Discover Student Loans Discontinued: What Borrowers Must Do Now

The landscape of private student lending has seen a significant shift, as Discover student loans are no longer an option for new borrowers. The company officially stopped accepting applications for all its student loan products—including undergraduate, graduate, parent, and refinancing loans—as of January 31, 2024. This decision marks the end of a prominent player in the educational financing market.

1.1 Who Is Affected by This Change?

This change impacts two distinct groups. The first is existing borrowers who currently hold or have previously held a Discover student loan. The second includes new students and their families who are now exploring funding options for higher education.

For those with existing loans, the primary concern is understanding the transition and how to manage their debt moving forward. A critical part of this change is that all active Discover student loan accounts have been sold and transferred to a new loan servicer, First mark Services. This transfer has significant implications for account management, payment processing, and the availability of borrower benefits.

For prospective borrowers who may have considered Discover, the focus is now on identifying the best available alternatives. This requires a thorough understanding of why Discover exited the business and how other top lenders compare on crucial features. The purpose here is to serve as a definitive resource, providing clarity for current borrowers and a roadmap for those seeking new private student loans.

What Happened to Discover Student Loans? The Official Status

Discover Financial Services has formally exited the student loan industry. This strategic decision means the company no longer originates new student loans of any kind. For the millions of students and parents with existing loans, this has led to a fundamental change in how their accounts are handled.

2.1 The Transition to First mark Services: Your New Loan Manager

In a significant move, Discover sold its entire portfolio of active private student loans. These accounts have been transferred to First mark Services, a division of Nelnet, which now manages all aspects of the loans.

Lender vs. Servicer: What's the Difference?

It is crucial for borrowers to understand the difference between a lender and a servicer. Discover was the original lender—the financial institution that provided the funds. First mark Services is now the servicer—the company responsible for the day-to-day administration of the loan. Servicing duties include sending billing statements, processing monthly payments, answering customer inquiries, and managing requests for deferment or forbearance.

While the company managing the loan has changed, the underlying legal obligation has not. The loan agreement, or promissory note, that was signed with Discover remains in effect, and the borrower and any cosigners are still legally responsible for repaying the debt in full.

Loss of Original Borrower Benefits

A significant consequence of this transfer is the loss of original borrower benefits that made Discover an attractive option. These perks were part of the agreement with Discover and do not carry over to Firstmark Services, which operates under its own policies.  

Key benefits that have been discontinued include:

• The 1% cash-back reward for good grades
• The complete absence of late fees

This change can be frustrating for borrowers who chose Discover for these advantages. The sale of the loan portfolio is a business transaction that transfers servicing duties but does not obligate First mark to uphold Discover's original promotions or fee structures. Furthermore, with the merger of Discover and Capital One, it has been confirmed that any remaining Discover-specific benefits do not transfer to Capital One accounts, cementing the end of these legacy perks.

2.2 The Broader Context: Discover's Strategic Shift and Capital One Merger

Discover's official reason for exiting the student loan market was a strategic decision to concentrate on its primary business lines, such as credit cards and online banking, in order to enhance long-term shareholder value. However, this move also occurred within the larger context of Discover's merger with Capital One, which was finalized on May 18, 2025.

The timing of these events suggests a calculated business strategy. The announcement to cease new student loan applications and explore the sale of the portfolio came in early 2024, well ahead of the final merger agreement. Large-scale corporate mergers are incredibly complex, requiring the seamless integration of technology, operations, and financial products.

A company preparing for an acquisition often seeks to streamline its operations and divest any business units that are underperforming, problematic, or non-essential to its core strategy. Discover's student loan division had become a source of significant regulatory and operational challenges, requiring costly remediation and ongoing oversight.

By shedding this liability-prone, non-core business unit before the merger, Discover made itself a cleaner, more attractive, and less complicated acquisition target for Capital One. The move effectively removed a source of ongoing financial risk and legal exposure, simplifying the due diligence and integration process for the acquiring company. Therefore, the exit from the student loan market appears to be not just a refocusing of priorities but a strategic maneuver to pave the way for a smoother, more valuable corporate merger.

