We put together a quick guide to understanding the transition period known as the 10-day payoff so you know exactly what’s happening when with your Earnest refinance.
After you are approved for an Earnest loan there is a transition period while we pay off your old loans and start your new one. With any loan you refinance (whether that’s a student loan, auto loan, or home loan), this is known as the 10-day payoff. To be sure, it sometimes takes a little more than 10 days, but this is a standard process you’ll find with many kinds of refinancing.
Before you start
Getting the correct 10-day payoff information before the clock is ticking is crucial.
The amount due in your 10-day payoff is the current loan amount from your old servicer—that includes the principal and interest accrued up until today—plus interest that accrues over the next 10 days. Each loan you’re refinancing will have its own 10-day payoff amount.
Payoff amount = Current loan amount + interest on the principal for next 10 days
The calculation is based on calendar days, not business days, so if your loan servicer allows you to calculate it yourself, be sure to select the right dates.
Based on what you report to us, Earnest will send a “payoff” check that covers this total amount so your loan is paid off in full.
Most loan servicers provide the 10-day payoff balance to you directly in your online account, along with other information you need including account number, loan number, and mailing address for a payoff check.
If you cannot get that information online, you may need to directly call or email your previous servicer to confirm the following: the payoff amount, account number, your individual loan numbers, and address for sending checks.
Be sure to confirm the information below before signing your loan agreement:
- Payment address versus correspondence address: When you look at your billing statement, you may see a few addresses. Checks can only be processed at the payment or payoff address for your servicer so be sure you’re providing that address, not the correspondence address. Note: If you have private and federal loans with the same servicer, they may have different addresses.
- Specific payoff amount for each loan: If you’re paying off some but not all of your existing loans, you’ll need the 10-day payoff amount for just the specific loans that you’re paying off. You may need to call your servicer to get this amount if it’s not broken down by individual loan for you on your statement.
- Account number: Be sure to double check your account number when you’re entering this information. A typo could mean a check is applied to another person’s account, or a delay — both of which we want to avoid.
Our finance team will review payoff information before sending to ensure everything is complete but they’re not always able to confirm addresses or account information. Be sure to upload a full billing statement to your Earnest account so we can help you verify this information before we send out your checks. We may reach out to you if we have any questions at this step.
We know it can be difficult to find this information. If there’s any doubt, call your servicer directly to confirm. The better the information we get upfront, the easier the payoff process is.
Day 0: Sign your Earnest loan.
Once you’ve obtained your 10-day payoff amount(s) and provided the information to us, be sure to sign your Earnest loan agreement on the same day. If you sign on another day, then you’ll need to re-check the amounts and update your 10-day payoff balances before signing so you can ensure your loan gets paid off in full.
After you sign your loan agreement, you’ll see “Payoff En Route” on your Earnest dashboard.
Day 1-3: Wait the cooling period.
Now Earnest must wait three business days by law before sending your payoff checks. This is known as a cooling period and it is a time where you have the right to cancel your new loan.
Day 4: Earnest sends payment to your old servicers.
Once this legal holding period is over, Earnest will send a check (or checks) via mail or electronic transfer to your current servicer(s).
We’ve been working hard to build relationships with loan servicers to make the process as simple as possible. With servicers that accept electronic transfers, we send the funds directly, which reduces potential issues.
If your previous servicer does not accept electronic transfers, the check is sent through the mail with explicit instructions about which specific loans to apply the funds to. If you tell us that there are certain loans you don’t want to pay off, those details will also be included. Your loan is active with your current servicer until they receive payoff from Earnest, at which point you will begin to accrue interest on your Earnest loan.
Day 10: Your old loans are closed.
Once the check from Earnest is received, we’ll send you an email letting you know that your Earnest loan is active. If you have multiple loans, interest only accrues on the payoffs that we’ve confirmed have been received.
Always check in with your previous servicer and continue making on-time payments until your loan shows a zero balance.
Sometimes your check is processed early or late by your servicer which could leave you with a small balance or negative amount on your account.
The timing of the payoffs don’t always match up to exactly 10 days. If you see a negative balance, the payment will either go back to Earnest or back to you. Note, it can sometimes takes four to six weeks for the payment to arrive. If Earnest receives an overpayment, we apply that to your account as an extra payment.
