How to Pay for Your Graduate Education

Vol.

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Table of Contents / 2

Table of Contents

Welcome to Earnest

The Value of Graduate Education

Your Timeline to Get Ready

Understanding Your Loan Options

What Cosigners Need to Know

After Graduation: Options for Repayment

A Financial Aid Glossary

Feature Article: Inside the Digital Disruption of the Student Loan Industry

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Welcome to Earnest / 3

Welcome to Earnest The idea for Earnest started in a moment similar to the one

you might be in now—at the start of graduate school.

Back in 2009, I was entering Harvard Business School.

I borrowed the maximum I could in Stafford Loans, but

additional federal loans had rates starting at 7.9% and

private lenders were quoting me in the double digits.

It seemed crazy that I would have to pay for my business

school education with rates almost as high as a credit card.

Lenders appeared oblivious to the real asset a new graduate

would own—his or her education.

That’s why I started Earnest. To build a lending company

that rewards borrowers with better rates for being financially

responsible and evaluates all their assets, including their

education, as part of the underwriting process.

The goal of this guidebook is to help you avoid the surprises

I encountered in my search for information about how to pay

for graduate school. This phase of your education should be

an incredible experience. We want to help you devote your

energy to your actual studies, rather than trying to figure out

how finance them.

Congratulations on taking a great step forward for

your education. Earnest is here to help turn your

dream into a reality.

Sincerely,

Louis Beryl, Earnest CEO

The Value of Education / 4

The Value of Graduate EducationWith the sharp increase in student debt

over the last decade, it’s no surprise that

people have been debating the value of

higher education.

Based on the 2015-2016 cost of attendance for schools ranked

by U.S. News & World Report, the average all-in price tag to

attend a top 25 MBA program was more than $184,000. The

cost of attendance for four years at a private medical school

surpassed $300,000. Law school? For a top-ranked school

the full cost of attendance for three years adds up to nearly

$200,000 on average.

With costs like these, it’s fair to ask yourself whether taking

on debt to fund a graduate degree is worth it.

The average all-in price to attend a top 25 MBA program was more than $184,000.

Of course, the answer is personal—your degree, your school,

and even your own work ethic all play a role in your future

potential earnings and sense of value from your education.

However, according to analysis of Labor Department

statistics, one thing is still certain for prospective students:

the more education you have, the higher your income.

The Value of Education / 5

RECENT GRADUATE MEDIAN INCOMES

Medicine

Dentistry

Pharmacy

Law

MBA

PhD

Master’s (Sci/Eng)

Master’s (Arts)

$204,000

$155,000

$122,000

$121,000

$115,000

$91,000

$87,000

$64,000

By Graduate Degree, Based on Earnest Loan Applicants 2014-16

Above, you can see the median income by degree type for

graduates who are less than five years out of school. On top

of that, those who earn certain degrees from a top 25 school

have an even greater income potential.

According to Earnest data (not shown in chart):

• MBAs with a degree from a top 25 school earn 38% more

than the median income for all business graduates.

• JDs with a degree from a top 25 school earn 32% more

than the median income for all law graduates.

As you start the journey to pay for your education, take a

look at where your intended degree will position you along

a salary trajectory. That can help you assess how much debt

you are comfortable taking on to earn your degree.

Ask yourself the following questions:

What are the job prospects for your degree? Research what

nuances are specific to your field’s job market and location.

Browse relevant job listings and read job market reports on

the projected growth of your future profession. Examine the

Bureau of Labor Statistics’ projections for employment in the

area where you plan to live.

Source: Earnest.com

The Value of Education / 6

MBAs with a degree from a top 25 school earn 38% more than the median income for all business graduates. JDs with a degree from a top 25 school earn 32% more than the median income for all law graduates.

What is your total cost of attendance? Every school is

required to provide an estimated Cost of Attendance (COA),

made available through its financial aid office. That number

is the school’s best estimate for the full cost of attending the

school each year, including tuition, room and board, books,

and more. Add up the cost of attendance for each year you

will be in school for the total cost of your education.

