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Earnest Student Loan Review: Pros and Cons

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Being able to skip a monthly student loan payment when you need to might sound like pie in the sky, but one student loan company serves up the special to its customers.

Earnest has long been known for refinancing education debt but, as of April 2019, it’s also lending it to current students.

Aside from the ability for borrowers to forgo one payment per year, the online-only lender offers other perks, including competitive rates and an easy application process. Here’s our full Earnest student loan review.

Earnest student loans in a nutshell

Acquired by Navient in 2017, Earnest now features education loans for both undergraduate and graduate students. To be eligible, you must be a full-time student seeking a bachelor’s or an advanced degree at an eligible university. You can confirm that you meet the criteria — without affecting your credit — simply by providing your school name and estimated credit score.

Earnest offers student loans of between $1,000 (unless specified by the state of residence) and 100% of your school’s cost of attendance. Other features include:

  • Choice of a fixed or variable interest rate
  • Loan terms spanning 10, 12 or 15 years, with cosigned loans also eligible for a five- or seven-year term
  • A longer-than-usual nine-month grace period after leaving school
  • Option of flat, interest-only or full payments while in school — or you can defer payments until the end of the grace period (unless specified by the state of residence)
  • No loan fees, even for late payments
  • 0.25% rate discount for enrolling in autopay

The highlights of Earnest student loans

With so much jargon, student loans can be confusing. For its part, Earnest attempts to demystify the borrowing process.

The company is extremely transparent about its eligibility criteria, for example. To qualify, you (or your cosigner) would need a 650 credit score, three years of credit history and at least $35,000 in annual income.

Clear-cut and up-front guidelines such as these, along with a solid customer service department — which it calls its “Client Happiness” team — might help explain why Earnest enjoys a five-star rating on review sites like Trustpilot.

Here are three more reasons you might like Earnest as your potential lender.

Competitive fixed and variable rates

Earnest offers variable rates for student loan refinancing starting at 2.14% and fixed rates beginning at 3.45%, counting its 0.25% rate reduction for signing up for autopay.

Those are relatively low rates when compared with many of the competing banks, credit unions and online companies out there. That may also be true if you’re a graduate student considering federal student loans: Direct Unsubsidized Loans (6.08%) and PLUS Loans (7.08%) both carried higher rates in 2019 — and that’s before accounting for the government’s loan origination fees.

With Earnest, you may be able to score an interest rate on the lower end of their range by including a cosigner, even if you could qualify on your own.

A seamless loan application process

If you’re ready to apply with Earnest, you can carry out the entire process on your desktop or mobile device.

1. Confirm your eligibility: Input your school name, approximate credit score and other information to receive a decision within two minutes.

2. Complete a full application: After being invited (or possibly required) to include a cosigner, you would provide additional details, such as your housing costs and tax forms, to formally apply for a loan. Earnest prides itself on considering more factors than most lenders, including your (or your cosigner’s) savings and assets, as well as employment history and career trajectory.

3. Select your loan term: Once your application is approved, you’ll be offered a rate and a potential loan term. As noted above, independent borrowers could choose to repay their debt over 10, 12 or 15 years, and cosigned loans are also eligible for a five- or seven-year term. Once you receive your formal loan offer, you would have up to 30 days to accept it.

Flexible repayment options

As an enrolled student, you might like the idea of Earnest’s nine-month grace period — three months longer than the industry standard. It might allow you to put off repayment until you’ve found your footing in the real world.

Once you’re in repayment on your loans, however, you could still find yourself overwhelmed by other financial obligations, such as finding a job or dealing with medical or credit card debt. Fortunately, Earnest is also one of the lenders with payment postponement options if you need a break from your monthly bill.

Military members, for example, are eligible for a deferment while on active duty. More broadly, any Earnest borrower can skip one payment per year — though this would lengthen your loan term and increase your interest payout over the life of the loan.

To skip a payment, you need to have previously made at least six consecutive and full payments toward your debt, and you must file your request at least five days before your next payment due date.

The fine print of Earnest student loans

No Earnest student loan review would be complete without full context, including some of the downsides.

