Citigroup quits student loan business

Sept. 18, 2010 at 3:33 PM

WASHINGTON, Sept. 18 (UPI) -- Citigroup says it is getting out of the student loan business.

The financial services giant said it will sell its student loan business to Sallie Mae and Discover Financial Services, The Washington Post reported.

Sallie Mae paid $1.2 billion and Discover paid $600 million in the deal, which comes after legislation in July let the Education Department issue new federal loans.

It also consolidates the student loan sector within the government, the newspaper said.

"It's basically fallout from the government takeover of the federal student loan program," Matt Snowling, an analyst with FBR Capital Markets, told the newspaper.

The deal lets Sallie Mae collect payments and service $28 billion in existing loans backed by the federal government. Discover Financial Services will acquire $4 billion worth of private loans not guaranteed by the government, but which have higher loan rates.

"We are one of four companies selected to service federal student loans on behalf of the federal government, and this transaction adds to that servicing business," said Sallie Mae spokeswoman Martha Holler. "We purchased assets that satisfy our target for asset quality and return on investments, and that would increase our customer base."

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