We all know that there’s a full-blown student debt crisis and the system is largely broken to help students quickly get out from underneath the mountain of debt.
But Earnest, a lender that provides private student loans and student loan refinancing, aims to help alleviate that burden by making these financial products more affordable and accessible.
Recently, the San Francisco-based fintech announced that long-time Earnest executive David Green was promoted to its top role as CEO, since former CEO Susan Ehrlich has retired to focus on board service. Green has nearly overseen every department over his six-year tenure with the company, most recently serving as COO. Since joining Earnest, he’s helped the company grow from a headcount of 20 to more than 200 employees.
Founded in 2013, Earnest says it provides a nine-month grace period whereas the typical loan is only six months. Also, it offers student loan refinancing with no fees and low-interest rates. The company has done about $14 billion in student loan refinancing, Green told FinLedger, and launched a private student loan in 2019.
Green spoke with FinLedger about his strategy this year, how it has differentiated itself in the marketplace and more.
FL: What is your strategy as CEO to help Earnest grow this year?
Green: It’s continuing to focus on this student lending problem and education finance. We have thought about how to continue to expand our access to more students, and help increase the impact that we can have on them. We look at that from two standpoints. One is helping to pay down debt faster, so tools and services on the servicing side once they have their loans. But a lot [of our strategy] for us will be expanding our product offerings earlier in the life cycle. So, when students are going into school, helping them make those better decisions by helping them maximize their scholarship opportunities and making good decisions while they’re in school as well to decrease the total time to pay off their student debt.
FL: Explain what the current issues are with the mounting student debt crisis and how does Earnest help address those issues?
Green: There’s this uncapped lending. These are 18 year olds who are trying to make decisions on what they should do and how much money they should take out to go to school. Ultimately, a lot of them are not getting the return on their degree, or on the money they took out to get their degree. There’s a lot of different players from the government, to the lenders to the schools. I don’t think there’s any one problem there, which is obviously why it continues to be a problem with many different solutions.
We started by helping people refinance, it’s the best way to help people pay down their loans faster. They frequently can get both a better interest rate and a shorter term. They’re getting out of debt much faster. We’ve saved people tons of money from that standpoint. But what we noticed is by the time they get to us in refinancing, they’ve already made all these decisions. A lot of people, we either can’t help or they would have done things differently had they known. When we started getting into the private student loan side, a lot of what we heard was people would get out of school and they’d say, ‘I didn’t know what I was signing up for.’ It’s trying to attack it from both ends.
FL: How does Earnest differentiate itself from other competitors in the student loan marketplace?
Green: It depends on how you define the space, a lot of the companies offering refi are focused more on how do we take that customer and offer them more products and more services — SoFi, for instance. But a lot of different companies are trying to do that just with different entry points. I would say Betterment, Wealthfront and Robinhood are all in that model. We are much more focused on the student side. We are trying to build relationships much earlier in the lifecycle of the student and build trust with them, offer them products and services as they need them.
FL: What challenges are you anticipating this year?
Green: Instead of one customer, which is the person who’s trying to refinance their loan, there’s three customers. There’s the student, there’s the parent, there’s the school and the financial aid office at the school. Each of them has different needs and cares about slightly different things, and they need to be talked to differently. Then there’s this seasonality piece, which is 90% of the applications come in between mid-July and mid-September. It’s similar to TurboTax where you have to prep all year to try to get this right, and you see all of your product that’s paid off within three months, and then you get nine months to try it all over again. In contrast with a lot of other technology products where you’re doing continuous improvement and learning all throughout the year.
Even more broadly than that just in FinTech — monetization [is a challenge]. There’s not a lot of people who have figured out how to both be customer-friendly, customer-first and monetize their products. That’s potentially another interesting growth opportunity for us. There’s tons of new startups in the student loan space. They’re building all different types of ways to help people pay off their debt, or fill out the FAFSA or get scholarships. But very few of them have been able to figure out how to monetize. We’ve started with the lending side, we have been able to monetize.
This article has been edited to read clearly and concisely.