Citigroup selling student loan business

Citigroup Inc., looking to reduce assets outside its main businesses, is selling Student Loan Corp. to Discover Financial Services in a complicated deal that will reduce the bank’s assets but also result in a $500-million charge this quarter.

Discover is paying $600 million for Student Loan Corp., which is 80% owned by Citigroup.

Just before the transaction closes, Student Loan Corp. will sell $28 billion of federally guaranteed loans to Sallie Mae and $8.7 billion of private student loans to Citigroup.

The transaction, combined with another sale of loans to the U.S. government, will cut Citigroup’s assets by about $37 billion, the company said Friday. The deals should slightly boost some measures of the bank’s capital, a spokeswoman said.

Discover will end up with $4.2 billion of private student loan and related assets, which it is buying at a discount to their face value. Discover’s purchase price may change after the deal closes if the value of the loans changes. The transaction is expected to close by the end of 2010.

Student Loan Corp. is also selling $4.7 billion of federally guaranteed loans to the U.S. Department of Education in a separate transaction.

Citigroup has put loans and operations that are outside its main businesses into a unit known as Citi Holdings, which as of the end of the second quarter had about $465 billion, compared with $827 billion at its peak in the first quarter of 2008.