Student lending is undergoing a significant transformation.
Earnest has refinanced over $10 billion for over 124,000 people, helping them pay off their debt and giving them the financial capital to reach their goals.
The company combines design and data to build an innovative model for consumer lending, available through a simple, easy to use mobile app.
David Green, chief product officer at Earnest, joins us on the podcast to talk about lending in our economic environment, as well as the firm’s relatively new product, in-school student loans. Lastly, we talk about the lender’s product pipeline.
Lending to students
We want to empower people with the financial capital they need to live better lives. We have two primary offerings: student loan refinancing and private student loans. We help people pay for college, manage their debt, and pay off their debt. Since inception, we've refinanced over $10 billion of loans for 125,000 individuals. Last year, we launched our private, in-school offering and this will be our second season coming up.
You hear a lot about financial literacy. I think back to when I went to business school and was looking for loans. I went to a pretty good business school. I was expected to know all of these things, but the truth was, I was pretty lost in all this stuff. And if I didn't have a great way to figure this out, expecting an 18 year old student to understand loan mechanics and variable rates is unrealistic.
At Earnest, we think more in terms of guidance versus pure information and literacy. People need their hands held and told what the best thing to do is.
Building guidance into the product
One of the things we heard when we did our user research was that people didn't really understand what they were signing up for. There were a bunch of different options, like fixed versus variable rates, and nobody really understood how to choose between them.
So, we built a simulator in our checkout flow that shows what the total cost of your loan is as you switch around all these parameters. We combine that with a customer's payoff journey -- you're paying $25 per month while you are in school and 9 months after you graduate, you'll start paying your normal payment for this many months.
We started our refi product in 2015 and we've always thought about doing the in-school product. The refi product is all about helping people manage their debt and get out of it as soon as possible. It seemed strange to add to the debt, but the fact is, people need to take out private student loans to go to college. And when we looked at what's out there, the current options in the market look like they were built in Windows 95 and most of the students getting these loans weren't even born in 1995.
I read a study recently. The CFPB receives 12 complaints every day about private student loans. They are getting thousands of complaints -- yes, something is broken there and needs to be fixed. We think there is a good opportunity to apply what we learned on the refi side to make a significantly improved student loan.
Embedding cosigning into the product
We did a bunch of work around the cosigner process. It's tricky -- it's the first time in their lives where they are going to have to have financial discussions with their parents like this. We found these conversations were extremely stressful. Our in-product flow lets students invite cosigners directly from within the product, sends reminders, and shows the other's progress. We provide additional content about what makes a good cosigner and who students can ask if they can't ask their parents.
COVID's impact on student lending
The vast majority of our current borrowers are on the refi side. Initially, we saw a large jump of people going into forbearance. We've just come up on the end of that 3 month period and we think a lot of those people were just uncertain and being prudent. We're seeing more than half -- close to 75% of those people -- return to make payments. This isn't a willingness to pay problem -- it's an ability to pay shock. We're trying to send a ton of updates and be very communicative.