Discover Soars Over Profit Projections With Student Loans

In the last quarter of 2016, Discover exceeded projections for profit, and set record highs for new student loans.

Though analysts had projected Discover profits would be $1.38 a share, the company came in at $1.40, with net income of $563 million, a full 13% higher than last year. Total revenue increased to $2.36 billion.

Perhaps most surprising was Discover’s student loan portfolio, which increased 9% to $1.4 billion. The company is now the third-largest student loan provider in the private sector after buying out Citi’s student loan portfolio.

Discover offers no-fee private student loans at both fixed and variable interest rates, with rewards and incentives for students who do well in school, earn good grades and graduate on time. One such incentive is a 1% cash reward to students who achieve over a 3.0 GPA.  In addition, Discover offers a scholarship sweepstakes as well. The only drawback is that Discover does not offer loan consolidation, so students with multiple loans will not have the option to combine them.

Billed as a loan meant to “fill the gap” between savings, scholarships and federal grants, Discover loans can be used to pay anything school-related, such as housing, tuition, books, and even meals. While the private loans are more expensive overall than a federal student loan, the risk for the lender is far more substantial. Discover also requires a co-signer, just like most private educational lenders.

Some student loan reviewers warn that Discover’s loan repayment term is longer than a federal loan; while this offers lower payments, it also means that student borrowers will end up paying more in interest over the course of the loan repayment.

Though Discover is considered a solid lender and its reviews are largely positive, borrowers are also urged to pay close attention to their statements. In 2015, Discover was forced to refund $16 million to its borrowers—and fined another $2.5 million—after the government found that the company did not provide correct information to borrowers about tax deductions for their loan payments, and printed incorrect information on monthly statements. Several sites advised students to double check their statements, since Discover had put a much higher minimum payment on borrower statements than what was accurate.

Discover, known for its credit card and banking offerings, saw a decrease in share price since the first of the year; declining 3 percent while the Standard & Poor index rose 2 percent. Shares are currently trading at over 47 percent higher than 12 months ago.

Image Copyright Susan Ruggles.

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