Reporting by David Henry; editing by John Wallace

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