Navient Scoops Up Online Lender Earnest

Earnest, a FinTech startup with hopes of creating a modern financial institution, is selling to student-loan giant Navient for $155 million in cash.

According to TechCrunch, the news is a disappointment for Earnest’s investors, who sunk roughly $320 million in cash and debt into the company. While Earnest started out providing small loans based on a person’s earning potential, it evolved to provide personal loans to a broader base of customers, and also lends money to coding academies.

Earnest was valued at around $375 million by venture capital firms in 2015 – more than double the price for which it just agreed to sell. It had been looking to raise additional capital or find a buyer for much of this year. Navient, the country’s largest loan servicer, plans to maintain the Earnest brand as a separate unit led by Earnest’s cofounders, Louis Beryl and Ben Hutchinson.

Earnest isn’t the only lending company that has struggled. SoFi – which once focused on refinancing student loans – had applied in summer for a bank charter that would allow it to add banking services like deposits, checking accounts and savings accounts to its existing loan and wealth management products. Those plans were put on hold after two lawsuits in which the plaintiffs alleged sexual harassment and unfair work practices.

In addition, online lender Pioneer’s valuation has recently plunged by 70 percent, falling from $1.9 billion to $550 million in a funding round last month. And publicly traded online lending companies like OnDeck Capital and Lending Club haven’t fared much better: OnDeck’s shares once traded for $24 but now trade at $5, while Lending Club shares, which traded early on for about $25 apiece, are today trading at around $6.

Steve Eisman, a money manager who predicted the collapse of sub-prime mortgage securities, doesn’t seem surprised by the issues online lending firms have faced. He said recently that the companies have been careless, and that Silicon Valley is “clueless” about the work involved in making loans to consumers.