How much will you need to borrow? Have you been saving

money specifically for graduate school, or will you need

to borrow to cover the majority of your expenses? Will you

qualify for scholarships, grants, or fellowships? Are you

planning to go down a career path that could include loan

forgiveness? Look at the monthly payments for various debt

amounts to get an idea of the payments you’ll owe—and how

long you’ll owe them for.

What will your projected salary be? Using an income

growth calculator, compare your current salary to your

anticipated salary to see what your annual income growth

looks like for various scenarios. Then subtract your

estimated annual student loan payments from the graduate

degree salary to find out just how much extra income you

could take home each year.

Are you planning to work in public service? In recent

years, this has become more attractive to graduates because

of the government’s loan forgiveness program. Graduates

working in public service can enter an income-based

repayment program for 10 years, after which the remaining

balance may be forgiven.

READ MORE ON EARNEST’S BLOG:

How to Determine the ROI of

Your Degree: A Case Study

How Much Should You Borrow

for Your Degree?

Practical or Prestige?

Deciding Where to Go to School

Your Timeline to Get Ready / 7

12+ months out from starting school

Research the ROI (return on investment) for the degree

you’re considering. To plan your repayment schedule and

potential options post-graduation, map out what your

expected income and position will be within your industry.

Consider a 529 plan to save. A 529 plan is a type of a tax-

advantaged college saving investment fund that can be used

for a variety of education costs. Even if you don’t already

have a 529 plan, it can still pay off to open one even if if

your time horizon for graduate school is only a year or two

away. You may get a state income tax deduction for your 529

contributions. When dealing with a short time horizon, make

sure to choose an extremely low-risk investment that’s as

close to cash as possible.

Set your salary and budget expectations. Sometimes

the best advice can come from your friends, family, and

networks of people who share your career path. Talk to

graduates from the schools you’re considering and read

up on each school’s median income for the previous year’s

graduating class.

Your Timeline to Get Ready

Between studying for the GRE, LSAT,

or MCAT, writing essays, or getting

recommendation letters, you will want

to begin thinking about how you’re

going to pay for your degree.

Work these milestones into your

planning to stay on track.

Your Timeline to Get Ready / 8

9 months out

Find out your credit standing and take steps to improve it. With most federal loans, borrowers get the same rates for

each type of loan (check with the Department of Education

for current rates). However, with private loans, rates vary

from lender to lender and are based on each borrower’s

financial profile; loans can also be taken out with a fixed

rate or a variable rate. Some private lenders may offer even

more competitive rates than federal loans for financially

responsible applicants. If you anticipate using private loans

in the coming months, you’ll want to make sure your credit is

in good standing as soon as possible.

Tip: You can download your credit report for free at

AnnualCreditReport.com and review it for any errors or

negative information. It’s a good practice to do this on a

regular basis. Remember, good credit standing can help

you refinance your loans into lower rates after you

graduate as well.

If you anticipate using private loans in the coming months, you’ll want to make sure your credit is in good standing as soon as possible.

6 months out

Research the long-term costs and benefits of choosing federal and/or private loans. Federal loans come with a

number of income-based repayment benefits, which allow

you to make student loan payments based on a percentage

of your salary. In addition, the government offers loan

forgiveness to those working in public service positions.

However, keep in mind that while federal rates may appear

low, they also have origination fees, which you’ll need to

factor into your calculations. Private loans may offer better

rates, no fees, and more flexibility than federal loans for

financially responsible borrowers—and terms can vary from

lender to lender.

Your Timeline to Get Ready / 9

Complete a FAFSA. For consideration for federal student

aid for the 2016-2017 award year you can complete the

application between January 1, 2016, and midnight Central

Time, June 30, 2017. You can submit updates and corrections

by midnight Central Time, September 23, 2017. It’s best to fill

out your FAFSA as early in the year as possible as there are

additional state grants that you may be eligible for that have

earlier deadlines. You will be able to file a 2017–18 FAFSA as

early as Oct. 1, 2016.

4 months out

Congratulations! You have selected the school where you’ll be attending. Now it’s time to estimate your true cost

of living—whether that’s in a new city or where you currently

reside. Will you be working during school or receiving an

additional source of income or allowance? Be sure to factor

this in when budgeting.

Federal loans come with a number of income-based repayment benefits, which allow you to make student loan payments based on a percentage of your salary.

