Citigroup Inc’s (NYSE:C) Citibank N.A. announced it has changed the terms of the $6.6 billion available for new loans offered via the Student Loan Corp. (NYSE:STU), which they have an 80 percent stake in.
Under the amendment to the agreement made effective on January 1, 2010, an upfront commitment fee of $57 million will be required, along with assets from Student Loan Corp., which will be used to secure the loans.
Consequently, funding costs for the loans will increase for Student Loan Corp. which will cut back on the earnings generated from their loan service, according to a regulatory filing from SLC.
A Reuters report states that “Citibank will provide credit for new borrowings including separate tranches for overnight funding, Federal Family Education Loan Program loan funding, private education loan funding and illiquid asset funding.”
Student Loan Corp., whose major competitors are Bank of America, JPMorgan Chase, Wells Fargo and SLM Corporation, originates a variety of student loans for students and their parents, and for the most part backed by the Federal Family Education Loan Program, under the authorization of the United States Department of Education.
The agreement entered into with Citibank N.A. is a trust agreement which allows Student Loan Corp. to originate loans through them, working under guidelines in association with private education and guaranteed student loan programs.
For private education loans, SLC acquires them from Citibank N.A. once they originate them, based on an intercompany agreement.
Student Loan Corp. also invests in the secondary student loan market by acquiring loans related to PLUS Loans, Federal Stafford Loans and Federal Consolidation loans, among others.
