Updated January 11, 2021: Let’s be real: nobody likes student loans. At most, you tolerate them. If you have federal student loans, you don’t get a say in who services in your loans – they just assign you to one of their ten partners. Even when you get private student loans and have a choice of who to deal with, it often feels like choosing the lesser of many evils. No one likes their student loans, and our relationships with our student loan servicers are destined to be antagonistic.
Earnest wants to hit the reset button on that relationship. It starts with a headline on their home page: "Student Loan Refinancing, On Your Terms." Earnest wants you to feel in control of your student loan. You set how much you pay every month and can change that amount at any time. You can switch between a fixed and variable rate. You can even skip one payment every year.
But there are a lot of options out there for people looking to refinance their student loans, and Earnest is a relatively new player in the field. While they look great now, can you trust them over the course of a twenty year loan?
What exactly does Earnest do?
Earnest is a startup lending service that offers personal loans and student loan refinancing. In case you’re not too familiar with student loan refinancing, here’s a quick breakdown of how it works:
- You’re technically applying for a new loan at a new servicer, who will then pay off your old loan at your old servicer.
- You’ll pay your new servicer under their terms.
People usually do this because:
- If your financial situation has changed for the better, you can get lower interest rates.
- Even if your financial situation hasn’t changed, you may be able to get lower interest rates if interest rates are typically lower than they were when you first took out your loan.
Student loans rates were much higher five to six year ago, when many recent graduates first received disbursements. If they refinanced their loans today, they could potentially save thousands of dollars. According to Earnest, their clients will save, on average, $17,936 over the lifetime of their loan. Earnest allows you to consolidate both federal and private student loans into one payment.
Of course, student loan refinancing is not for everyone. If you have federal student loans and you refinance with a private company like Earnest, you will lose federal payment options that can make repaying your student loans easier if you can’t afford standard payments. Student loan refinancing is also typically not available to those with lower incomes or are otherwise financially struggling.
How Earnest decides your rates
One of Earnest’s biggest selling points is the way they check if you’re qualified. Instead of merely asking for your credit score and basing your rate on that, they look at your entire financial life.
Earnest wants to know about your colleges, your degrees, the last four years of your employment history. They want to connect to your bank accounts, your credit cards, your other active loans, and your investment accounts. They want to know if you’ve ever missed a payment or been in collections.
Actually giving up all of that information to Earnest can be pretty intimidating. You have to trust that they’re not going to lose all of your intimate financial data or otherwise leak your third-party account information. Earnest encrypts sensitive information and does not store passwords. They do use trusted banking APIs for every transaction, but if you’re the type of person who takes internet security seriously, you may think twice about connecting every single one of your third-party financial accounts.
In exchange for all of this information, Earnest promises industry-low rates. Variable rates start at 2.22% (with autopay enabled). Considering that federal student loan interest rates were set at over 6% five years ago, recent graduates could end up saving thousands of dollars by refinancing through Earnest.
Since your application isn’t based on just your credit profile, the entirety of your financial life needs to be pretty healthy for Earnest to consider you. That means having a savings account with a least a month’s worth of income saved, a history of on-time payments, plus positive bank balances elsewhere and low credit card debt.
For graduates with thin credit profiles and fat bank accounts, this information is the difference between rejected and accepted. With this information, Earnest can more accurately predict how risky you are and give you the lower rate you deserve – or kick you to the curb.
Earnest claims you can get an estimated rate in two minutes (really, it just depends on how fast you can fill out their application). If you go through the application and Earnest doesn’t think you’ll save money by refinancing, they’ll warn you before you apply.
Using Earnest for the next twenty years
According to Earnest, most other lenders abandon you after you’ve signed the necessary paperwork. Well, not abandoned, per se – instead, you’re passed off to the third-party loan servicer. This third-party – not the company you applied for the loan from – will be who you deal with over the next five to twenty years of your loan.
Earnest wants to be different.
Instead of passing you off to someone else, Earnest’s in-house team handles all questions and deals with any issues. You also pay your loan through their dashboard.
Their dashboard is also where you can make changes to your loan. Unlike other servicers, who set you up with one rate and one set of repayment terms, Earnest understands that things may change over the course of five, ten, or twenty years. You may get a raise, or you may decide to take a lower paying job that you enjoy more. Maybe you lose your job and need to hold off payments. Or maybe you get a windfall of cash and can make some extra payments.
Earnest lets you make a number of changes to your loan to accommodate a wide variety of lifestyle changes:
- You can set your exact monthly payment to match your budget and change this amount at any time
- You can pay bi-weekly instead of monthly to save money on interest
- You can switch between fixed and variable rates for free
- There’s no fee for extra or early payments
- You can skip one payment every year, which will be redistributed evenly to your other monthly payments
You’ll be hard pressed to find other student loan servicers that are this flexible with your loan.
Who are Earnest's competitors?
Want to refinance your student loans? Guess what – you have a lot of options. Some of them you’ve probably heard of. Big banks like Wells Fargo and Citizens Bank offer refinancing, as well as some credit unions, such as the Navy Federal Credit Union. These banks and credit unions offer relatively low interest rates (depending on your credit score), but have inflexible terms compared to Earnest.
There are other startups and web-only financial institutions besides Earnest that offer student loan refinancing. SoFi offers similar rates to Earnest and will temporarily pause payments if you lose your job. CommonBond lets you refinance Parent PLUS loans and borrow for an MBA in addition to refinance student loans. But neither of these companies offer the same flexibility as Earnest when it comes to the smaller details.
While Earnest may not be able to offer cutthroat rates, their interest rates match their competitors, and their unique features, such as switching between fixed and variable rates, put them on a level above their competitors.
Should you refinance your student loan through Earnest?
While refinancing student loans is not the best option for everyone, if you’ve decided to refinance, you should seriously consider Earnest.
If you have federal student loans, consider the benefits and protections you’re giving up by privately refinancing. Public Service Loan Forgiveness and deferment and forbearance will no longer be available to you if you refinance privately. If all of your student loans are federal and you’re interested in refinancing, check out a Federal Consolidation Loan.
Student loan refinancing is usually better for people with a mix of federal and private loans, a mix of undergraduate and graduate loans, or just private loans, who would like to consolidate them into one easy payment with lower interest rates.
Earnest is one of the best options out there – not only for their low rates, but also for their flexible loan terms. In fact, we’d say that there is no other student loan servicer that has as flexible terms as Earnest (except for the federal government’s partners).
If you have a ton of private student loan debt, would love to consolidate it and get lower rates, and have a healthy financial profile, look no further than Earnest.
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Image: Tim Gouw