Sort out your housing options. Are you planning to live on

or off campus? If you are living on campus, find out whether

housing is on a first-come-first-serve basis, a lottery, or

another type of selection process.

Talk to your financial aid office. These are experts who

know the costs of your program and available sources for

financial aid. If you have special circumstances, they can

help guide you through each decision you will need to make.

1-2 months out

Calculate how much you will be receiving in aid/grants/

scholarships and how much you will need to take out in

federal and private loans.

You can download your credit report for free at AnnualCreditReport.com and review it for any errors or negative information. It’s a good practice to do this on a regular basis.

Understanding Your Loan Options / 10

Start applying for loans, both federal and private. Typically, it often makes sense to start borrowing with the

lowest-cost loans first. Then compare rates between private

loan offers and your Direct PLUS loans (don’t forget to

include any origination fees in your review.)

Every semester you’re in school

Keep track of your loans. When you’re using federal loans

you may have to take out new ones for each term you’re in

school, but some private lenders allow you to borrow for a

full year. Keep a record of the federal and private loans—

both amounts borrowed and rates—so that you have a sense

of what kind of repayment scenario you’ll be facing after you

graduate. You can view your all your federal loans through

the National Student Loan Data System for Students.

READ MORE ON EARNEST’S BLOG:

How to Prepare Your Finances

Before You Go to Grad School

How to Pay for Medical School

How to Pay for Law School

How to Pay for Business School

How to Pay for Dental School

How to Complete the FAFSA

Federal loans

The financial aid office at your university will offer you

federal loans directly for each term or semester you’re

enrolled in school based on your FAFSA.

Federal loan rates are determined by when they are issued—

these are fixed rates set by Congress. You can check with

the Department of Education for exact rates when you’re

planning to be in school. With most federal loans, repayment

generally starts six months after graduation.

Most graduate and professional-degree applicants are

considered independent students and parental information

is not required for the FAFSA. The amount you’re eligible

to receive will depend on your financial situation, your

enrollment, and the total cost of attendance for the school

you’re attending.

For graduate students, most of these loans are

unsubsidized, which means they accrue interest from

the moment you sign on the dotted line. However, some,

like Federal Perkins Loans, will not accrue interest until

you start repaying your loans.

Understanding Your Loan Options

Understanding Your Loan Options / 11

Federal loans also come with certain repayment benefits,

such as the ability to qualify for income-based repayment

or loan forgiveness.

An important note on loan origination fees

To understand the true cost of your federal loan, you’ll need

to account for origination fees, which is effectively a form of

up-front interest.

For example, a 4% fee on a 10-year repayment term (the

standard term for a federal loan) is the equivalent of .85% to

1% increase on your fixed base rate. If you borrow a federal

Direct PLUS at the rate of 6.84% with the origination fee of

4.27% for a 10-year loan (rates and fees as of May 2016), your

effective APR is 7.79%.

The longer your repayment term, the less the impact

of the fee.

The amount you’re eligible to receive will depend on your financial situation, your enrollment, and the total cost of attendance for the school you’re attending.

Private loans

For those who want or need an alternative

(or supplement to) to federal loans, there are a variety

of private loan options from banks, credit unions, state

agencies, schools, and online lenders.

Your rates for a private loan will be determined by a number

of factors, such as total amount requested, savings, and

credit history. Rates will vary from lender to lender.

For financially responsible borrowers, some private loans

might offer better rates than federal loans; some private

lenders also have no origination fees.

Understanding Your Loan Options / 12

TYPE OF LOAN RATES AND COSTS

(Rates through 7/1/2016)

MAXIMUM BORROWING

per year

Federal Unsubsidized

Stafford Loan

Fixed 5.31%, with a loan origination fee of

1.068%. Interest accrues with loan origination.

$20,500

Federal Direct PLUS Loan

(Graduates and Parents)

Fixed 6.31%, with a loan origination fee of

4.2727%. Interest accrues with loan origination.

Amount up to the school’s Cost of

Attendance minus the amount of all

other financial aid you are receiving

(including other loans).

Federal Perkins Loans Fixed rate 5%; no loan fees. Interest accrues

with start of repayment.

