Discover to Start Refinancing Student Loans
Wack, Kevin, American Banker
Byline: Kevin Wack
Discover Financial Services (DFS) plans to start offering loans that help college graduates consolidate and refinance their student debt sometime in 2014.
The Riverwoods, Ill., company is the second lender in recent weeks to announce plans to enter the long-moribund student loan refinancing market.
Until recently, only two of the country's seven largest private student lenders -- Wells Fargo (WFC) and SunTrust Banks (STI) -- offered a way for borrowers to refinance and consolidate their existing debt.
But earlier this month, RBS Citizens Financial Group announced that it would start offering such loans, and in an interview Thursday, Discover Chief Executive Officer David Nelms said his company is planning to follow a similar path.
"I do think it's likely that we'll be launching a consolidation product later this year," Nelms told American Banker.
Both announcements follow a Jan. 9 meeting between top officials in the Obama Administration and representatives of the nation's largest private student lenders, including Discover and RBS Citizens, the U.S. banking unit of the Royal Bank of Scotland.
Though federal policymakers are more focused on the problems struggling borrowers face when they try to negotiate affordable repayment plans, officials from the Consumer Financial Protection Bureau have also lamented the lack of refinancing options for employed college graduates who are making their payments on time.
During the Jan. 9 meeting, private student loan refinancing was one of the topics discussed, according to a summary of the meeting provided by the Treasury Department.
At Discover, where credit cards account for 80% of all loans outstanding, a student loan refinancing product could enable the company to further diversify its revenue stream.
Discover originated more than $1 billion in private student loans last year, which was up from the two previous years. Student loans accounted for 13% of the firm's total loans outstanding at the end of last year.
Discover has also been ramping up its mortgage lending and its personal loans business. The company's portfolio of personal loans -- such loans often go to consumers who are consolidating their credit card debt -- grew by 27% over the course of 2013.
At the moment, only a handful of lenders refinance student debt. They include Darien Rowayton Bank in Darien, Conn., as well as nonbank startups Social Finance and CommonBond. …