It’s wise to consider how the company might fall short of your borrowing needs, so before zeroing in on this lender as your choice, keep these three facts in mind:

You might not be eligible at all

Like other lenders, Earnest has strict eligibility requirements. Even if you (and your cosigner) have the credit score and income to qualify, you could be turned down if there’s a prior collections notice or bankruptcy proceeding.

Beyond meeting thresholds for your or your cosigner’s credit history and financial records, your eligibility with Earnest also depends on your residency status. International students will need a Social Security number and permanent resident cosigner to qualify; without a cosigner, you’ll need to be a U.S. citizen or green card-holder yourself.

Other cases where you could be deemed ineligible include:

  • Attending school part-time
  • Attending a two-year college or trade school
  • Seeking an associate’s degree
  • A parent borrowing on behalf of your child
  • A resident of Alaska, Connecticut, Delaware, Hawaii, Illinois, Kentucky, Nevada, New Hampshire, Texas or Virginia

Keep in mind that there are reputable lenders serving borrowers who fall into some of the categories above. For example, Sallie Mae, College Ave and Wells Fargo all lend to part-time students. Likewise, if you’re comparing Earnest versus SoFi, you’ll see that the latter lender offers products in all 50 states and Washington D.C.

You can confirm your eligibility — but not your rate

It’s wise to shop around with multiple lenders before sitting down to apply for a student loan, as each application could result in a hard credit check that may ding your credit score, especially if the different checks aren’t conducted around the same time.

Earnest offers on-demand confirmation of your eligibility for a loan, but it doesn’t provide specific rate quotes. You would need to complete the formal application (and submit to the hard credit check) to see what fixed or variable rate would be available to you.

Other lenders, including CommonBond, allow you to view your potential interest rate in the same amount of time it takes Earnest to deem you eligible.

That said, however, Earnest’s student loan product just debuted in April 2019, so if you’re applying later, you could check back to see if it adds a quick rate-quote option in the future.

You can’t release your cosigner until the loan is paid off

Earnest scores a point for allowing eligible borrowers to apply without a cosigner — some of its competitors do require undergraduates to tack a cosigner onto their application.

However, Earnest loses a point in our eyes for not providing a cosigner release program. Lenders like Sallie Mae offer borrowers the ability to drop their guarantor after as few as 12 full and prompt payments. If awarding your mom, dad or non-parent cosigner with an early removal is important to you, you might be better off borrowing elsewhere.

Still, you could always remove your cosigner by refinancing your student loans — either with Earnest or a competing lender — sometime down the road.

Are Earnest student loans right for you?

There are a handful of to-dos before resorting to a private student loan at Earnest or any lender for that matter: completing the Free Application for Federal Student Aid (FAFSA), seeking private scholarships and state grants, applying for work-study and tapping into savings. The FAFSA is especially important, since federal student loans provide protections that private lenders don’t.

With those items crossed off, keep Earnest in mind for your private loan needs. Thanks to its competitive interest rates and flexible repayment options, it’s among our favorite lenders.

On the other hand, it won’t serve your needs if, for example, you’re attending school part-time or as an international student. Earnest could also fall short if you prefer a lender featuring a cosigner release policy.

And regardless of how you think Earnest stacks up, be sure to compare it with some of the other best private lenders offering student loans today.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Andrew Pentis
Andrew Pentis |

Andrew Pentis is a writer at MagnifyMoney. You can email Andrew here

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Why You Should Think Carefully Before Applying for Income-Driven Repayment

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Income Driven Repayment

If you have federal student loans, then you’ve surely heard about income-driven repayment plans. Income-driven repayment plans, a collection of federal programs that allow graduates to lower their monthly student loan payments to a level that is manageable relative to their income, are understandably one of the most well-known features of federal student loan repayment.

While these plans can be reassuring, there are income-based repayment disadvantages worth considering before you decide to apply. Here’s what you need to know to determine if an income-driven repayment plan is truly right for your student loan situation:

When an income-driven repayment plan can be a life raft

If you really can’t make your monthly payments, income-driven repayment can be a great option. I took advantage of income-driven repayment back in 2009, when I had $28,000 in student debt and (thanks to the recession) the only job I had been able to find after graduation paid me a whopping total of $18,000 a year.