$8,000

Typically, interest starts accruing from the start of the loan;

however, some lenders allow borrowers to make interest-only

or nominal payments while in school for a rate reduction,

or defer payment until after graduation. You’ll want to

closely examine each private lender’s terms and

conditions for borrowing.

Unlike federal loans, private loans are not eligible for

government-sponsored income-based repayment programs

or loan forgiveness.

Parent loans

While this guidebook is aimed at students, we know

that parents can be closely involved with helping to

pay for education.

Parents have the option to borrow federal loans (Direct PLUS

loans) and/or private loans. For federal loans, parents will

also need to complete a FAFSA. For parents who are divorced,

both are eligible to borrow Direct PLUS loans. In all cases,

there is a cap on the amount borrowed based on the student’s

own borrowing, aid received, and cost of attendance.

Parents can also borrow from private lenders, and rates will

vary depending on their financial profile. In some cases,

parents might consider other sources of funding, including

drawing on their home equity with a line of credit.

Detailed information about every aspect of federal student aid is available at studentaid.gov.

Understanding Your Loan Options / 13

Parents may want to consider talking to a financial planner

or other financial aid expert to understand the full costs

and benefits of each strategy and its impact on retirement

savings and their own financial picture.

What about scholarships, grants, and fellowships?

Scholarships come in many different forms—some are

school-specific and others are general and available to

students no matter their schools. Others are aimed at helping

specific groups of students. Do your research and apply

for any scholarships applicable to your situation, whether

they’re through your school or private.

Grants and fellowships are likely to be offered directly

through your institution, and you may be offered some of

these automatically when you submit your FAFSA.

Here are some resources to help get you started on your

search for available scholarships:

• FinAid - www.finaid.org

• FastWEB - www.fastweb.com

• FastAid - www.fastaid.com

• The College Board - www.collegeboard.com

• Peterson’s Scholarship Search - www.petersons.com

Don’t forget about working

If you demonstrate financial need, you may also be eligible to

participate in the Federal Work-Study (FWS) Program, which

offers part-time employment to some graduate students. Not

only can you use this income to pay for educational expenses

for school, you can also earn additional money under the

FWS Program. The type of work you are assigned is usually

closely related to what you’re studying in school. However,

your ability to work while you’re in school may depend on

the demands of your degree program.

Depending on your schedule, you may also consider

working a part-time job or a side gig, like driving for a

ride-sharing company, working in restaurant or bookstore,

childcare, or freelancing.

READ MORE ON EARNEST'S BLOG:

How Much Does Law School Cost?

How Much Does Medical School Cost?

How Much Does Business School Cost?

What Cosigners Need to Know / 14

What Cosigners Need to KnowCosigning a loan is a big decision for both the borrower and

cosigner, whether that person is a relative or a spouse or even

a friend, as it ties your (financial) futures together.

If you’re a borrower and you’re asked to have a cosigner

—or you’re being asked to cosign—you’re not alone.

The vast majority of private student loans do have two

people signed on the loan. In 2015, more than 88% of all

private loans (both undergraduate and graduate programs)

had a cosigner, according to a report from MeasureOne,

a student loan data company.

What does it mean to have a cosigner on a student loan?

Cosigners are liable for the payments along with the primary

borrower. For example, if the primary borrower misses a

payment, the lender will come to the cosigner for money.

It also means that the cosigner’s credit history is now linked

to the loan. If the loan goes into default, the credit histories of

both the borrower and cosigner will be affected.

Only private student loan lenders or refinancing companies

can require students to have cosigners. Federally guaranteed

student loans, such as Stafford loans or Direct PLUS loans,

do not require cosigners.

Planning ahead with a cosigner

If you are taking out private student loans with a cosigner,

you will want to make sure that person is protected in the

event of a tragedy.

First, check with the lender to see if they have a provision

for death discharge; this will release your cosigner from

payments in the event of your death. Alternatively, term life

insurance could be considered in cases where your spouse or

parent could be liable for student loans.

Next, check about policies related to the death or bankruptcy

of a cosigner. Policies can vary widely—some lenders may

If you’re using private student loans,

you may be asked to apply with a

cosigner. Typically, lenders will ask

for a cosigner when they think the

application won’t get approved

without the addition of a

creditworthy person who is able to

guarantee the loan and payments.

