While in school, most people probably avoid thinking about their student loans. But whether they thought about them or not, they were there — silently piling up.
The average law student graduates with a whopping $122,000 in student debt. Even for those who manage to land a good job right after graduation, paying off that debt will be tough. Entry-level lawyers make about $51,000 a year. While that’s relatively a great starting salary, It will still take several years to pay down all that debt.
Federal student loans typically don’t offer the best interest rates. They offer excellent benefits like income-driven repayment plans, deferrals and forbearances, and even loan forgiveness, but none of that actually saves the borrower any money. They can be helpful for those having trouble making their payments in the short-term, but they’re still wracking up interest which means the loan will cost more in the long-term.
Refinancing federal student loans with a private lender can garner a lower interest rate, which is the only way to lower both monthly payments and the total costs of the loan.
There are many great options out there for refinancing federal student loans. This post will compare and contrast two big names in student loans, SoFi and Earnest. Both are excellent companies offering a great service to borrowers, but one may be better than the other depending on the borrower’s situation. Keep reading to learn how these two companies stack up!
Overview of SoFi
SoFi® is far and away the largest provider offering to refinance student loans. According to their website, they have funded over $18 billion in refinanced student loans to over 300,000 people. They also claim that an incredible 98% of their members would recommend SoFi to a friend.
In addition to student loans, the company offers a variety of financial products. These include investment services, personal loans, home mortgages, and even insurance. Some feel that this might divide the company’s attention too much. However, SoFi began as a student loan refinancing company so this product holds a special place in the company’s heart — and it shows.
SoFi has an easy online application process and members can talk with customer support 7 days a week. In reviews, most members have great things to say about SoFi’s customer service. They don’t charge any origination or application fees.
The company offers borrowers a bit of flexibility with repayment options. They have the option of saving on monthly payments or saving on the long-term costs of the loan. Though paying less monthly will cost more in the long-run, this is a handy feature for when funds are tight.
They also don’t charge prepayment penalties. Thus, if borrowers wanted to, they can opt for the lower monthly payments, yet pay a little more each month that they’re able to bring down the total loan amount faster.
SoFi offers options for refinancing all types of federal loans — including Parent PLUS loans, which is not possible with all student loan refinancing companies.
Applicants can refinance loans as low as $5,000 up to the total amount of their student loan debt.
SoFi bonus: They love lawyers
Every company has their ideal customer and for SoFi, lawyers fit the bill perfectly. SoFi works with people at many income levels but leans toward lending to high-income professionals.
Why? Those types of people have the income necessary to pay back their loans and generally have good credit scores. Lenders love a customer profile that indicates they’ll be paid back on time.
Overview of Earnest
Earnest is also a well-established student loan refinancing company. According to their website, they have funded $8.6 billion dollars in refinanced student loans, served over 105,000 clients, and have a 5-star Trustpilot rating.
In 2017, the company was acquired by Navient, one of the “big four” student loan servicers that the government assigns to federal student loans. This is significant because having a parent company means Earnest has more capital to work with and thus is able to offer lower interest rates.
Without the need to focus as much on raising capital, Earnest can spend more time focusing on its customers. Earnest’s customer service is highly rated and this may be a contributing factor.
Additionally, many companies outsource their loan servicing after disbursing the loan to the borrower. Earnest doesn’t do this. With a little help from Navient, Earnest handles all the loan management in-house. This is another possible factor that contributes to their high customer service rating.
Unfortunately, Earnest does not offer loans in these states — Delaware, Kentucky, and Nevada. Borrowers who live in these states will have to look elsewhere in order to refinance their federal loans. Additionally, Earnest does not offer variable rate loans in AK, IL, MN, NH, OH, TN, or TX.
Earnest offers loans from $5,000 to $500,000 dollars.
Application process
Earnest takes a more comprehensive approach to lending. Having a good credit score is still important for being able to qualify, but the company also looks at various other factors when determining eligibility. These include things like the applicant’s job history, education and earning potential, bank and investment accounts, and more.