My standard monthly payments would have been several hundred dollars, a huge percentage of my take-home pay. However, income-driven repayment allowed me to bring this amount down to $98 a month. This was still a lot of money, but it was manageable, and I remember feeling grateful and relieved that I could make my payments and also pay rent and buy gas and groceries.

In situations where you feel like you’re drowning in student loan payments, an income-driven repayment plan can act as a life preserver.

Income-based repayment disadvantages to consider

There are income-based repayment disadvantages that you should know about before deciding on a plan. Just because you qualify for an income-driven repayment plan doesn’t necessarily mean you should sign up for one.

Let’s say you owe $50,000 in federal direct student loans and make $50,000 a year. You can calculate your options for income-driven repayment using student loan calculators available at MagnifyMoney. The calculator asks for the amount you owe, your current monthly payment, your interest rate, your adjusted gross income (AGI), your family size, your state of residence, your estimated annual income growth and your marital status. In addition to the debt and AGI details, I entered an interest rate of 6.8%, a family size of one person and selected “Continental U.S.” for state (for Massachusetts). According to the calculator, if you were in this situation, your standard loan payment would be $575 a month.

However, you would also be eligible for four types of income-driven repayment: Revised Pay As You Earn (REPAYE) repayment plan, Pay As You Earn (PAYE) repayment plan, Income-Based Repayment (IBR) plan and Income-Contingent Repayment (ICR) plan. While each of these plans differs a bit from the others, each one would allow you to start off with a monthly payment that’s lower than the standard $575. ICR, for example, would lower your starting monthly payment to $485. REPAYE would lower your starting monthly payment even further, bringing it down to $266.

At first glance, this looks great. After all, who wouldn’t want to have their monthly payment temporarily lowered by several hundred dollars? That’s more money in your pocket, right? Not so fast.

The importance of understanding how interest works

Taking a look at the bigger picture through the calculations above shows income-based repayment disadvantages.

Your monthly payment isn’t the only thing that income-driven repayment adjusts. Selecting a lower starting monthly payment will also change the total amount you will pay over the entire period of loan repayment, as well as how many months it will take you to repay the loan.

While income-driven repayment options may seem like the best choice right now, they do not stop interest from accruing. Over time, this interest can add up in a major way.

Deciding if an income-driven repayment plan is right for you

It is therefore worth thinking carefully about how much you can realistically afford to pay each month. If you’re making $50,000 a year, then your take-home pay, depending on your federal and state withholdings and contributions to benefits, might be somewhere around $2,800 per month. By applying for income-driven repayment, you would basically be saying that you cannot live off of $2,225 per month (that’s $2,800 minus the $575 standard monthly payment).

But is that really true? Can you really not live off of $2,225 per month? And, more to the point, is having a few hundred extra dollars in your pocket each month worth paying potentially thousands of dollars more in interest over the course of your repayment?

Instead, you could consider lowering your living expenses a little. Perhaps you can go out to eat less, quit your gym membership or get a roommate, all of which could save you money in the long run.

And what if you can live off of even less and make bigger payments? For example, if you lived extremely frugally and paid $1,000 per month toward your loans, you’d be debt-free in about 58 months and would only end up paying $58,000 in total. A payment of $1,000 per month may sound like a lot of money — and it is. But if you can make it work, you’ll be saving yourself thousands of dollars in the long run.

In short, while income-driven repayment plans can be a good option in some situations, it’s important to remember that they do not keep interest from accruing. The bottom line is, the bigger the payments you can make on your loans, the sooner they will be paid off, and the less you will have to pay in total over the lifetime of the loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Noelle
Sarah Noelle |

Sarah Noelle is a writer at MagnifyMoney. You can email Sarah at [email protected]

Marty Minchin
Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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How to Set Up IBR, PAYE and ICR Student Loan Repayment Plans

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

How to Set Up IBR, PAYE, and ICR Student Loan Repayment Plans

Does the amount you earn on a yearly basis pale in comparison to your monthly student loan payments? Do you have federal student loans? If the answer is “yes” to both of these, then you might benefit from a student loan repayment plan. These income-driven plans include:

Income-driven repayment plans can reduce your monthly payment amount — sometimes dramatically — because they cap that payment at a (hopefully) affordable level, based on your income and family size. Your payment adjusts annually according to these factors.

