Discover Financial Services said Friday it would buy Student Loan Corp. for $600 million in a deal that beefs up the Riverwoods, Ill., credit card issuer's growing student loan business.

As part of the deal, Discover would acquire $4.2 billion of private student loans at an 8.5% discount and $3.4 billion of the company's asset-backed securitization debt funding.

Discover expects the acquisition to close by yearend.

Prior to the deal's closing, SLC announced separately that it would sell $28 billion of federal student loans and other assets to Sallie Mae Inc. and $8.7 billion of assets to Citigroup Inc., which owns an 80% stake of SLC.

"The private student loan business is an important part of Discover's direct banking strategy and this acquisition will enhance our competitive position in private student loan originations," David Nelms, Discover's chairman and chief executive, said in a press release.

Citi said in an announcement that would "explore opportunities to reduce" the assets it plans to buy from SLC. It expects the deal to result in $500 million after-tax loss in the third quarter.

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