After Graduation Options / 15

allow the loan to continue as is if it's in good standing;

others may ask you to find a new consigner, and others

may call in the loan.

The goal here is to make sure you get the upside of using a

cosigner (lower rates or approved loans) without putting your

cosigner into financial danger if something tragic happens

down the road.

Cosigner release may also be available once the student

completes their higher education. Some loans offer a release

after a certain amount of on-time payments have been made.

After Graduation: Options for Repayment

Student loan consolidation and/or refinancing can be

smart financial moves for you after you have graduated.

It can help lower interest payments, and allow borrowers

to customize monthly payments and term according to

your personal budget.

While refinancing and consolidation are sometimes used

interchangeably, they are two separate, but related, options

for your student loans.

First, consolidation is when you combine multiple student

loans into just one loan. This is a good option for borrowers

who are happy with their rates (and don’t think they can go

lower) and who are looking to simplify loans from multiple

servicers. Borrowers with federal loans can consolidate

with a Direct Consolidation Loan through the government.

By consolidating with a government program, borrowers

can still take advantage of the government’s income-based

repayment and forgiveness programs.

Refinancing is when you take out a new private loan

under new terms—generally at a lower interest rate

—and use that to pay off your original student loans faster or

at better rates. Here’s when confusion can arise:

Even though you may be just starting

your education journey, knowing the

options you will have after graduation

is helpful. Typically, student loan

repayment will start six months

after you have graduated.

Student loan borrowers can get more details about government consolidation and income-based repayment programs at studentaid.gov.

After Graduation: Options / 16

part of refinancing includes consolidating your loans if you’re

refinancing more than one loan.

For those graduating from a professional-degree program

you can start considering refinancing as soon as you have an

offer letter in hand that details a steady income. Your new

financial profile shows lenders that you can make regular

payments and can help lower your rates.

If you have borrowed significantly more that your starting

salary following graduate school, you may consider one of

the government’s income-based repayment plans. The

government has four different plans and it can limit your

payments to as little as 10% of your discretionary income,

and payments are stretched out over 20 to 25 years. However,

there are certain drawbacks to using an income-based

repayment plan, including future tax liability on debt that

is forgiven at the end of your term and changing payments

every year based on your current income.

READ MORE ON EARNEST’S BLOG:

The Pros and Cons of Refinancing

Your Student Loans

How to Compare Student

Loan Refinancing Companies

Income-Based Repayment:

Understanding the Tradeoffs

A Financial Aid Glossary / 17

A Financial Aid GlossaryIf you’re encountering financial aid

for education for the first time, or still

find it cryptic after going through the

process, here are some of the key terms

you’ll encounter again and again.

Tuition: This represents only the cost of classes

(or credits).

Cost of attendance (COA): This is the full sticker price of

attending the school. COA includes tuition and fees as well as

estimates for housing costs, books, supplies, transportation,

and loan fees. This may also include childcare in some cases.

Every institution that receives federal financial aid funds

must make this publicly available information; you can find

the COA through the school’s financial aid office.

Net price: This is the total cost of attendance minus

the amount of need-based aid you receive based on

your financial situation. Every school is required to

make a net price calculator available. However, be

forewarned that unless a school specifically has a

section for graduate students, this calculator typically

reflects undergraduate costs.

FAFSA: This is the acronym for the Free Application for

Federal Student Aid. It is the very first form to complete

when considering how to pay for your education. The

questions are designed to determine your level of need.

This, along with information from the schools you’re

applying to, will determine how much financial aid

you’re eligible to receive.

Dependency status: The first few questions you answer

on the FAFSA are designed to determine whether you are a

“dependent” or independent in relation to your family. In

almost all cases, graduate and professional degree students

are considered independent students and are not required

to supply parent information on the FAFSA, according to the

Department of Education.

Need-based aid: This is determined by your FAFSA

and is based on the financial profile of each applicant;

this could include both loans as well as other grants or

need-based scholarships and other funds made available

through the school.

A Financial Aid Glossary / 18

Merit-based aid: This kind of aid is awarded for good grades,

or other academic or extracurricular performance. This is

money that does not have to be repaid and it can be applied

toward the COA.

