Student Lending Analytics Blog

What's New Peer Models Are Evolving To Help Cover The Cost of College?

Here are some new developments which show how the peer financing market continues to morph over time with one provider, People Capital, providing their origination platform to facilitate traditional private loans while several other companies move more towards more of a donor model: 

• People Capital partners with Access To Money (ATM) to provide private student loans solution.  People Capital will provide the origination platform and their credit analysis tool, the Human Capital Score (from People Capital's blog) and ATM will provide their business development skills:

People Capital Is Lending...

People Capital, "a peer-to-peer (p2p) lending platform on which students are matched with college funding sources — be they individual investors, philanthropic/affinity groups or financial institutions" has originated their first set of loans, according to the New York Times Blog, Bucks:

Prosper Considering Peer-to-Peer Loan Product For Students

As I have posted here and here, peer-to-peer lending sites for students have not gained much traction over the past few years.  While there has been ample demand for loans, the supply of borrowers who are both willing to make a bet on students with little credit history and have the patience for a long repayment term, well let's just say "not so many." 

Peer-to-Peer Lender Prosper.com To Refer Students To People Capital, Now In Beta Launch

Here is an excerpt from American Banking News:

"Peer-to-peer student lending company People Capital’s partnership with Prosper is a referral partnership in which Prosper will send customers looking for student loans to People Capital and People Capital will send non-student loan borrowers to the Prosper Marketplace."

A quick scan of People Capital's website found that they are now in beta launch with their lending platform and I found four active loan requests as of this evening.  No press releases were available on their site so this would appear to be a "soft" launch although I will be on the lookout for such an announcement.  An interesting development to watch as People Capital seeks to solve the one-to-one issue (too many students seeking loans and not enough lenders) that plagued the earlier peer-to-peer efforts by focusing on larger pools of capital (institutional investors, foundations) to fund these loans. 

Feed My Future: Gifts To Support Student Loan Repayment

I came across this new company, Feed My Future, which is in start-up mode or alpha pre-release as their website describes it.  Here is the company description that appeared in an article about a business incubator called Betaspring in Providence, RI:

Feed My Future, led by Johnson & Wales University professors Mehdi Moutahir and Brian Alves, wants to tap the powers of social media to help young adults repay their student debt. Moutahir and Alves are developing a website that would allow family members and friends of, say, a recent college graduate to make secure contributions that go directly toward paying down that person’s student loans. The team also plans to create widgets that people can put on their Twitter pages, Facebook profiles, and other social networking sites to bring people to their Feed My Future Web page.

Cology CEO Describes Opportunity And Evolution of Peer-To-Peer Student Lending

Following my post yesterday on the peer-to-peer market, "Peer-to-Peer Student Lending:  Still In the Early Innings," I received this message from Cology CEO, Paul Rehnberg, describing the opportunities he sees in the peer-to-peer space following their recent acquisition of GreenNote:

"Cology, as you know has acquired GreenNote – and provides this P2P lending solution as part of an integrated resource destination for parents and students… www.tuitionu.com.

We believe that social lending has a significant and critical role as a resource alternative in financing an education.  This is evidenced by the high number of inquiries, profiles and requests that have already been made by students – through GreenNote and many other P2P providers nationwide.  The challenge facing this emerging social alternative lies in the “gap” between the smaller loan amounts that friends, family and the social network can typically provide, and the student’s need (which can be as much as $10k). 

Peer-To-Peer Student Lending: Still In The Early Innings

I got excited while reading a recent article in Forbes titled "An Alternative To Student Loans."  Having posted about peer-to-peer before, what caught my attention was the headline, which I hoped would indicate that progreess had been made.   This specific article describes the pros/cons of the peer-to-peer student lending model and identifies key players in the market, including Lending Club, People Capital, GreenNote and Virgin Money.  My concern about this article as well as others that have come before is that I believe they overstate where peer-to-peer lending is today.  Given the shortage of capital in the private loan market, I certainly root for the success of the peer-to-peer model, however, I worry that recent reports are overstating where the industry stands today.  I also understand that for this model to succeed it needs some sizzle and excitement to attract both students (which they have no problem to date) and investors.  I haven't come across any figures anywhere indicating the volume of student loans that these companies are processing (which is usually not a good sign). 

Unithrive Creates New Lending Platform to Match Alumni to Students

I was waiting for someone to start this business, which was featured yesterday in the New York Times.  In an earlier SLA survey, a financial aid administrator noted how a particularly enterprising student decided to "canvass all alumni for scholarship donations to benefit himself."  While ultimately he was unsuccessful, I hope that this new business is not. 

