In November of 2017, student loan refinance company Earnest was purchased by Navient for $155 million. To the corporate world, the deal was spun as the merger between a company with useful student loan refinance technology and systems (Earnest) and a student loan giant with the financial resources to fund the loans (Navient). The name Navient may sound familiar to many borrowers because it was the corporate entity that was spun off of Sallie Mae.
Thus, the short version of events is that Sallie Mae split into two companies, Navient and Sallie Mae. Then one of the two companies, Navient, purchased Earnest.
These corporate spinoffs, mergers, and buyouts normally are not the focus of this site because the impact is usually minimal for most borrowers. This refinance lender purchase is an exception.
Refinancing Sallie Mae Loans with Earnest
When Navient and Sallie Mae became separate companies, they entered into an agreement to not compete with each other. The sale of Earnest to Navient now means that Earnest cannot compete with Sallie Mae, as confirmed by Earnest.
This means that Earnest is still open for business for student loan refinancing, but borrowers who have Sallie Mae loans will not be able to refinance with Earnest.
The good news for borrowers is that there are over a dozen companies offering student loan refinancing services, and Earnest is the only one that is unable to refinance Sallie Mae loans.
Is there a way around the Earnest Sallie Mae Non-Compete?
In theory it is possible for borrowers who have Sallie Mae loans to refinance with Earnest.
While borrowers could not directly refinance with Earnest, they could refinance with another lender such as SoFi or Laurel Road. Once the refinance process is complete, the borrower could then refinance again, this time with Earnest, because borrowers are able to refinance their student loans multiple times. Due to the time that is required to refinance a loan, going through this process would take several months at minimum.
It is also worth noting that going through all these steps to get Sallie Mae loans refinanced with Earnest is probably a waste of time…
Is the workaround a good idea?
There really is no reason to perform such an elaborate financial maneuver just to work with any specific lender. From the borrower perspective, the most important consideration should be interest rates. If a lender is offering the best interest rates, they usually should get the borrower’s business.
Borrowers with Sallie Mae loans should shop around and find the lender offering the best rates. However, Sallie Mae customers should know that Earnest probably won’t be an option.
Once loans are refinanced, it is certainly smart for borrowers to keep an eye on interest rates to consider a subsequent refinance. This is especially true if market interest rates improve or a borrower’s individual finances improve making them more likely to get a premium interest rate. During a subsequent refinance, Earnest can definitely be considered as the non-compete agreement with Sallie Mae would no longer apply.
However, absent Earnest offering the best interest rates, we see no reason why a borrower should target them as a lender.
Corporate movement in the student loan world has created a strange situation for Sallie Mae borrowers who are considering refinancing with Earnest. It is an inconvenience, but due to the many lenders in the student loan refinance marketplace, it really shouldn’t make a difference.