Federal loans: For graduate students, these typically come

in the form of unsubsidized Stafford loans and Direct PLUS

loans. Both types start accruing interest at loan origination

and have an origination fee. Rates are set the by the

government and they are fixed.

Promissory note: This is the legally binding, signed

document you receive when you receive federal loans. This

document lists the terms and conditions of your loan.

Private loans: These are provided by banks, credit unions,

schools, state agencies, and online lenders, rather than the

federal government. Rates depend on the borrower’s profile,

and can be fixed or variable.

Loan servicing company: This is the company that handles

the service for your loan once you have graduated and

during repayment. Federal loans are serviced by a number

of different companies that contract with the Department

of Education. Private loans may be handled end-to-end by

the lending company or handed off to a third-party loan

servicing company.

* Feature Article / 19

Feature Article:

Inside the Digital Disruption of the Student Loan Industry

* Feature Article / 20

More than 40 million Americans hold

student loans, to the tune of more than

$1.2 trillion.1 The weight of student

loan debt is causing the largest

generation of young Americans in

history to rethink their financial goals

and make difficult tradeoffs. And with

tuition rising 3% per year on average,

according to the College Board,

student loans are not likely to go

away anytime soon.2

To be sure, the upside of student

loans is that we have the most highly

educated young population relative to

previous generations. Americans aged

18-34 (also known as the millennial

generation) are the most educated

generation in history.

While the surge of student borrowing

has resulted in indisputable gains for a

new generation, borrowers, regulators,

and industry observers agree: The

system by which students pay for their

education is ripe for reinvention.

Inside the Digital Disruption of the Student Loan Industry

Today, a new wave of technology

companies is doing exactly that.

San Francisco-based Earnest is aiming

to do for student loans and banking

what a handful of highly effective

startups have done in other areas of

financial services—use big data and

better technology to increase access

to high-quality financial services and

drive down price.

“We believe we can deliver something

much better to millions of people

using today’s advances in data science,

software automation and exceptional

design,” says Louis Beryl, CEO of

Earnest. “The vision here is to build the

modern bank of the next generation.”

The company started with a service to

refinance student loans in early 2015,

and launched a student loans service

in 2016. Beryl envisions a future

Earnest that offers a complete menu

of financial services and support

—all designed for a digitally

native generation.

In the fall of 2015, Rohit Chopra, a senior fellow at the Center for American Progress,

testified before Congress about unfair financial practices that distress millions of

Americans. He described a convoluted system characterized by lax oversight, low

accountability and behind-closed-door deals that are shady at best and illegal at

worst, a system that clouds the financial futures of people from all walks of life.

But he wasn’t talking about subprime mortgages or payday loans.

He was describing the student loan servicing industry.

¹ http://www.nytimes.

com/2015/09/11/

upshot/new-data-

gives-clearer-picture-

of-student-debt.html

² http://trends.

collegeboard.org

This article was written

by Andrew Palmer and

edited by Earnest.

* Feature Article / 21

It’s not only about the technology,

Beryl says; it’s also about returning to

a more humane attitude toward clients.

In the case of lending money, it means

underwriting more holistically with an

eye toward the future of the borrower—

not just the rear-view look many

traditional lenders use—and providing

service for the life of the loan.

A student loan system in shambles

How did things get so bad for

student borrowers?

There is no one culprit—or if there

is one, it has many heads. The rise of

tuition, the boom in for-profit schools,

lax regulation, and the economy have

all contributed to the student loan

debt crisis Americans collectively find

themselves in today.

Then there is the infrastructure of

lending and servicing itself. Until now,

it has resembled a network of

crumbling toll-roads built decades ago

and ruled by different sets of local laws.

For borrowers, the experience has

been dysfunctional at best.

It starts when borrowers take out loans

from the federal government to pay

for their education. Federal loan rates

are the same for every borrower in a

given year; those rates are set by the

Department of Education and are reset

on an ongoing basis. However, that

means those who borrowed in 2008

have very different rates than those

who borrowed in 2015. And until 2014,

there were few options for people

to refinance those federal loans into

lower rates.

Then there is the servicing problem.