As posted earlier in this blog (here and here), the earlier peer-to-peer model had several defects, most simply a lack of lenders to meet the extraordinary need of students.  Of course, the timing of the economic crisis didn't help as the lack of liquidity not only hit the capital markets but also individuals who saw their net worth get devastated by twin bear markets in housing and the stock market.  One other defect was a mixing of philanthropic and for-profit motives that went something like this, "Help a struggling student by providing a loan and you can still earn a decent rate of return." 

Unithrive's model appears to have learned from the earlier peer-to-peer efforts.  For the "lack of lender problem", Unithrive seeks to tap into "motivated" lenders, namely alumni from that institution who have a strong affinity to the school and will see these no-interest loans as a way to give back.  The business model borrows attributes from one of my favorite sites, kiva.org, in making the loans interest-free and allowing lenders to provide funding in increments as low as $25 (one of the founders of Unithrive is a cousin of Kiva's president, Premal Shaw). 

Here were some highlights from the NY Times article:

Who's Consolidating Private Student Loans?

Several participants in the SLA webinar today asked this specific question so I thought I would do a bit of research to answer it.  With private loans, the benefits to consolidation come in seeking to get a lower interest rate on your loans (from a higher credit score perhaps) as well as combining several loans into one monthly payment.  Some consolidation lenders also allow the borrower to extend the repayment period (e.g., from 15 to 25 years) thereby lowering the monthly payment while also increasing the total cost of the loan given the longer term. 

Here are the two options that I came across in my midnight research (please share with me any options that you are aware of):

• Wells Fargo Private Consolidation Loan
  • From $5,000 to $100,000
  • Consolidate private loans from Wells Fargo or other lenders
  • Starting interest rates vary from 5.75% to 12.75%
  • Only lender partner listed on Simple Tuition site
  • Here is some additional detail:

• Wells Fargo Private ConsolidationSM Loan

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  The monthly payment amount examples are based on a $40,000 loan with a 25-year repayment term and the identified in-repayment APR. The Prime Rate (as published in the Wall Street Journal) may change monthly on the first day of each month, subject to a contractual minimum of 4.75% (the Variable Floor Rate). All payments are subject to a $50 monthly minimum.
  
  
  Repayment Example:
  

  Tier	Index1 Plus	APR	Monthly Payment
  1	1.00%	5.75%	$251.64
  2	2.75%	7.50%	$295.60
  3	3.75%	8.50%	$322.09
  4	5.75%	10.50%	$377.67
  5	7.75%	12.50%	$436.14
  6	9.50%	14.25%	$489.1

The Index is equal to the Prime Rate. If the Prime Rate changes, it will change monthly on the first day of each month. However, the Index is subject to a contractual minimum of 4.75% (the Variable Floor Rate).

• Chase Private Loan Consolidation
  • Loan amounts of $7,500 to $150,000
  • Starting Interest rates from 6.56% to 11.56%
  • 20-30 year repayment depending on loan amount
  • FAQ available here

Here were some other sites that I investigated:

• Sallie Mae had this message on their website:

Thank you for your interest in Sallie Mae, the nation's leading provider of saving- and paying-for-college programs. We have temporarily suspended offering our private consolidation loan program. No new private consolidation loan requests will be processed at this time.

• Another site that I came across, Studentloanconsolidator.com, took my contact information and referred me to the social lending site, Lending Club.  

• On NextStudent's Private Student Loan Consolidation webpage was this familiar message:

* Please be aware that due to current conditions in the student loan market in particular and in the financial sector in general, NextStudent is not currently able to accept any new applications for our private consolidation loans.

So, I guess the short answer is that among traditional lenders, Chase and Wells Fargo are the only lenders currently providing a consolidated private loan solution. 

A Sign of the Times: SimpleTuition Adds Debt Settlement and Savings Account Partners

Given the challenges in the private loan markets and the uncertainty surrounding the future of FFEL, it should not be surprising to see SimpleTuition seeking to diversify the services they offer.  With student loan defaults accelerating and the savings rates in the U.S. jumping in recent months, these partners seem to make sense but I was still surprised to see them on a student loan site. 

• Debt Rescue USA provides the following marketing pitch about their services:

"In just minutes, Debt Rescue USA will match you up with trustworthy & experienced debt settlement professionals who have helped thousands of people in your exact situation. If you have $10,000 in credit card debt or higher, find out how you can actually settle for less than you owe and get debt relief in as little as 12 to 36 months!"