Peer-to-peer lending moves to student loans

P2P Companies & Student Loans

The Lending Club and Prosper have been known for the past five years to be the two leaders in the peer-to-peer lending market. The two sites allow lenders and borrowers to go around banks, avoiding fees and choosing who to work with. Because the interest rates charged are often less than the typical credit card rate, many have used these services to pay off their debt, or gain funds when turned down by a bank when credit dried up after the recession.

Now, according to an article in the Economist, more peer-to-peer lending services are expanding their services into student loans. CommonBond is a New York-based start-up that will be taking Prosper and The Lending Club’s model to lend to students.

“By targeting MBA students and graduates, it can cream off a creditworthy population of borrowers with proven earning power and offer a lower interest rate than the government’s student loans,” the article said. “Its first fund was for 40 MBA students and graduates at the Wharton School of the University of Pennsylvania.”

The loans came from funds from Wharton alumni.

Now, the business is lending to 1,500 students among 20 different schools, with funds from community banks and hedge funds.

The Lending Club has also announced that it will be expanding into student loans in the future as the company grows.

As more services either expand into other forms of lending, or even enter the market, having the right tools can help both investors and borrowers. With risk assessment tools, peer-to-peer lending companies can help lenders find qualified borrowers and stay profitable in the process.