P2P Is peer-to-peer lending a solution for student loans?

Published on September 5th, 2014 | by admin

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Peer-to-peer a solution for student loans?

Back in 2010, riots erupted in England over controversial proposals, backed by the Lib Dems against their stated policy, to triple tuition fees to £9,000. The row has subsided since then, although it smoulders on, but research being carried out by the government into the possibility of universities sharing some of the risk for loans that are unpaid, could mean the cost going up further still at some institutions. Naturally this would be likely to stir up not only more resentment, but also serious worries among students and their families as to how they will ever manage to afford further education.

For some time now, it’s been possible for students to borrow money to continue their studies through peer-to-peer lending platforms. In America, this has become big business, particularly when it comes to consolidating loans at the end of a course, and in the UK there has been considerable interest in some quarters about its use in funding MBA and Postgraduate courses. Since it’s pretty much analogous to how the current student loans system works, there’s no real reason why it shouldn’t work with all students, providing enough people can be convinced to invest in their futures.

And there is the rub – just as there is risk involved when lending to a business, which may fail and default on the loan, so there is also a risk that the student may never earn enough money to repay what they have borrowed. Or the possibility exists that they may just take off for climates new and disappear from the radar. Nevertheless, lending platforms such as GraduRates seem confident that there is a strong market for their services.

There has always been friction about government’s funding of higher education, and it has worsened recently with news that the amount of unpaid loans is set to be significantly raised, and that this could be a ‘fiscal timebomb’ for some universities. Peer-to-peer platforms, used to assessing risk and keeping defaults to a minimum, and with a lot of lenders keen to exercise their social consciences outside the mainstream banking sector, could be well-placed to fill a need here. Might this be yet another instance where traditional financial processes are being completely disrupted by peer-to-peer lending?

 

 

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