Student loan repayments have historically had a pretty strict schedule that would reliably drain your after-tax income each month, no matter what was going for you in any given month.
How much misery is out there? The Consumer Financial Protection Bureau puts student loan debt somewhere in the neighborhood of $1.4 trillion-nearly 83% of which is federal student loan debt.
Earnest, a lender founded in 2013 for consumer loans from a few thousand dollars to $30,000, is taking on student debt with the goal of making the process more transparent and the life of the loan easier to manage.
Earnest promises never to sell your debt to a third-party servicer, allows you to switch between variable and fixed rates, skip payments, and even modulate your payment amounts based on new financial circumstances-or, as Earnest CEO Louis Beryl calls it, “Precision pricing.”
“When we approve a loan, say a student loan for $100,000, instead of giving folks a set of repayment plans at five, 10, or 20 years, we give you are payment plan based on what you can do per month and an interest rate that matches,” he says.
Earnest looks at what it calls merit-based lending, rather than credit-based lending, by taking into account additional factors to credit history like education and employment history.
It’s a way of constructing a holistic picture of how responsible a customer is, rather than how risky he may seem based on his FICO score.