3.0 Behind the Exit: Unpacking the Regulatory and Servicing Failures

Discover's decision to leave the student loan industry was the culmination of years of significant and repeated failures in regulatory compliance and loan servicing. A close examination of these issues reveals a pattern of systemic problems that plagued the company's student loan operations.

3.1 A Pattern of Regulatory Violations

A primary driver of Discover's exit was a series of costly enforcement actions from the Consumer Financial Protection Bureau (CFPB). These actions highlighted deep-seated problems in how Discover managed its student loans.

The 2015 CFPB Consent Order

The first major red flag appeared in 2015 when the CFPB took action against Discover for multiple violations. The investigation found the company misstated minimum payment amounts and provided inaccurate information about interest paid, which is needed for tax deductions.

A particularly damaging finding was that Discover's systems often failed to correctly apply excess payments to the loan's principal. This flaw caused many borrowers to pay more in interest over the life of their loans. The 2015 order required Discover to refund $16 million to consumers and pay a penalty for its illegal practices.

The 2020 CFPB Consent Order

Despite the 2015 order, the problems persisted. In 2020, the CFPB issued a second consent order, finding that Discover had violated the previous one and continued to engage in unlawful practices.

The Bureau found that Discover had engaged in numerous unfair and deceptive acts, including:

• Withdrawing payments from over 17,000 consumer bank accounts without valid authorization.
• Canceling or failing to withdraw scheduled payments for more than 14,000 consumers without notification.
• Misrepresenting the minimum payment owed to more than 100,000 borrowers.
• Misrepresenting the amount of interest paid to more than 8,000 consumers.

This second round of violations resulted in Discover having to pay at least $10 million in consumer redress and an additional civil penalty of $25 million. The repeated nature of these offenses demonstrated a fundamental inability to correct the problems, making the regulatory burden a major factor in the decision to exit the market.

3.2 The Root Cause: Systemic Servicing Deficiencies

The regulatory issues were symptoms of a deeper problem: Discover's loan servicing technology was inadequate for the student loan market's complexities. Student loan servicing is a highly specialized field governed by a dense web of regulations dictating how payments, interest, deferments, and forbearances must be handled.

Discover's primary businesses are credit cards and general banking, which operate under different rules and technological requirements. The company's in-house student loan platform lacked the sophistication of dedicated servicers. It struggled with standard functions like processing deferment applications, calculating payments, and correctly applying payments per regulations.

Rectifying these issues would have required a massive investment in new systems and infrastructure. For a business line that was a small part of Discover's portfolio, this cost was likely prohibitive. The company faced a choice: commit to a costly overhaul or exit the market. Persistent penalties and high costs made exiting the more logical business decision.

Discover's experience shows the challenges a financial generalist faces in a specialized market without committing the necessary resources for expertise and infrastructure.

A Guide for Existing Borrowers: Navigating Your Loan with First mark Services

If you have an active student loan that was originated by Discover, your account is now managed by First mark Services. Understanding how to interact with your new servicer and what your options are is essential for successfully managing your debt.

4.1 Accessing and Managing Your New Account

Your primary point of contact for all loan-related matters is now First mark Services. It is crucial to set up your account with them to ensure you can make payments, view your balance, and receive important communications.

Key Contact Information for Firstmark Services:

• Phone (for former Discover loans): 1-888-295-0910.
• Phone (general inquiries): 888-538-7378 or 844-649-2917.
• Website: FirstmarkServices.com. You can visit this site to create a new online account.
• Mailing Address (for payments): First mark Services, P.O. Box 2977, Omaha, NE 68103-2977.
• Mailing Address (for general correspondence): First mark Services, P.O. Box 82522, Lincoln, NE 68501-2522.

Once your online account is created, you can manage payments, enroll in auto-debit, and access loan documents. A key distinction exists for borrowers with older, inactive loans. If your loan was paid in full or charged off and did not transfer to First mark, you must contact Discover directly for historical documents.

4.2 The Private Loan Reality: Understanding Your Limitations

One of the most critical pieces of information for any borrower whose loan was transferred is understanding the nature of the debt. These are private student loans, not federal student loans. This distinction has profound implications for the repayment options and protections available to you.

