Wharton FinTech Podcast
00:01:16 · Matt Palese
[00:01:16] S1: Yeah. So, you know, I've been in consumer lending my entire career, so call it twenty eight years. You know, seventeen of those years have been in student lending. And to your point, when I joined Sallie Mae in 2009, really everything about the student loan landscape was changing. The FFEL program at the time was ending, and what that meant was effectively all federal loans were moving to the Department of Education. And we were all at the very beginning of what we know now to be sort of a seven year run where interest rates were effectively near 0%. And really because of the financial crisis coming off of the 'twenty eight, 'twenty nine Great Recession, college enrollments skyrocketed. And so student loan debt grew, I think at the time it was about, in 2025 in particular, dollars 400,000,000,000. And that grew to about a trillion dollars by 2012. So there was massive growth in debt. I think combined with those low interest rates, it made it pretty clear to me that there was a pretty big opportunity to help borrowers save on their student loans. What's interesting, there was a parallel there that was happening in my personal life, and to your point around the pivotal moment, that really hit home for me. My wife and I got married in 2013, and what I think every couple did, or does today, and at least did at the time, is that you sat down and you review your finances together, you take a look at your debt obligations. And when we did that, that included her student loans. She was a teacher at the time. And it became very, very clear to me that she didn't have any idea at the time what she had outstanding in terms of her overall student loan debt. She didn't know what her rates were. She didn't know when the due dates were, when her grace period expired. Because she was a teacher, she didn't know whether she would qualify for public student loan forgiveness. It was a complicated decision because we were thinking through how we would manage that debt after we got married, and so we were thinking through and processing the various options that she might be eligible for, such as income driven repayment programs, and as I mentioned earlier, the student loan forgiveness component of it, and we were thinking through that process and whether we got married, whether marriage would have an impact on her ability to qualify for those programs. Right?
00:03:44 · Matt Palese, Vaibhav
And so it was complicated and it was very hard to really figure out how we should be thinking about that in relation to our future. And so for me, that was an extremely pivotal moment, both personally and professionally. I got to see sort of that struggle and experience that struggle firsthand with my wife. And so, you know, that's largely a reason why, and how, to some extent, you know, I show up effectively every single day and how every Earnest employee shows up every single day, really with the mindset of finding ways to extend help to the roughly 45,000,000 people across the country that have student loan debt today. [00:04:24] S0: Thanks for sharing that personal story, Anne. I understand you've been part of this, let's say, two decades of expanding student debt, both inside and outside of The US, but I'm curious why specifically refinancing. I mean, I see the business rationale in that there's employment, there's perhaps lower risk, more predictability, but would love to hear from you.
00:04:48 · Matt Palese
[00:04:48] S1: Yeah. So refinancing as an asset class, I think if you were to step back today and just take a look at the overall market, today it's $1,800,000,000,000 The problem just continues to grow and there continues to be a huge and massive opportunity to help customers pay off their loans faster and as a result of that save a meaningful amount of money. To put that into context, we believe there's about $100,000,000 of student loan debt today that qualifies and would benefit from refinancing. But if you look back last year, only about $10,000,000,000 actually took action or $10,000,000,000 of debt actually refinanced. So call it 10% of that actually took advantage of the option. And so the fundamental problem here that we're trying to solve is just figuring out how we reach more people who are eligible to refinance. And so my ultimate goal is to try to get that 10% number a lot higher. And I want to see that 1,800,000,000,000 in overall student debt come down. I think the other component here is, when you zoom out a little bit and you think about, well, how do we view success? From my vantage point, it's basically helping them get out of student loan debt so they can really live the life they envision. That's our mission. It's effectively on the proverbial wall, right? But the reality is that's obviously a lot easier said than done, and how you get there looks different for everyone. I think for some people it might mean keeping their payment the same or even increasing it slightly so they can pay off the loan significantly faster. And then for other people it might mean reducing their monthly payment by extending their loan term. It's all circumstantial and it really depends on the customer, but the way that Earnest looks to enable that is to really offer the most flexible options in the simplest and most automated way, while sort of combining that with best in class customer support to really help guide customers and borrowers through these complicated decisions.
