We have been working with student loan refinancing companies to help white coat investors get a fair shake for six or seven years now. The first time I saw companies refinancing student loans again I knew it was going to be a service my readers needed and I jumped right on it. Over the years I have sat down with the CEOs for both SoFi and Laurel Road (then known as DRB) personally and asked them for products I knew my readers needed. We pay a lot of attention to this market around here and it has been interesting to watch what has happened with it over the years.
Every year or so a new company comes on to the scene promising better service and lower rates as they fight for their share of the market. Sometimes it actually even happens. But one of the best ways for me to understand the market is to look at what you guys are actually doing. Who are you refinancing with? If I send you to a refinancing company, what percentage of the time do you actually refinance with them? If the percentage is high and more and more of you are refinancing with a company each month, I know they're doing something right. That usually means one or more of the following:
- Great customer service
- A slick technological interface
- A nice cash back bonus and, perhaps most importantly,
- The lowest rates
While some of you undoubtedly refinance with the first company you apply to, I hope most of you are applying with at least 2 or 3 of them and, assuming the service is adequate, taking the lowest rate you are offered.
Earnest Student Loan Refinancing Fights Their Way to the Top
A trend I have noticed over the last couple of years has been with the company known as Earnest. As far as physician student loans go, SoFi and Laurel Road have long been the big players in this space with the doctors and other high-income professionals that make up my readership/listenership/viewership. But Earnest has muscled its way in and appears to be competing very effectively. So I thought it might be interesting to figure out why and review Earnest today.
Earnest was actually founded in 2013 (same year as Splash and two years after SoFi and CommonBond in 2011.) So they're not all that new to student loan refinancing, but they have been gaining traction. In 2017, perhaps 1/5 as many of you refinanced with Earnest as with market behemoth SoFi. Maybe that was as high as 1/3 in 2018. But by 2019, it was about the same. What happened? What is it that Earnest is doing that so many of you find attractive?
$500 Cash Back
Earnest is currently offering our readers $500 cash back when they refinance, while SoFi and Laurel Road are only offering $300. But I think you guys are smart enough to recognize that a couple hundred bucks doesn't mean much when we're talking about saving thousands of dollars in interest every year on your student loans. Besides, I have plenty of other companies that offer $500 or more to you that haven't attracted nearly as many of you to refinance with them. It's hard to blame it on that.
I suspect a big part of it is that they have found a source of funds that allows them to offer you lower interest rates than they used to be able to offer. I can't prove that. In fact, it's basically impossible to tell what rates any given borrower is going to be offered until they apply. I mean, look at our chart here:
New Bonus Disclosure
Earnest Welcome Bonus Offer Disclosure: Terms and conditions apply. To qualify for this Earnest Welcome Bonus offer: 1) you must not currently be an Earnest client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through WCI link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed. The bonus will be automatically transmitted to your checking account after the final disbursement. There is a limit of one bonus per borrower. This offer is not valid for current Earnest clients who refinance their existing Earnest loans, clients who have previously received a bonus, or with any other bonus offers received from Earnest. Bonus cannot be issued to residents in KY, MA, or MI.
“*Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Oct 10, 2020 and may increase after consummation.”
Yes, we publish a rate chart. And we update it every month. But it is basically useless. I mean look at the ranges there. Every company has offered at least some borrowers with some terms a rate somewhere around 2%. And for most companies, the upper end of the range is up around 6-7%. What one cannot tell from that chart (and which the companies are very unlikely to reveal) is how many borrowers get a certain rate for a certain loan. So there is no way in advance to know which rate you'll be offered without applying to multiple companies. But the fact that many more of you are choosing Earnest tells me that their rates have probably become much more competitive for more borrowers with various loan amounts and terms in the last year.
Earnest's lowest listed rates (as of 1/24/2020 when I wrote this post) start at 1.99% for variable-rate loans and 3.20% for fixed-rate loans, if you set it up on autopay to qualify for a 0.25% interest rate discount.
Set Your Own Terms with Earnest
The really unique thing about Earnest is that they allow you to choose from an incredible variety of loan terms. Instead of being stuck with a “standard” 5, 7, 10, or 15-year loan term, you can basically pick your term. Picking your term, of course, also picks your interest rate. Want a lower rate? Commit to paying it off faster. Want a longer term? That's going to cost you a bit more. But it's your choice so you can customize the loan to your unique financial situation. They call this feature “precision pricing” and this is how they say it works:
- Determine how much you can afford to pay each month
- Get a rate and term matched to that amount
- Save money due to your lower rate/shorter term
- Marvel at why no one came up with this sooner
Okay, there's a lot of marketing spin there, but you've got to admit it is a smart way to do things. They basically offer 180 different options between 5 years and 20 years. This is how it saves you money:
As you can see, if you only need 12 years to pay off your loans, you can get a 12-year term (with a 12-year interest rate) instead of a 15-year term (with a 15-year interest rate) from a competitor. Brilliant! My only beef with it is that there are no options below five years. Since I want all of my readers out of student loan debt in less than 5 years, I'd love to see them extend this “precision pricing” down as low as 1 year. You can still pay your loans off faster, ubt you won't be rewarded with a lower interest rate for doing so. You can, however, take a variable rate loan in the 44 states that allow them (all but IL, MN, NH, OH, TN, and TX.)
Slick Tech Interface
Earnest's interface is also very user-friendly. You can get your rate in just two minutes. While this is a necessary condition for success, it isn't a sufficient condition for success. They're obviously not the only company that can do this, but this feature does allow them to compete well.
If you die with student loans from Earnest, those loans just go away. Earnest doesn't come after your spouse or estate for the balance. That is also the case for federal loans, but only some private student loans (which your loans are once you refinance) offer this feature. In the event of total and permanent disability, Earnest will also discharge your loans. These features can help you save a little money on term life and disability insurance. In the event of temporary disability or other hardship, they might even allow you to defer payments for up to 36 months.
Other Cool Features From Earnest
Earnest also offers some other cool features that its competitors don't. For example, they keep their loan servicing in house. Customer service from all of these refinancing companies is head and shoulders above what you have probably experienced with the federal loan servicing companies like Great Lakes, Nelnet, and Mohela. However, being able to keep it in-house gives Earnest maximum control over the experience and the ability to make things right faster. They also allow you to make biweekly payments if you want (might help you budget and pay them off even faster if you're paid biweekly) and even allow you to skip a payment every year. When you are checking rates, they only do a soft credit pull, so it doesn't hurt your credit score just to take a look. Many companies do this, but not all of them.
The Total Package
When you put the whole package together, Earnest seems to do as well as other companies in all categories and better than other companies in some categories. They have clearly earned their place as a major partner with The White Coat Investor and most importantly, with the white coat investors. You should certainly include them on your shortlist when choosing who to refinance with.
What do you think? Have you refinanced student loans with Earnest? What was your experience like? What did you like and dislike? Comment below!