Specifically, the amount you pay is calculated as a percentage of your discretionary income. According to the Federal Student Aid office, for IBR and PAYE, discretionary income is the difference between your income and 150% of the poverty guideline for your family size and state of residence. For ICR, it’s the difference between your income and 100% of the poverty guideline. (You can look up the poverty guidelines used to determine eligibility for some federal programs, if you want more information.)

A great benefit of these plans is that each has a maximum length — usually 20 or 25 years — after which all remaining loan balances are forgiven. Note, however, that you will generally be taxed on the amount that gets wiped away.

Want to find out how to apply for an income-driven repayment plan? Read on for information on how the process works.

Getting started with income-driven repayment plans

Generally, if you want to set up your student loan account on an income-driven repayment plan, your best bet is to first contact your student loan servicer. (Not sure which loan servicer you have? You can check on the National Student Loan Data System website.)

If you log into your account online, you should see a section for changing your repayment plan. At the least, your servicer should address the issue in an FAQ section of its site.

It’s your loan servicer’s job to help you find the best plan for your situation, but you need to contact it as soon as you start having difficulty in making payments. You don’t want to miss any payments and end up delinquent (or worse, in default) because you couldn’t pay. Plus, loans that are in default aren’t eligible for income-driven repayment plans.

How to apply for income-driven student loan repayment

The application process is very simple and straightforward. The first step is to fill out the Income-Driven Repayment Plan Request form. This can be done online, or you can apply with a paper application supplied by your student loan servicer.

When you make your request, you have to choose the specific plan you’d like to go with. You can select one yourself, or you can ask your loan servicer to choose the plan with the lowest monthly payment amount.

Since you’re applying for a repayment plan based on your taxable income, you will need to provide proof of income. The easiest way is to use your most recent tax return, as long as your income hasn’t changed significantly from the date you filed. You will also need to have filed a federal income tax return for the past two years.

The online application makes it easy to find your adjusted gross income (AGI) — you can use the IRS Data Retrieval Tool to import your income information. If you apply with a paper application, you’ll need to supply a paper copy of your most recent federal tax return or an IRS tax return transcript.

If your income has changed a lot since you last filed, or if you haven’t filed two federal tax returns yet, there are other ways of proving your income.

First, if you don’t have any source of income at all, you just need to indicate that on your application. Only taxable income counts. So if you receive any government assistance or any other income that’s not considered taxable, you don’t need to report it here.

If you do earn an income, you’ll need to provide your most recent pay stubs or other alternative documentation that shows how much you make.

Additionally, if you have federal loans with multiple loan servicers, you must request income-driven repayment for each loan individually. There’s a section of the application that asks if you have eligible loans with more than one servicer, so you can indicate that there.

The application itself shouldn’t take long to complete, but the entire process can take a few weeks, depending on which loan servicer you have.

If you have an immediate need to lessen your payments, your loan servicer may apply a forbearance to your federal loans while the process wraps up. That’s why it’s important to contact your servicer as soon as you realize that you can’t make your payments.

You have to reapply annually

You’ll be required to submit your proof of income on an annual basis after you apply the first time. As your income changes, so does your payment, so you need to provide this information continuously. However, there’s no income limit for income-driven repayment plans.

If you start earning more and you’re on an IBR or PAYE plan, your payment amount is capped at the amount you’d be paying under the standard 10-year repayment plan. It will never exceed that amount. Technically, your loans will still be under your chosen income-driven repayment plan, but your monthly payment is no longer based on your income. You can still have your outstanding loan balance forgiven after your repayment term ends (if you don’t pay your loan off before then).

For ICR plans, your payment amount could fluctuate between the lesser of 20% of your discretionary income and what your monthly payment would be if you had a 12-year fixed plan. On a REPAYE plan, your monthly payment is simply 10% of your discretionary income.

Whose income is taken Into consideration?

If you’re married and wondering if your spouse’s income will be taken into consideration, it depends on how you file your federal taxes.

Filing separately means only your income and loans will matter (unless you’re on a REPAYE plan, which considers both incomes, regardless of how you file).

