Earnest – student loan refinancing and alternative lending

Earnest – student loan refinancing and alternative lending.
Written by Sasha Dobrolioubov

The following is an interview between Wharton FinTech VP of education, Sasha Dobrolioubov, and CEO Louis Beryl of Earnest. This interview took place in August 2015. Earnest is an industry leader in student loan refinancing and alternative personal lending.

Can you tell us a little about Earnest and your mission?

Earnest is a technology company using data science, smarter design and software automation to rebuild financial services. We believe financially responsible people deserve better options when it comes to their money. To that end, we’ve completely redesigned the underwriting process. Instead of relying on the traditional FICO score, we examine thousands of data points for each applicant in order to see a full picture of financial responsibility. This data-driven process means we’re able to give our clients lower rates, eliminate fees, allow for radical repayment flexibility and provide top-quality client service for the entire duration of the loan.

Let’s talk about student loan refinancing. The space is becoming increasingly crowded with companies such as SoFi, CommonBond and Pave aggressively competing for customers. How does Earnest think about differentiating itself vs these, and other, competitors?

You’re correct in that there are a lot of companies in the space, but my perspective is that we’re all part of a bigger movement to chip away at the country’s $1tn+ in student debt. That said, there are a few main differences that set Earnest apart.

First, we synthesize data more effectively to better price individuals and deliver better rates. We weigh 80,000-100,000 data points to get a holistic picture of each applicant – a process somewhat similar to extremely thorough mortgage underwriting, but using smarter technology to increase efficiency. Ultimately, our more thorough process gives the most financially responsible people the lowest possible rates.

Second, the software we’ve built to redesign underwriting in this way means we pass on lower costs and extremely flexible features to clients, which are core values at Earnest. That flexibility includes the fact that we never force anyone into a specific term at a suboptimal rate. Instead, we let clients set their own terms. You have the ability to pay exactly what you want per month, and we match that payment amount to the corresponding interest rate, which saves everyone even more money.

Third, it’s fast. Our quick rate feature lets clients know if they will likely qualify and what rates they can expect from us. We do this instantaneously and without affecting anyone’s credit score. Our full process takes just a few minutes, and loans are typically approved in just a few days.

Finally, we service our clients for the entire life of the loan – we don’t just hand you off to a third party after the application process. Also, our software was all designed in-house with our clients’ needs and best interests in mind. We give our clients tremendous flexibility and put them in control not just on day one, but every day for the life of their loan. If you have questions about your loan or need to change any aspect of your payment process, we’re there for you. In addition to making it easier for our clients, it helps us get to know them better, so we can accommodate life’s unexpected needs, such as having to skip a payment or dealing with unemployment.

Higher education is becoming increasingly more expensive in the US. As student loans grow in share of the total US credit market, and federal student loan default rates remain high, what are some of the opportunities and challenges that come with running a business in this industry?

The challenge comes from the fact that student debt is a $1.3tn issue in the US. No one company is going to be able to solve it alone. The proliferation of startups and tech companies working to solve this problem is a good thing. We’re all working together to fix this broken system.

At the same time, the sheer size of this challenge is also the opportunity. There are 40 million Americans with student debt, and we’re innovating in this space in order to offer a better option for repayment and get them out of debt faster. Fixing the student debt crisis involves intense cooperation and collaboration across many different industries – government, finance, higher education – and all parties need to be present at the table. I would argue that we’ve finally reached a point where politicians are starting to understand the serious need for reform, and students are paying more and more attention to the effects of taking on massive amounts of debt. This is a pivotal moment for the education system in the US and we’re glad to be a part of the solution.

It sounds like data and underwriting technology are core components of Earnest’s business. How do you think about evaluating hard-to-quantify elements of a loan applicant, such as education and employment history?

Looking at 80,000-100,000 data points for each applicant – including the elements you mentioned, such as education and employment history – helps us more accurately assess risk over a long period of time. We look at everything from income history to spending rates and savings habits to determine financial responsibility. In our eyes, you don’t necessarily need a high salary to be ‘creditworthy’; rather, it’s important that you’re saving for retirement, prioritizing your ‘rainy day’ fund and managing your money wisely.

Earnest has a number of MBA interns on its roster this summer, which is slightly unusual for a startup of its size. Why did you decide to pursue MBA recruiting at this early stage, and how do you think MBAs can add the most value to a company like Earnest?

Our MBA interns are an incredibly valuable part of our team (in fact, we wish they would stay past the summer!). They have a lot of the qualities we look for in Earnest team members: efficiency, analytical thinking and passion for creating the best product and client experience possible. We have people on our team with all sorts of degrees, but we have had great experiences working with MBA students. If you’re interested, come join us!

First, personal loans, then student loans and refinancing. What’s next for Earnest?

Our vision is to build the full-service modern bank of the future, so that will eventually entail all of the things life brings your way, whether they be traditional bank and lending products or things no one else has ever done. We measure success in decades, not dollars. By that, I mean we focus on building lifelong relationships with our customers, not just extracting as much value from them as possible in the short-term. Being a ‘100-year brand’ is a driving value for Earnest.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations.

About the author

Sasha Dobrolioubov

Sasha Dobrolioubov is a first-year MBA student at The Wharton School, and the VP education of Wharton FinTech.

1 Comment

  • How does US student loan market operate, are rates subsidised by government and if so how can a private commercial lending platform improve those (subsidised) rates for students?

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