It's so frustrating: You're financially responsible, but you still can't get approved for student loan refinancing. A company called Earnest could change that.
It's easy to look at the state of student debt in the United States and get thoroughly bummed out. In 2012, 71 percent of new four-year college grads had student debt, with an average debt of $29,400, according to The Institute For College Access & Success.
That's a big chunk of student loan debt. To you, that debt may represent the years of work it will take you to pay it off. But to entrepreneurs like Louis Beryl, it represents an enormous opportunity to help graduates like you find a way to save on your student loans.
Beryl is the cofounder of Earnest, a student loan refinancing lender that hopes to reward financially responsible graduates with flexible terms and lower interest rates (APRs - with auto pay - are between 2.55 and 6.03 percent).
A different approach to underwriting
In the past, it could be tricky to track down the banks that offered private student loans and student loan refinancing. And it was even more difficult to qualify.
Beryl found this out himself when he wanted to get a loan for business school. Even with savings, good credit, and a track record of well-paying jobs, banks wouldn't give him a loan without a cosigner. So he swallowed his price and asked his mom to cosign, but never stopped thinking that there had to be a better way.
Earnest promises to look at "your full financial profile" in the underwriting process, not just the two key metrics-credit and debt to income - traditional underwriters use. One key factor Earnest looks at is your career. In fact, they require you to list a LinkedIn profile on your application.
Are you ambitiously climbing a corporate leader? That's a check mark in your favor. Are you a first-year resident? Earnest understands that you could be earning significantly more in a few years.
Your savings is another factor Earnest may take into account that - shockingly - most banks totally ignore when making credit decisions. Beryl says a big goal of Earnest is to reward financially responsible people with a better loan. If you have an emergency fund - or have been stashing away $500 a year in an IRA since you were 16, those are good signs you're the kind of borrower Earnest wants.
A more flexible loan
Earnest is different in more ways than its underwriting process. For example, you can:
Set your monthly payment
With most loans, you decide about how much you can afford each month and then choose a term that gets you close to your budget. Earnest allows you to set the exact monthly payment you want. This might mean you pay your loan off in eight and a half years instead of an even 10.
Skip one payment a year
If necessary, Earnest allows you to skip one payment a year. You'll have to make it up over time, but this perk could be helpful to put extra cash in your pocket if you want to take a vacation or pay for gifts around the holidays.
Other features include:
- The ability to swap between fixed and variable interest rates with no charge
- A no-fee, bi-weekly payment option to pay down your principal faster
- Built-in unemployment protection if you lose your job
Is Earnest for you?
Refinancing is often the best way to save on your student loans, but it's a big decision
Clearly, the larger your debt (and interest rates), the more you stand to save with a refi. If a borrower with more than $50,000 in loans at an average of 6 percent interest can refinance at 3.75 percent, it's a no-brainer.
The biggest risk is using a private loan to refinance federal student loans. Earnest lets you consolidate both federal and private loans into one refinance loan. But federal student loans come with certain features that you'll lose once you refinance, notably forbearance and income-based repayment plans and certain forgiveness programs (if you qualify).
The risk aside, Earnest is best for a graduate who has a good career and wants to focus on paying down student debt as efficiently as possible.
Comments
Post a Comment