People Capital – Peer-to-Peer Lending for Student Loans
During the financial crisis, college students found that it was almost impossible to get private student loans. People Capital hopes to solve that problem by creating empowering people to finance each other’s educations.
The idea of person-to-person lending through the internet isn’t a new idea. Prosper.com was the first company to run with the idea by allowing individuals to loan each other money through the internet with Prosper acting as a lending broker of sorts. Lending Club then took that idea and ran with it and refined the industry’s business practices in hopes of maximizing investors’ rates of returns.
Amidst the worst financial crisis since the Great Depression, students have found it almost impossible to borrow money from anywhere other than through federal student loan programs. When banks found themselves with a severe shortage of capital, high-risk credit card borrowers and students hoping to finance their education were the first to be turned away.
People Capital hopes to provide an alternative market place so that students can get financing for their college education. Many college students have had a hard time getting educational loans through Prosper and Lending Club because they do not have much credit. People Capital rates students on a “human capital” score to determine the credit worthiness based on the student’s GPAs, standardized test scores, college and major to provide a “true and unbiased, data-driven measure of the economic value of an education”.
Students wishing to borrow must be enrolled in a Title-IV educational institution in the US, be a US Citizen, have a valid SSN, and be at least 18 years of age.
People Capital has not launched yet, so there is no data about the interest rates that students will pay or the rates that lenders will earn on their money. Whether or not People Capital’s person-to-person lending marketplace for student loans will largely be dependent on the quality of their “human capital” rating and their ability to judge student’s credit-worthiness. Since students traditionally don’t start paying loans back until after they are out of college, it may take several years to determine the viability of the company’s business model.
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