Private vs. Federal Loans: Key Differences

News headlines are often filled with discussions of federal student loan programs, which can create confusion for private loan borrowers. It is essential to recognize that your loan, now serviced by First mark, DOES NOT qualify for the vast majority of federal borrower protections and programs.

Specifically, your private student loan is ineligible for the following federal programs:

• Income-Driven Repayment (IDR) Plans: You cannot enroll in plans like SAVE, PAYE, or IBR, which cap monthly payments based on income.
• Public Service Loan Forgiveness (PSLF): This federal program is not available for private student loans.
• Other Federal Forgiveness Programs: Your loan is not eligible for programs like Teacher Loan Forgiveness or Perkins Loan cancellation.
• Widespread Federal Payment Pauses: The administrative forbearances and 0% interest periods applied to federal loans during the COVID-19 pandemic did not apply to your private loan.

Many student borrowers are not fully aware of this stark divide between the federal and private loan systems. Understanding these limitations is the first step toward effectively managing your loan with First mark.

4.3 Options When Facing Financial Hardship

While federal protections do not apply, there are still avenues to explore if you are struggling to make your monthly payments. These options range from temporary relief provided by your servicer to more drastic measures for those in severe financial distress.

4.3.1 Temporary Relief Through Your Servicer

First mark Services, like most private loan servicers, may offer short-term solutions if you are facing temporary economic hardship. The two most common options are:

• Deferment: This allows you to temporarily postpone monthly payments for reasons like returning to school or military service. Interest continues to accrue and is typically capitalized (added to your principal balance) at the end of the deferment, which increases the total cost of your loan.  
• Forbearance: This is another way to temporarily postpone payments due to financial hardship. Interest continues to accrue and will be capitalized. These options are temporary and limited, and once exhausted, you must resume payments.

Discover also offered several internal assistance programs, such as a Payment Extension Program and a Hardship Assistance Program. You should contact First mark Services directly to inquire if any similar proprietary programs are available.

4.3.2 Refinancing as a Primary Strategy

For borrowers with stable income and good credit, refinancing is often the most effective strategy for managing student loan debt. Refinancing involves taking out a new private loan from a different lender to pay off your existing loan. The goal is to secure a new loan with more favorable terms.

Benefits of refinancing can include:

• A lower interest rate, reducing monthly payments and total interest paid.
• A different repayment term, such as extending it to lower monthly payments or shortening it to pay the loan off faster.

To qualify for refinancing with competitive rates, lenders will typically require a credit score in the high 600s or 700s, proof of steady employment, and a sufficient income-to-debt ratio. If you do not meet these criteria on your own, applying with a creditworthy cosigner can increase your chances of approval.

4.3.3 High-Risk, Last-Resort Options

For borrowers facing severe, long-term financial distress where refinancing is not an option, there are two final, high-stakes paths to consider.

• Settlement Negotiation: It may be possible to negotiate a settlement to pay back less than the full amount owed, but this is not a simple process. Lenders typically require a borrower to be in default before considering a settlement. Defaulting will severely damage your credit score and may trigger collection actions. If reached, a settlement is often a lump-sum payment of 60% to 75% of the balance, though payment plans are sometimes possible. This is a risky strategy with long-lasting financial consequences.
• Bankruptcy: Discharging private student loans through bankruptcy is notoriously difficult and requires proving "undue hardship" in court. This option should be viewed as an absolute last resort and should only be pursued after consulting with a qualified bankruptcy attorney.

For New Students: The Best Private Loan Alternatives in 2025

With Discover no longer offering student loans, prospective borrowers must turn to other lenders to fill the funding gap. Before exploring private options, however, there is a critical first step every student and family should take.

5.1 Your First Step: Always Start with Federal Student Aid

The most important advice for any student seeking to pay for college is to start with federal student aid. This process begins by completing and submitting the Free Application for Federal Student Aid (FAFSA). Federal student loans offer unique benefits and protections that are not available in the private market.

Key advantages of federal student loans include:

• Fixed Interest Rates: Federal loan interest rates are fixed for the life of the loan and are set by Congress, not by credit scores.
• No Credit Check for Most Loans: Direct Subsidized and Unsubsidized loans do not require a credit check.
• Flexible Repayment Plans: Federal loans provide access to Income-Driven Repayment (IDR) plans that can make monthly payments more affordable.
• Loan Forgiveness Opportunities: Federal loans are the only loans eligible for programs such as Public Service Loan Forgiveness (PSLF).
• Generous Deferment and Forbearance: Federal loans offer more generous and accessible options to postpone payments.

