Navient Delves into Student Loans Further with Earnest Acquisition
According to a Navient press release, a market leader in student loans, Navient, agreed to buy the Earnest, the fin-tech startup which once aimed to establish a top-notch financial institution, for $155 million in cash. Subject to some regulatory approvals, the deal should finalize by end of the fourth quarter of this year.
For Navient, that is a strategic move and a giant step ahead in the student loans business. Since it started working independently from Sallie Mae in 2014, the company has been dealing mainly with collecting and servicing private and federal student loans accounting for as much as $300 billion in student loans over three years. Since its inception, the management of Navient always showed ambitions to penetrate the student loan market. However, as stipulated in an agreement with Sallie Mae, Navient was blocked from operating in the student loan industry aside from servicing until 2019, explaining the acquisition of Earnest’s brand.
As the official press release goes, Earnest will remain a ''distinct brand.'' It will continue functioning as a separate unit within Navient. Furthermore, the current management team topped by the co-founder and CEO Louis Beryl will stay within the company and remaining as is. According to people familiar with the matter, some venture capital firms valued Earnest at $375 million in 2015 which is more than double the price for which Navient bought it.
Among the other benefits, the merger would guarantee Earnest the backing of a larger, more experienced, and well-funded company. Founded in 2013, Earnest had often been referred to as a smaller rival of SoFi. The ambitious startup expected to generate $1 billion in student loan refinancing in 2017. During its four years of independence, Earnest had partnered with Credit Karma and TurboTax, among others. Credit Karma dealt with loan marketing, while TurboTax recommended Earnest’s services to people interested in refinancing student debt for a lower rate. Earnest has been looking for a new investor since the beginning of the year.
When asked to comment on the news about the acquisition, Jack Remondi, the CEO of Navient, said the newly-merged companies would work together to offer relevant credit solutions to young people with the latest digital trends. Remondi added that combining Navient's experience, database, and internal resources with the innovative approaches and technologies of Earnest could lead to significant changes in the market of student loans.
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