Peer-To-Peer Student Loans
New York-based Fynanz, which is gearing up to launch in select states within the next quarter, offers students an "open loan" process for financing their education. To apply for a loan, students fill out an application and create a personal profile, including the amount and interest rate desired. Tapping into 15 years' worth of student loan data, Fynanz uses that information to give each student a grade and place them in one of six groups reflecting both their credit score and their academic characteristics, among other things. Individual lenders including friends, family and alumni of the institution the student attends are then given priority as they bid alongside lender networks to fund the loan. The more participants bid on the loan, the lower the winning rate is likely to be, Fynanz says. Servicing fees will be "no more than" what other marketplaces charge, company CEO Chirag Chaman says, but there will be no application fees or hidden costs for borrowers. For lenders, meanwhile, the benefits are attractive returns and the knowledge that they are performing a social good.
Fynanz's platform is built using the same characteristics that traditional lenders use, preserving the legality and distinct tax status of the education loan, Chaman explains. There is also likely to be increasing demand for student loans, he predicts: "I came from the student loan world, and there are some big problems there. Those cracks have turned into huge gaps over the last year, and personally, I think the worst is yet to come. People used to dip into home equity, but that's not there anymore."
The P2P lending market, meanwhile, could grow to between USD 5 billion and USD 10 billion in annual volume within 10 years in the US alone, according to data released this week by Online Banking Report. Is there room for niche players? Time will tell. Keep an eye on this one!
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