Earnest, the fintech startup that aspired to rebuild the modern bank for the next generation, has agreed to sell to student-loan servicer Navient for $155 million, the Wall Street Journal reported on Wednesday. Earnest was once valued at $375 million.
The deal brings Earnest’s big ambitions back down to earth—and it may have a similar effect on Silicon Valley’s interest in online lending overall. Earnest, like SoFi and CommonBond, got its start by offering to refinance the student loans of top university graduates. But the company struggled to harness the securitization market with the same Wall Street know-how as some of its competitors and soon lost momentum.
Other startup lenders have struggled as well. Prosper, once a trailblazer in personal loans, saw its valuation drop from $1.9 billion to $550 million last month. For over a year shares of On Deck Capital, which specializes in small business lending, have been trading around $5, down from a peak of $24 at the time of their public debut. Meanwhile, incumbents like Goldman Sachs, which launched an online lending brand for consumers last year, see an opportunity to use hefty balance sheets to their advantage, putting even greater pressure on Silicon Valley-backed entrants.
Navient, formerly part of Sallie Mae, was spun out as a separate entity in 2014; it is now the country’s largest loan servicer. The Consumer Financial Protection Bureau sued Navient in January, along with the attorneys general of Illinois and Washington, alleging that the company had harmed and misled borrowers in a number of ways.