Student Lender Earnest Breaks Fintech Deal Drought

February 12, 2016

PUBLISHED BY Wildcat Venture Partners

SOURCE Wall Street Journal

Credit fears are swirling around banks, but investors are still betting Harvard grads are a good bet to pay back their student loans.

Online student lender Earnest Inc. this week completed its first sale of a package of loans, $112 million worth, to big institutional investors, including real-estate investment trust Western Asset Mortgage Capital Corp. The highest class of notes received an A rating from credit rating firm DBRS Inc.

Earnest also inked a deal in recent weeks with Goldman Sachs Group Inc. to provide a $150 million credit line to fund loans until they are packaged and re-sold as securitizations.

Securitization of online loans soared last year, to more than $8.4 billion according to data provider PeerIQ, but had halted since mid-December as investor anxiety rose on subjects ranging from China to oil to Federal Reserve interest-rate targets.

Earnest’s is the first securitization completed this year by an online lender. The deal follows the sale of a portfolio of Lending Club loans at a premium to the balance owed. Avant Inc., a Chicago-based lender, is also currently shopping $300 million worth of its own online loans.

Earnest has lent out over $500 million since launching in 2014, and mostly refinances existing student loans and offers features to borrowers like the ability to delay a payment or switch from fixed to floating interest rates.

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