Sunday, September 20, 2009


I read about Prosper in Esquire magazine.

The gig is simple. Borrowers of loans and their lenders use the interactive platform online to find each other. Borrowers set a target percentage rate for their loan -- which they may need for housing repairs, paying off credit cards, funding their college education -- and lenders gather to auction the rate they are willing to receive after providing the principal.

I'm doing it to pay off my credit cards. The savings are significant.

I'm reducing my credit card payments by half.

Can this work in the education market? Do partnerships exist in the unsecured loan marketplace between lenders and for-profit schools? If they do, I want to know about it.

If you know, let me know.

Here are some reviews of Peer-to-peer lending like at Prosper:

More students turning to peer-to-peer loans to pay for college.

According to a poll released this week by Gallup and student loan lender Sallie Mae, students on average cover 30 to 55 percent of their college costs. About 45 percent comes from parents. Grants and scholarships, obtained by about half of all students, make up the rest.

To pay off high-cost student loans, a borrower on recently funded a $3,000 loan at an APR of 12.41 percent for three years. The loan, which is posted among other borrowers’ anonymous profiles on Prosper’s Web site, was funded in three days by 126 investors who put up $25 to $100. The lenders’ return is listed as an annual yield of 9.3 percent.

That article mentions Cology, a Scottsdale, Arizona-based program that links students up with lenders.

Pros and Cons of peer-to-peer lending and borrowing

The cons of P2P lending are definitely more substantial for lenders than it is for borrowers, so if you think you want to give it a try as a lender, be very careful about the hype on the returns and default rates.

Most of the negative comments online from those that have invested via P2P sites was in the "higher than publicized" default rates and the relative return on their money after fees and defaults being less than advertised.

The biggest thing to watch as a borrower is all the potential fine print that could allow the terms of the loan to be changed if you don't make payments.

People Capital aims to be a competitor in the social networking lending space

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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1 comment:

Unknown said...

GreenNote ( has a platform that supports student loans. Students create an online profile listing their university and how much they're trying to raise. Individuals can contribute to that amount. Loans are paid off within ten years at a fixed 6.8%

There are a couple of other new entrants which will be launching later this year. Some exciting innovation in this market.