Filing jointly means your monthly payment will be based off of your joint income. If you and your spouse file jointly and you both have eligible federal student loans, all of them will be taken into consideration, but your spouse doesn’t have to enter into an income-driven repayment plan for you to join.

Meet the income-driven repayment plans

Now, let’s take a look at each major plan type and some of their respective details:

Income-Based Repayment plan overview

You don’t qualify for IBR unless your payment amount would be less than what you’re paying under the standard 10-year repayment plan.

A good way to estimate whether you’ll qualify is to check if your total student loan debt is higher than (or makes up a significant portion of) your annual discretionary income, which would reduce your monthly payment under IBR. If your debt-to-income ratio — how much student loans and other debt you have relative to your income — is high, you may qualify for this option. You can calculate your DTI in a few simple steps using information about your monthly income, debts and payments.

Borrowers who got their first student loans after July 1, 2014, have a maximum term of 20 years under IBR plans, while borrowers who had loan balances before July 1, 2014, have a maximum 25 year term. Anything left after those terms expire will be forgiven.

Pay As You Earn plan overview

For PAYE, your monthly payment will be about 10% of your discretionary income, and never more than what you’re paying under the standard 10-year payment plan.

You have a maximum of 20 years to pay back your loans under this plan, after which your balance is forgiven.

The qualifications for PAYE are the same as IBR — you must be paying less under PAYE than you were under the standard 10-year plan.

However, PAYE is only available to those who were new, first-time borrowers as of Oct. 1, 2007, and who received a disbursement in the form of a direct loan on or after Oct. 1, 2011.

Revised Pay As You Earn plan overview

REPAYE is a fairly recent addition to the income-driven repayment plan menu. It’s similar to PAYE in many ways but distinct in a few key ones.

For example, unlike with PAYE, REPAYE is available to any borrower, regardless of when you received your first federal student loan. And, if you’re married, your spouse’s income will be considered in calculating your monthly payment, no matter how you file your taxes.

Under this plan, your monthly payment is 10% of your discretionary income, and you must repay your loans for 20 years if they were used for undergraduate studies (or 25 years if you took out loans for graduate or professional studies) before they are forgiven.

Income-Contingent Repayment plan overview

Your monthly payment under the ICR plan is the lesser of these two options: 20% of your discretionary income, or the amount you would pay on a 12-year fixed repayment plan, adjusted according to your income.

Under this plan, your term is 25 years before you can receive forgiveness. There are no initial guidelines you must qualify under — anyone can choose this plan to repay their student loans.

Benefits of income-driven repayment plans

As mentioned, the big bonus for all four of these repayment plans is that your outstanding balance is forgiven after your repayment term is complete. Also, if you qualify for forgiveness after 10 years through the Public Service Loan Forgiveness program, that takes precedence.

IBR, PAYE and REPAYE have an extra perk if you took out a subsidized student loan: If your monthly payment isn’t enough to cover any interest that accrues monthly on your subsidized loan, the government will pay the difference for the first three years. For REPAYE plans, the government will also pay half of the difference on your unsubsidized loan and continue to cover half of the difference after three years on your subsidized loan.

You can use MagnifyMoney’s student loan calculators to see which plans could offer you the lowest monthly payment. Income-driven plans aren’t guaranteed to give you the lowest possible payment — all situations are different. And don’t forget that there are other repayment plans that aren’t reliant upon your income but can still lower your monthly payment, such as the graduated and extended repayment plans.

Check with your loan servicer first

Before applying for an income-driven repayment plan, it’s best to check with your loan servicer to get its input. You don’t want to end up owing more per month than you do now. These repayment plans are designed to help you, not hurt you.

You may find that forbearance or deferment is a better option, especially if you’re only experiencing a temporary economic hardship. Note that both forbearance and deferment can result in interest piling up, so be careful to examine all your options before you decide.

And while it’s crucial to check with your servicer, remember that this is your decision, and you don’t have to follow your servicer’s advice. The best solution will be the one that saves you the most money while also fitting with your own financial goals.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at [email protected]

Emily Long
Emily Long |

Emily Long is a writer at MagnifyMoney. You can email Emily here

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Student Loan
earnest

Refinance with Earnest

Refinancing rates from 2.14% APR. Checking your rates won’t affect your credit score.