Because of this more complete approach, the application process is a little more lengthy and involved than for SoFi. However, if a borrower is finding it hard to qualify with SoFi, the extra effort that Earnest puts in may be just enough to qualify them to refinance.
A small disadvantage is that Earnest doesn’t accept cosigners. Sometimes a borrower that doesn’t quite meet the minimum credit score can “borrow” the credit score of a friend or family member. The cosigner takes legal responsibility for the loan if the borrower fails to pay. Borrowers that need this feature will have to look elsewhere.
However, removing a cosigner is one of the reasons that some people choose to refinance their student loans. In that case, the lack of ability to use a cosigner is insignificant.
Like SoFi, Earnest does not charge origination fees or prepayment penalties. This saves borrowers money on the application process and gives them the freedom to pay back their loan faster as they are able without incurring a penalty.
Precision pricing
One of the big selling points for Earnest is their unique Precision Pricing model. They say that traditional repayment models are too restrictive and instead give borrowers the opportunity to customize their repayment plan to fit their needs.
Traditional banks and lenders offer loan terms at certain intervals — every 5 years is common. In other words, the lender only offers repayment terms of 5, 10, 15 years and so on.
If a borrower can afford a payment amount that falls between the 10-year and the 15-year option, they are automatically bumped up to the 15-year option. This means they’ll get to enjoy a lower monthly payment but pay a lot more for the loan in the long run.
Earnest doesn’t restrict borrowers to just a few options. Instead, they offer rate and term lengths based upon the borrower’s ability to pay. They offer terms at 1-3 intervals starting at 5 years and going up to 20 years. There are 180 options for borrowers to choose from. This gives borrowers the opportunity to save money on the total loan balance without any extra effort.
Protections
In addition to Precision Pricing, Earnest also allows borrowers to skip one payment every 12 months with no penalty. This can come in handy if things get tight once in a while.
If skipping one payment isn’t enough due to a documented hardship, borrowers can also apply for a three-month deferment. Interest will still accrue, but they won’t be required to make payments. Earnest also offers longer deferments for those going back to school or who are in the military.
If borrowers are experiencing hard times and become delinquent on the loans, they may become eligible for either the Rate Reduction Program or Term and Rate Modification. Both programs may extend the repayment period and cause borrowers to pay more in the long run but can offer relief in the short-term.
Benefits that both companies offer
Both SoFi and Earnest are great companies with thousands of satisfied customers. As such, they both have some great qualities. Let’s recap the benefits of both companies here.
- No origination fees or prepayment penalties
- Slight rate discount when borrowers set up Auto-pay
- Ability to refinance a Parent PLUS Loan
- Offer both variable and fixed rates on their loans
Disadvantages of both companies
- Both require a minimum credit score of 650 (although Earnest’s flexibility generally makes it easier to qualify)
Reasons to choose SoFi over Earnest
- The applicant requires a cosigner. Earnest does not currently allow borrowers to use a cosigner
- The applicant lives in Delaware, Kentucky, or Nevada
- The applicant lives in AK, IL, MN, NH, OH, TN, or TX and wants a variable rate loan
- The applicant may be going back to school or on active military duty. SoFi offer loan deferment in these situations
- The applicant needs more than $500,000
- The borrower needs/would greatly appreciate flexible repayment options
- The borrower needs alternative requirements to qualify (not just their credit score)
- The borrower has a great financial profile, helping them qualify for a better rate even if their credit score isn’t amazing
- Loans are managed in-house, leading to better/faster service
- Earnest tends to offer the lowest interest rates, thus allowing borrowers to save money on their loan payments
Reasons to choose Earnest over SoFi
SoFi vs Earnest: Who wins?
It’s clear to see that when comparing the two companies, they each have strong pros and few cons. Who wins will depend on the borrower’s unique financial situation.
Borrowers should also carefully consider their unique situation before refinancing their student loans regardless of which company they’re considering. Though there are benefits to taking out private loans, there are also benefits to keeping federal loans that borrowers should consider.
Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He is always negotiating better student loan refinancing bonuses for readers of the site.
