Earnest founder and CEO Louis Beryl (Photo Credit: Timothy Archibald For Forbes) Financial technology start-up Earnest has agreed to be acquired by student loan servicing giant Navient for $155 million in cash, the companies said on Wednesday. Earnest, an online lender that has focused on refinancing student loans, will remain a distinct brand and will continue to be led by its current management team, including founder and CEO Louis Beryl. The acquisition will be a launching pad for Navient to begin originating its own student loans. Since its spin-off from Sallie Mae in 2014, it has focused on servicing and collecting some $300 billion in existing private and federal students loans. “Together, we will create and deliver consumer-centric education credit products for the digital age," said Navient CEO Jack Remondi, who referenced Earnest's "best-in-class" data science and technology. Earnest was founded in 2013 and provides student loan refinancing to young borrowers with thin credit files by leveraging tens of thousands of data points, many of which are unconventional. For instance, it will analyze a consumer's saving and spending habits by looking at their bank and credit card account history. It also considers an applicant's earnings potential and whether they pay their rent on time. The San Francisco-based company has raised $120 million in equity from heavyweight investors such as Andreessen Horowitz, Atlas Venture and Collaborative Fund. However, like other online lenders, it has struggled to raise sufficient capital to fund its loans. The acquisition will allow Earnest to have the backing of a larger company. "By pairing Earnest’s technology, innovation, and data-driven approach with Navient’s reach and resources, we can affect change at incredible scale," said Beryl in a company blog post. He noted that he began talking to Navient a year ago. Earnest, which is a smaller rival to SoFi, is expected to originate nearly $1 billion in student loan refinancing loans in 2017. It has partnered with sites like Credit Karma to market its loans to consumers and this year joined forces with TurboTax to recommend that certain tax filers refinance their student loans at a lower interest rate. Consumers who file their taxes with TurboTax have some $135 billion in student loan debt. Navient has been itching to begin originating student loans and can start doing so in 2019, according to a non-compete agreement with Sallie Mae. The company has not been shy about plans to do exactly that, noting in a presentation last year its intentions to "reenter the in-school originations market" in January 2019. Navient got in hot water with the Consumer Financial Protection Bureau earlier this year when it was sued for making it difficult for a borrower to repay their loans "at every stage" of the process. Navient denies the allegations. The companies said that borrowers can expect their rates, terms and benefits to stay the same. The deal is expected to close in the fourth quarter of this year.
Delaware-based firm Navient intends to start issuing student loans in 2019 after its recent acquisition of fintech start-up Earnest in a cash deal worth $155m. Navient, a Sallie-Mae spin-off created in 2014, services and collects about $300bn in student loans, while San Francisco-based Earnest is an online lender specialising in refinancing student loans. The deal will give Earnest the financial support of a larger company while Navient will gain access to Earnest's technological expertise. In addition to these two companies, there are many more that have been acquired by private equity firms over the past few years.