With federal loans, borrowers are

blindly assigned a servicer—distinct

from the lender. The borrower’s first

encounter with the servicer typically

happens years after the loan was

originated. Borrowers can also be

switched from one servicer to another

with little to no warning—more than

10 million borrowers experienced a

servicer switch in the past five years

with no notice.3

Beryl envisions a future Earnest that offers a complete menu of financial services and support—all designed for a digitally native generation.

³ http://www.

consumerfinance.

gov/newsroom/

cfpb-concerned-

about-widespread-

servicing-failures-

reported-by-student-

loan-borrowers/

* Feature Article / 22

Without consistent standards or

regulation covering the whole industry,

each servicer is largely free to operate

according to its own rules.

From the traditional servicers’ point of

view, the math is simple.

“The more student loan servicers get

the borrower to pay, the more those

lenders make,” says Mark Kantrowitz,

president of MK Consulting Inc. and a

nationally recognized expert on paying

for college.

Another complication in the system:

Unlike private loans, federal loans

aren't subject to the Truth in Lending

Act. That means federal loan providers

do not always disclose all the fine

print. For borrowers, that can mean

paying rates and fees they had no idea

were coming -- the origination fee, for

instance, is currently more than 4% for

a federal Direct PLUS loan.

Kantrowitz says servicers may also see

these student borrowers as easy profit.

Most student loan borrowers are young

people with little to no credit history

and relatively little experience with the

financial world. When they’re applying

for student loans, they may not know

to ask about interest rates, repayment

options or potential fees.

Add to this the fact that student loans

are one of the only debt classes that

can’t be discharged in the case of

bankruptcy—or even death—and

you have a near-foolproof collections

system aligned against borrowers’

best interests.

Part of a new wave of financial services

Earnest’s early success in student

loan refinancing—it refinanced nearly

$500 million in loans in 2015 alone—

underscores just how much financial

services are shifting from systems that

were set up in the last century.

Personalization, in-house customer

service, better design and transparency

are the hallmarks not just of Earnest,

but a growing number of financial

service companies that are appealing

to young professionals in every

financial sphere.

That includes investing, insurance and

payments. These platforms are proving

to be more efficient, more powerful

and more delightful to use than the

systems of yore.

“We're doing things that no human

being could ever do,” says Dan Egan,

Director of Behavioral Finance and

investing at Betterment, an automated

investing service that launched in 2011

and managed nearly $4 billion in assets

in early 2016. “People can only process

so much data at a time. Algorithms

don't get tired or bored.”

Lending gets personal

Beryl’s own experience in financing

his graduate education—he earned his

dual MBA and master’s in public policy

from Harvard’s Business School and

Kennedy School in 2011—is key for the

vision of Earnest.

When he applied for loans, his

Stafford federal rates were over 7% and

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private loans were in the double-digits

—even though his same credit profile

would likely score a mortgage or auto

loan at half or even a quarter of those

rates. And he saw this happening all

around him.

“Really high-quality, high-potential

young people are being dramatically

overcharged and mispriced by the

credit system,” Beryl says. “You’ve

heard all of these tactics to get better

rates—you need to go get a J.Crew card,

and pay it off. But that’s crazy! All the

workarounds indicate that the system

isn’t built right.”

One of the innovations Earnest has

brought to the table is its Precision

Pricing feature, the first of its kind in

the student loan industry, which also

allows borrowers to personalize the

terms of a loan based on their own

budget. Another innovation is the

full-stack service—an Earnest

borrower is an Earnest client for

the whole life of the loan.

While student loan lenders and

servicers can’t halt the upward

trajectory in college costs, they can

use the tools at their disposal to help

students navigate the borrowing and

repayment process smoothly and

successfully—and potentially reinvent

their industry along the way.

“We are at the beginning stages

of a massive change in people's

behavior when it comes to their

financial lives,” Beryl says.

“We're using technology to not only

drastically reduce our infrastructure

costs, but also understand people

much more holistically.”

Personalization, in-house customer service, better design and transparency are the hallmarks not just of Earnest, but a growing number of financial service companies that are appealing to young professionals in every financial sphere.

* Feature Article / 24

Thank you for reading the Earnest guide —we are here to support you in your education journey. We look forward to working with you. Please contact us if you have questions at hello@earnest.com.