If there is a remaining balance on your loan, we’ll ask you to pay off your servicer directly to your existing servicer account is paid in full. Now that you know exactly how it works, we are ready to help you get started.
Congratulations, you’re here because you’re ready to take charge of your student loans.
We can help you understand the difference between consolidating and refinancing student loans—and figure out what option is best for your future.
What is student loan consolidation?
Consolidating your federal student loans with a Direct Consolidation Loan from the government, for example, involves gathering all your loans under one new loan. With consolidation, you now have only one bill due each month.
While this can make your life easier from a payment perspective, you will not save any money as your new interest rate with a consolidation loan is a weighted average of your existing rates.
How does a weighted average work? If you have a $10,000 loan with a 6% interest rate and another $5,000 with 5%, and you’re planning to pay them off in 10 years. Your new rate would be 5.67%. The calculation works like this: As $10,000 is ⅔ of your total loan balance and $5,000 is ⅓, you’d multiply each interest rate by that fraction and add the results: (⅔ * 6% + ⅓ * 5% = 5.67%).
Consolidating your loans may be a good option if you’re happy with your rates, you are planning to use an income-based repayment program, or refinancing is not the right fit for you at this time. You can stretch your term out with a consolidation loan, and that may lower your monthly payment even though you may pay more over time.
You can always refinance your consolidated loans at a later point in time.
What is student loan refinancing?
When refinancing your student loans, you get a new loan with a private lender such as Earnest and pay off your existing loans. You will only have one bill to pay each month when you refinance all your loans.
However, it’s different than consolidation because you also get a new interest rate—and your new interest rate can help you save money over the life of the loan. At Earnest, our clients save an average of more than $21,000 by refinancing their student loans. (You can learn more about Earnest calculations in disclaimers available at Earnest.com.)
You can also change the length of your repayment to be shorter or longer, according to what you can afford to pay each month with Earnest’s Precision Pricing feature. You also have the option to pick between a variable and a fixed rate for your new loan.
With refinancing, you are not only consolidating your loans, but you are also getting a new loan with improved terms.
Here’s a checklist of things you’ll need to get ready to refinance.
Which loans are eligible for refinancing?
You can refinance both federal and private student loans. This includes all types of federal loans, including Direct Loans, Stafford Loans, PLUS Loans, as well as private loans.
It’s important to note that when you refinance, you can decide which loans you want to refinance and which, if any, you’re happy to keep at their current terms. Some people may want to refinance all their loans, and for other it may make sense to only refinance some of them.
When you refinance federal loans and private loans into a one new private loan you will no longer be eligible to use one of the government’s income-based repayment programs.
To decide, you should look at the terms for each of your current loans—and whether refinancing can help you do better. You can get an estimated rate from Earnest in just two minutes.
What should I choose?
|You should consolidate if:||You should refinance if:|
|You do not have a steady income currently.||You do have a steady income or full-time job offer in hand.|
|You will be using an income-based repayment program.||You will not be using an income-based repayment program.|
|You are satisfied with your current loans.||You want to customize the term of your repayment according to your budget and save money through lower interest rates.|
You are thinking about refinancing your student loans—great move! But before you complete your new loan, you’ll need to make a decision: Should you take the fixed-rate or the variable-rate loan?
The most simplified way to think about it is this: variable loans can be cheaper—but your minimum payment will change over time—while fixed loans generally cost a little more and your minimum payment will never change.
|Variable rates are better when:||Fixed rates are better when:|
|You have a shorter loan term, which limits the chances for rates to change.||You have a longer loan term, and you don’t want to be affected by moving rates.|
|You can handle an increased minimum payment.||You don’t want your minimum payment to increase.|
|You believe interest rates will decrease or stay flat in the near future.||You believe interest rates will increase in the future and you want to lock in a rate now.|
What is a fixed-rate loan?
A fixed-rate loan means that your minimum payment will never change over the life of the loan—you lock in your terms when your sign the agreement, and even if interest rates go up, your APR does not.
One reason borrowers, especially those with long-term loans, like fixed rate loans is that they provide a kind of “interest rate insurance”—they cost a little more, but that premium protects you against price changes down the road.
What is a variable-rate loan?
A variable rate may start out lower than a fixed rate, but it will fluctuate over the life of the loan as its underlying reference rate changes. This means your minimum payment will change as rates change.
