Discover Student Loan was a private lending option for undergraduate and graduate students who are seeking financial aid for their education.
We use ‘was’ because Discover Student Loan stopped accepting new applications as of January 31, 2024.
Visiting their official website before it closes in April 2025 will show that their services are unavailable.
If you received a loan before Discover ceased operations, your account remains active, now managed by Firstmark Services instead of Discover.
You’ll have to sign in with your account on Firstmark Services to continue your repayment process.
In this guide, we’ll explain why the Discover Student Loan Portfolio is no more.
Key Takeaways
- Discover exited student loans due to regulatory violations and costly servicing issues.
- CFPB orders in 2015 and 2020 exposed major compliance and communication failures.
- Discover lacked advanced servicing tools needed for modern loan management demands.
- Former loans are now serviced by Firstmark; benefits no longer apply to new borrowers.
Why Did Discover Student Loan Exit the Industry?
Discover Financial Services decided to exit the student loan business because of two primary reasons that made it unsustainable:
Regulatory Issues
Discover faced multiple regulatory compliance issues with their student loan servicing practices. The Consumer Financial Protection Bureau (CFPB) issued consent orders to Discover in both 2015 and 2020 after finding violations in their loan servicing practices.
The 2015 Consent
The 2015 CFPB consent order revealed that Discover had been miscalculating minimum payments and providing incorrect billing information to students. This often showed when students made payments that exceeded their minimum payments.
Discover’s systems often failed to properly apply the excess to the loan principal. In other words, students were paying more in interest than they should have over time.
The 2020 Consent
The 2020 consent order uncovered even deeper issues with Discover’s debt collection practices.
The company was found to have made misleading statements about minimum payments and withheld information about available repayment options that could have helped struggling borrowers.
They also violated regulations by placing more than one call per day to borrowers about overdue payments.
In this kind of business, regulatory actions mean costs and oversight requirements, which can cause major financial setbacks, especially if repeated.
Servicing Issues
The aforementioned regulatory violations are connected directly to Discover’s servicing system limitations. Their loan servicing platform lacked sophisticated features that specialized servicers typically offer.
For example, their system kept struggling to properly handle income-driven repayment calculations, deferment processing, and the application of complex payment hierarchies required by federal regulations.
This led to longer processing times for borrowers requesting changes to repayment plans or submitting income-driven repayment documentation.
This technology gap became particularly evident when comparing Discover’s capabilities to dedicated loan servicers like Nelnet, Great Lakes, or Firstmark Services.
To overcome such a gap, Discover would have needed to invest substantially to bring its servicing capabilities up to industry standards.
Given their smaller market share in student loans compared to credit cards and banking, such an investment was hard to justify.
Was Discover a Good Student Loan Lender?
Discover wasn’t a reliable student loan lender; it suffered from multiple technical and infrastructural issues that forced it to end its services. However, Discover did have a few advantages:
Interest Rate Discounts
Discover offered interest rate reductions for good academic performance and automatic payments. Students who achieved a GPA of 3.0 or higher could receive a 1% cash reward.
Plus, like with most lenders, borrowers who enrolled in automatic payments qualified for a 0.25% interest rate deduction, which could result in significant savings over the loan term.
No Application or Origination Fees
Unlike many other private lenders, Discover didn’t charge any application fees or loan origination fees.
In other words, borrowers could take out loans without paying upfront costs that typically range from 1% to 4% of the loan amount at other institutions.
Multi-year Approval Option
Discover also introduced a multi-year approval process that allowed students to secure funding for their entire degree program with a single student loan application.
This provided certainty about future funding and simplified the annual loan application process for continuing students.
Flexible Repayment Plans
Discover offered a standard range of flexible repayment plans typical among most student loan lenders. These plans included:
- Deferred payments while in school,
- Fixed payments during school
- Immediate full principal and interest payments
Discover student loans offered grace periods after graduation and repayment terms ranging from 15 to 20 years.
Coverage for Total Cost of Attendance
Discover would lend up to the total cost of attendance, including tuition, room and board, books, and other educational expenses.
This meant students could potentially finance their entire education through a single lender rather than piecing together multiple loans.
Loan Discharge Protection
In cases of death or permanent disability, Discover would discharge the remaining loan balance. This particular benefit was somewhat unique to Discover Student Loans, as it wasn’t universally offered by private student lenders at the time.
Note: Unlike Discover, Firstmark Services is a loan servicer, not a direct lender. In other words, all the aforementioned benefits were applicable to Discover when it was in business but not to Firstmark Services.
Closing Words
As of January 2025, Discover Student Loans is no longer in business and doesn’t accept any new student loan applications. If you had previously borrowed money from them, you may continue your payments and manage your account through Firstmark Services.
If you aren’t sure about your next step or need any clarification regarding student loans, we’d like to talk to you. Contact us at the Student Loan Professor so we can assess your current situation and help you get the best loan with the best terms.
Also Read: How to Get a Student Loan
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.
