Capital One Takeover Might Not Affect Your Discover Student Loans

On Monday, Capital One announced its aim to buy Discover. While this could shake up the credit card world, it stands to have little impact for student loan borrowers.

It’s not currently clear that existing private student loans from Discover would transfer to Capital One through the acquisition. Discover publicized a plan to sell its $10 billion student loan portfolio before the Capital One announcement and, seemingly, has other plans for it.

Last fall, Discover said that it intended to sell its student loans unit. In mid-January, Discover said it had reached a deal with Nelnet, a student loan lender and servicer, to manage the loans while it continues to look for a portfolio buyer.

“It was a competitive process, and certainly, Nelnet showed that there's a commitment to continue to dedicate resources and service that portfolio at a high level,” Discover CFO John Greene said in a January earnings call.

Discover has not said whether the student loans portfolio will be included in the sale to Capital One, which doesn't currently offer student loans.

“It's still early days, and we really don't know yet if the Capital One acquisition will impact student loan borrowers at all,” says Anna Anderson, a staff attorney at the National Consumer Law Center focused on student loans. “Discover is trying to sell its student loan portfolio, but we don't know if that's going to be included in the Capital One deal, or that's going to be separate."

Discover declined to comment on what the Capital One acquisition could mean for its student loan borrowers; Capital One didn't respond to a request for comment.

Discover’s plan to leave the student loan business could be welcome news for some borrowers, given the company’s history of violating consumer protection laws. In 2015, the Consumer Financial Protection Bureau (CFPB) ordered Discover to pay a penalty and refund $16 million to borrowers affected by inaccurate billing statements and illegal debt collection practices. The CFPB found that Discover failed to subsequently fix these issues, so in 2020, it ordered the company to pay $10 million to customers, plus a $25 million civil penalty.

As of Feb. 1, Discover no longer accepts new student loan applications; it only holds existing student loans — roughly $10.35 billion worth. Discover aims to sell the portfolio sometime in the second half of 2024, potentially before the Capital One deal closes.

Stay in the know

If you have a Discover student loan, a servicing transfer to Nelnet could happen by mid-September at the latest, regardless of the portfolio sale. Anderson recommends that Discover borrowers take a few steps to prepare for the servicing and loan ownership transfer:

• Set up an online account with Discover. If you don’t already have an online student loan account with Discover, now’s the time to set one up. It’s the easiest way to manage your loans and keep your information up to date. 

• Review your contact information. Check the accuracy of contact information in your account, like your mailing address and phone number. This will help you stay in the loop about loan transfers.

• Pay attention to notices from Discover. It’s critical to read through any letters or emails you get from Discover about your student loan account. 

For general questions about your Discover student loans, call Discover's customer service department at 800-788-3368, or send a message to customer service through your online account.

“We are committed to a path forward that enables a seamless transition for our customers as they advance their education and financial goals,” said John Owen, Discover’s interim CEO, in a November 2023 press release.

Protect yourself from scams

Watch out for student loan scams related to Discover, too.

“Anytime that there's a change in the student loan system, whether it be private student loans or federal student loans, there are also going to be a lot of scams that come up,” Anderson says.

Do your research before giving out personal information or taking action. If someone calls or texts you about your Discover loans, don’t engage. Call Discover’s fraud prevention department at 800-347-2683 immediately and ask if they reached out to you. If you receive a suspicious email, forward it to [email protected], and a customer service representative can verify it.

Know how to make a complaint

The eventual buyer of Discover’s student loans may not have a big impact on repayment. Some private lenders service their own student loans, while others outsource servicing like Discover plans to do with Nelnet as it shops for a buyer. Regardless of your loan servicer or lender, your repayment options will hinge on the contract you originally signed when taking out the loan.

“If someone is transferred to a new loan servicer, the terms and conditions of their original contract should remain in place,” Anderson says. “And if they are finding that those terms are being changed fundamentally, then, they should absolutely consider filing complaints and maybe looking into legal action as well.”