00:06:49 · Vaibhav, Matt Palese
[00:06:49] S0: Understood. And I understand that being flexible for the first time borrowers or for those refinancing this loan is the key point here and is something you're absolutely focused on. I'm also curious to understand a little more about the business model here. Are you essentially making money through lending margin? What are your funding sources look like? Or perhaps are there any other revenue streams as well, like data partnerships, etcetera? [00:07:15] S1: Yeah, so at its core, I mean, we're a lending business, so we make money on the spread between our cost of funds and the rate we offer our borrowers. That is fundamentally the model here. I think the key call out is that we don't charge fees of any kind. What that really means in practice is that when you apply for or take a loan out with Earnest, there are literally no origination fees, no application fees, no late fees, no insufficient check fees if a check happens to get returned for some various reason, or like hardship enrollment fees. And so if a borrower hits a snag or goes through a rough patch and needs help, we have programs that allow them to help them get through that stage. And there's no fees that come along with any of those programs either. The problem we are trying to solve is helping borrowers get out of student loan debt faster. Right? And so piling on fees cuts directly against solving that problem and really contradicts our overall mission at Earnest.
00:07:15 · Matt Palese, Vaibhav
[00:07:15] S1: Yeah, so at its core, I mean, we're a lending business, so we make money on the spread between our cost of funds and the rate we offer our borrowers. That is fundamentally the model here. I think the key call out is that we don't charge fees of any kind. What that really means in practice is that when you apply for or take a loan out with Earnest, there are literally no origination fees, no application fees, no late fees, no insufficient check fees if a check happens to get returned for some various reason, or like hardship enrollment fees. And so if a borrower hits a snag or goes through a rough patch and needs help, we have programs that allow them to help them get through that stage. And there's no fees that come along with any of those programs either. The problem we are trying to solve is helping borrowers get out of student loan debt faster. Right? And so piling on fees cuts directly against solving that problem and really contradicts our overall mission at Earnest. [00:08:17] S0: Yeah. I'm also curious to understand how big is your loan portfolio today? And I can only imagine managing a big loan portfolio at a pretty large scale is quite operationally intensive and the infrastructure behind the scenes would be equally important. How much of that is in house, outsourced to partners or to other service providers perhaps? Curious And to understand, what does your tech stack and or investment look like?
00:08:46 · Matt Palese
[00:08:46] S1: Yes. Ever since Earnest was founded in 2013, we helped customers by refinancing over $24,000,000,000 of student loan debt. Currently there's about $10,000,000,000 that sort of effectively sits on our balance sheet. And so if you translate that into actual customers over the life of Earnest, it's well over 400,000 customers and active customers today, it's more than 250,000, as an example. And you're right, I mean, all of our servicing today is, it is complex and servicing is something that we have been extremely intentional. Almost all of our servicing today is managed internally by Earnest employees. We do augment that with a servicing partner, but they mostly handle back office processing. Nearly all customer facing interactions are handled by someone at Earnest. On the tech side in particular, and as I mentioned earlier, we've been extremely intentional about how we leverage, where we leverage technology. One of the value propositions for Earnest, and this is directly from customers, is the value that they put on the human centric servicing approach that we provide. And we want to continue with that focus even as we scale. So you can think about our technology investments today largely related to augmenting, whether that means self serving on our web portal and making sure they have access to the right information to help them make decisions after they take out a loan, whether it's sending us an email and interacting with us through that channel or using chat to get sort of real time responses, we want to make it as seamless as possible. I'll give you an example of how that works in practice today. So if they want to talk to a live team member, we are typically able to get them connected with a live member of the team within ninety seconds of their request. All of this is really built around the goal of providing on demand service that enable our customers to get the support they need, using whatever channel is most convenient for them.