Because of these powerful benefits, the universal rule of thumb is to exhaust all federal loan eligibility before considering any private student loans. To learn more and to complete the FAFSA, visit the official U.S. Department of Education website: https://studentaid.gov/.

5.2 Comparing the Top Private Lenders: A Data-Driven Analysis

After maximizing federal aid, many students still face a funding gap that must be covered by private loans. The private lending market is robust, with several excellent lenders offering competitive products. The best choice depends on a borrower's individual priorities.

The following table provides a high-level comparison of leading private lenders that serve as strong alternatives to the now-discontinued Discover loans.

2025 Private Student Lender Feature Comparison

5.2.1 In-Depth Lender Analysis: Sallie Mae

Sallie Mae is one of the largest and most recognizable names in private student lending. It's important for borrowers to know that the modern Sallie Mae is a private bank and is a completely different company from its origins as a government-sponsored entity.

• Products: Sallie Mae offers loans for undergraduates, graduate students, career training programs, and parents.
• Rates and Fees: While their interest rates are competitive, Sallie Mae does charge a fee for late payments. They do not charge application or origination fees.
• Key Features: Two features make Sallie Mae stand out:
• Lenient Eligibility: It is one of the few major lenders providing loans to students enrolled less than half-time.
• Fast Cosigner Release: Its policy allows a cosigner to be released after just 12 consecutive, on-time payments and meeting credit requirements, which is significantly faster than most competitors.
• Customer Experience Nuance: The company holds an A+ rating from the Better Business Bureau (BBB), indicating a strong record of responding to customer issues. However, its user-generated ratings on platforms like Trustpilot are considerably lower, with many complaints citing poor customer service.

5.2.2 In-Depth Lender Analysis: Citizens Bank

Citizens Bank, a large, traditional financial institution, offers a robust student loan program that is particularly appealing for existing customers and those who value long-term funding predictability.

• Products: Citizens provides loans for undergraduate and graduate students, parents, and a wide array of student loan refinancing options.
• Rates and Fees: Citizens offers an attractive 0.25% loyalty discount for borrowers with a qualifying bank account, in addition to a 0.25% auto-pay discount. Like Sallie Mae, Citizens does not charge origination fees but   does impose a late fee of up to 5% for payments more than 15 days past due. 
• Key Features: The standout feature for Citizens is its Multi-Year Approval program. This allows a student and cosigner to apply once and secure potential funding for their entire degree program. Each year, the borrower can request additional funds with only a soft credit inquiry, avoiding a new hard credit check annually. This provides peace of mind and parallels a popular former Discover feature.
• Drawbacks: The primary drawback is the extended waiting period for cosigner release. A borrower must make 36 consecutive on-time payments before they can apply to have their cosigner released. Additionally, nearly all of its undergraduate borrowers require a creditworthy cosigner to be approved.

5.2.3 In-Depth Lender Analysis: SoFi

So Fi (Social Finance, Inc.) has established itself as a leading online lender with a modern, tech-focused platform. For borrowers who were attracted to Discover's fee structure, So Fi is arguably the most direct alternative available today.

• Products: SoFi offers a full range of private loans for undergraduate, graduate, and parent borrowers, and is a dominant player in the student loan refinancing market.
• Rates and Fees: SoFi's most compelling feature is its complete lack of fees. They charge no application fees, no origination fees, no late fees, and no insufficient funds fees. This "no-fee" promise aligns perfectly with one of Discover's main selling points.
• Key Features: SoFi offers several unique perks. It has a cash bonus for good grades, providing up to $250 for students with a GPA of 3.0 or higher, similar to Discover's old reward program. SoFi also provides extensive member benefits, including financial planning, career coaching, and a rewards program. They also offer flexible in-school repayment options, such as a flat $25 monthly payment to reduce interest accrual.
• Drawbacks: While SoFi does offer cosigner release, the waiting period is longer than Sallie Mae's. It requires 24 months of on-time payments for residents of most states, though it is only 12 months for residents of Colorado, Connecticut, and Maine. 