The reference rate Earnest uses is 1-month LIBOR.1 At Earnest, we update the rate monthly, according to figures published in the Wall Street Journal.
Some borrowers prefer variable rates because they don’t want to pay a premium for the “interest rate insurance”—they are making a kind of bet that rates won’t rise significantly during their loan term, which is why these tend to be better for shorter terms.
A final thing about variable rates to keep mind: There is no limit to how much the reference rate can rise or fall in any one year, but each loan does have a maximum APR. At Earnest, any variable loan that has a term of 10 years or less has a lifetime cap of 8.95% For any loan term of more than 10 years and up to 15 years, it’s 9.95%. Any term longer than 15 years is capped at 11.95% subject to state availability.
What happens to my loan payment when rates change?
If you have a variable-rate private loan, you are likely to see a change in your APR and minimum payment due when rates change. For example, if your existing APR was 2.60% and 1-month LIBOR increases by 25 basis points, or .25%, your new APR will be 2.85%. You can read more about the effect of an interest rate change on student loans on our blog.
Can I switch from variable to a fixed-rate loan?
You can always switch at Earnest with no fees. (That’s one more way we’re unlike any other lender and are here to work with you and your needs.) You may switch once every six months, in either direction. However, the APR on your new loan will be based on prevailing interest rates and your financial profile at the time of your request, which means the new rate could be higher than what you were offered originally.
1.LIBOR stands for London Interbank Offered Rate. This is the rate of interest at which banks offer to lend money to one another and is commonly used as the reference rate for student loans. Other types of loans from other lenders might use the prime rate as a reference rate, so it’s always important to ask what reference rate a lender is using before choosing a variable rate loan for any type of loan.
At Earnest, we are building the bank of the future. That means we’re hard at work to fix broken financial systems with better software, better data science, and better design in order to save our clients time and money—and help them achieve their dreams faster.
One place we are applying our technology to do that? Customized borrowing for those who are refinancing student loans.
Earnest is the first and only company of its kind to use smarter technology to save money for clients through personalized loan terms—an innovative departure from traditional loans that are limited to terms of five, 10, 15, or 20 years. For our clients that can add up to thousands of dollars in additional savings on top of savings from refinancing alone.1
At the core of our service is Precision Pricing™, a feature that allows student loan borrowers who are refinancing to customize loan terms and interest rates according to their personal budget.
How does Precision Pricing work to save you money?
When you refinance your student loans with Earnest, we start with you. We ask: How much can you budget to pay down your debt every month?
Once we know your budget—let’s say it’s $1,200 per month—and your total loan amount, Precision Pricing pinpoints the exact interest rate, down to a basis point, that you should be paying. It also creates your payoff term to the nearest month, even if it’s not a uniform number—that might be five years and one month or 10 years and seven months for example—as it fits your budget.
Precision Pricing: The Basics
1. Set the monthly payment that works with your budget.
2. Get a custom interest rate and term based on your monthly payment.
3. Save money over the life of your loan.
This is a completely reimagined way to borrow money—one that starts with the borrower’s needs, rather than the lender’s. Earnest’s Precision Pricing liberates you from the one-size-fits-all terms that all other student loan refinancers use.
A Case Study
Katie is a recent MBA graduate and has a $100,000 loan she’s refinancing with Earnest. She knows she can afford to pay down $1,000 per month toward that debt but can’t pay more than that.
With Precision Pricing, Katie’s budgeted payment means she can pay off her loan in just over 10 years at an interest rate of 4.74%. That’s her custom Earnest term and rate, which saves her an extra $2,350 compared to other refinancing companies.
With another refinancer, Katie had only two choices: Take a 10-year loan and pay $1,042 a month (she cannot afford this) at 4.61% or take the 15-year loan and pay $798 a month (she can pay more than this) at 5.12%. Even if she opts to pay $1,000 a month on that 15-year loan, she’s still locked into that higher interest rate, paying an extra $2,350 over the life of the loan.
Your Budget, Your Loan
Precision Pricing at Earnest is about working with you—our goal is to get you to the sweet spot between what you can afford and what you should be paying in interest, never a single basis point more.
1 Learn more about Earnest calculations in disclaimers available at Earnest.com.