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KeyCorp back to student lending market, but this time with refinance

KeyCorp is reentering the student lending sector with its latest acquisition, more than eight years after the company divested its student loan capabilities.

Cleveland, Ohio-based KeyBank NA announced it acquired the digital lending business from Laurel Road Bank on Jan. 16 and will offer student loan refinancing to individuals with advanced degrees.

KeyCorp got out of the student loan market in 2010, when it sold its Tuition Management business line. This time, executives said they expect Laurel Road to help the bank target an attractive client base: doctors and other medical professionals, who make up a large part of the Laurel Road platform's refinancing clients.

KeyCorp President, Chairman and CEO Beth Mooney said during the bank's fourth-quarter 2018 earnings call Jan. 17 that the acquisition is a "strong complement" to the bank's approach of building targeted scale aimed at specific client segments and furthers its focus on enterprise healthcare. About 70% of the clients are doctors and dentists, and 20% are lawyers or hold Master of Business Administration degrees. She said the average client is 33, has an income of about $185,000 and a credit score of 760.

Laurel Road currently has scale in the student refinancing business and is expanding its product set to secured loans, mortgages and deposit products in order to deepen relationships. The acquisition will add less than $50 million to both income and expenses in 2019 and have a "modest impact" on full-year loan growth, CFO Donald Kimble said. Management anticipates the deal will be dilutive by about 2 cents as the business shifts from a gain-on-sale model to a held-to-maturity approach.

For 2019, Kimble said the bank is not modeling any interest rate increases and expects net interest income to be in the range of $4 billion to $4.1 billion. It expects average loan balances to increase in the range of $90 billion to $91 billion, and average deposits to increase between $108 billion to $109 billion. Noninterest income is expected to be in the range of $2.5 billion to $2.6 billion, with growth in most core fee-based business, investment banking and debt placement.