5.2.4 In-Depth Lender Analysis: College Ave

College Ave is a prominent online lender that has built its reputation on a simple application process and a high degree of flexibility in its repayment terms.

• Products: College Ave provides loans for undergraduate students, graduate students, career programs, and parents.
• Rates and Fees: Like its online competitors, College Ave charges no application or origination fees. 
• Key Features: The primary differentiator for College Ave is its customizable repayment terms. Borrowers can choose from 5, 8, 10, or 15-year loan terms, while most lenders offer fewer options. This flexibility allows borrowers to tailor their monthly payment to their budget. They also offer a full suite of in-school repayment options, including deferred, interest-only, and $25 flat monthly payments.
• Application Process: College Ave heavily promotes its streamlined application, which can be completed in as little as three minutes and provides an instant credit decision.

Historical Context: The Original Discover Student Loan Offering

To fully understand the current landscape, it is helpful to look back at the specific features that defined Discover's student loan products—both the positive aspects and the underlying flaws.

6.1 The Borrower-Friendly Features That Attracted Customers

For many years, Discover was a popular choice because it offered several compelling, borrower-centric features:

• A True No-Fee Structure: Discover charged no application fees, no loan origination fees, and no late fees.
• Cash-Back Reward for Good Grades: Eligible students with a GPA of 3.0 or higher could receive a 1% cash-back reward.
• Multi-Year Approval: This option allowed a student to apply once and secure a line of credit for their entire degree program.
• Full Cost of Attendance Coverage: Discover's loans could cover up to 100% of a school's certified cost of attendance.
• Loan Discharge Protection: In the event of the student borrower's death or total and permanent disability, Discover would discharge the remaining loan balance.

6.2 The Inherent Flaws That Signaled Trouble

Despite the attractive features, the Discover student loan program was built on a foundation with significant structural weaknesses that foreshadowed its eventual termination.

• No Prequalification Tool: Discover did not provide a prequalification tool to check rates with a soft credit inquiry. Instead, a prospective borrower had to complete a full application and consent to a hard credit check just to view their loan options.
• No Cosigner Release Program: Perhaps the most significant drawback was the complete absence of a cosigner release option. Most private student loans for undergraduates require a cosigner. The vast majority of private lenders offer a pathway for the cosigner to be released after the student makes a certain number of on-time payments. Discover's lack of this feature meant a cosigner was legally obligated for the entire loan term. This could be 15 or 20 years, regardless of the primary borrower's financial success, and was a major deterrent for many families.

These inherent flaws, when viewed in retrospect, paint a clear picture. They point to a business line that was not keeping pace with industry standards and was not supported by the necessary technological investment. The program's foundation was unstable long before its eventual, and necessary, discontinuation.

Conclusion: Charting Your Course in a Post-Discover Landscape

The discontinuation of Discover student loans represents a pivotal moment for both existing and prospective borrowers, necessitating clear action and a shift in strategy. With the right information, navigating this new landscape is entirely achievable.

For Existing Borrowers

For existing borrowers with loans now serviced by First mark Services, the path forward is one of proactive engagement. The immediate priorities are to locate your loan, create an online account with First mark, and review your new servicing terms.

It is critical to accept the new reality of a standard private loan agreement. The unique perks from Discover, like cash-back rewards and no late fees, are no longer in effect. Borrowers should stay vigilant with payments and understand the limited hardship options available. If your financial standing is strong, consider refinancing with another lender to secure better loan terms.

For New Borrowers

For new borrowers, the lesson from Discover's exit is one of diligence. The first step must always be to maximize federal student aid by completing the FAFSA, as federal loans offer unmatched borrower protections.

Once federal options are exhausted, the search for a private loan should be a deliberate, comparative process. The private lending market is competitive, with lenders like Sallie Mae, Citizens Bank, SoFi, and College Ave offering distinct advantages.

Carefully compare features beyond interest rates, such as fees, repayment flexibility, and cosigner release options. This will help you find a loan that funds your education and aligns with your long-term financial health. The end of Discover's program highlights the importance of making informed choices in a market full of strong, transparent alternatives.

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