Peer to peer lending (P2P lending) is an alternative to the traditional loans offered by financial institution such as a banks and lending corporations. P2p is similar in certain respects to conventional private loans except that the lending occurs between individuals, or "peers". For example, individual investors, philanthropic or affinity groups, financial institutions, and family members can all offer to lend money to other individuals through p2p. With the help of online programs, such as People Capital's lending platform, borrowers can apply for a loan and actually have lenders compete over the opportunity to lend them money.
Why would individuals compete over the opportunity to give out a loan to a student without much credit history, or even no history at all? Many students right out of college or high school haven't had the chance to develop their FICO score or credit history, which is the traditional way of assessing risk in a loan. But using People Capital's patent-pending Human Capital Score, a data-driven method for predicting a student's future potential income, a big portion of the risk is effectively analyzed and removed.
Let's take Bill, for example. Bill just graduated with honors from a great high school with a 4.0 GPA. He also just got accepted to a very prestigious college. His family has good credit but he plans on taking out a student loan on his own. With no credit history, his bank gives him an unfavorable rate that will take many years to repay and make paying for other essentials difficult. But with the People Capital's lending platform Bill's rate may be significantly lower because The Human Capital Score uses hard data such as GPA, standardized test scores, and choice of college/major to produce a powerful and very concrete credit risk assessment for an individual student borrower.
There are also benefits for the lenders in the peer-to-peer lending platform. Lenders receive verifications of student enrollment, as well as the expected array of credit risk analytics tools. Using these tools, lenders have the opportunity to augment their portfolio with private student loans that cannot be discharged by bankruptcy. And at the same time, student borrowers can avoid the potential financial risks of traditional private loans while knowing that their peer-to-peer loan payments may be tax deductible.