Student loan servicer Navient is moving into loan origination by acquiring financial technology start-up Earnest for $155 million.
Earnest specializes in online lending and is expected to originate nearly $1 billion in student loan refinancing loans this year. It had been working with Barclays to find a buyer after raising just over $300 million since it was founded in 2013.
Since its spinoff from Sallie Mae in 2014, Navient has focused on servicing and collecting some $300 billion in existing private and federal students loans. The acquisition of Earnest will allow it begin originating loans.
“Combining Earnest’s best-in-class data science, digital marketing, and technology with Navient’s industry and capital markets experience create an exciting platform to deliver value for consumers and investors,” Navient CEO Jack Remondi said in a news release. “Together, we will create and deliver consumer-centric education credit products for the digital age.”
As Forbes reports, Navient “has been itching to begin originating student loans.” According to a non-compete agreement with Sallie Mae, it can start doing so this year through an acquired company and then under its own name in 2019.
As part of Navient, Earnest will continue as a distinct brand and will be led by its current management team, including founders Louis Beryl and Ben Hutchinson.
“By pairing Earnest’s technology, innovation, and data-driven approach with Navient’s reach and resources, we can affect change at incredible scale,” Beryl said in a blog post.
Earnest uses unconventional data points to assess a borrower’s creditworthiness. “For instance, it will analyze a consumer’s saving and spending habits by looking at their bank and credit card account history,” Forbes said. “It also considers an applicant’s earnings potential and whether they pay their rent on time.”
The company, a smaller rival to SoFi and CommonBond, has attracted investors such as Andreessen Horowitz, Atlas Venture, and Collaborative Fund, but like other online lenders, has struggled to raise sufficient capital to fund its loans.