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Is the Lending Club IPO an inflection point for awareness about the peer-to-peer (P2P) lending market? How do you see the market growing over the coming years?
P2P Is Positive Alternative, Needs Competitive Rates
Peer to peer lending for students loans is rising, but it will take a critical component to make it a viable alternative to the current student loan market: wide spread adoption due to competitive interest rates. Right now, the only people who are looking for peer to peer student loans are students that would be looking for private student loans, which is a niche in the market.
The reason is simple: peer to peer student loans can’t compete with government backed student loans. The interest rates are higher for peer to peer loans. The rules are stricter, with less forgiveness options. Even the places you can get peer to peer student loans are limited, with many companies requiring you attend specific schools.
Peer to peer student loans could be a positive alternative for specific niches of borrowers: medical students. These are students that typically borrow private student loans due to the amount that they will need to borrow. But their post-graduation income can sustain servicing these loans. As such, if they can get a better deal with peer to peer loans versus traditional private loans, they should look at that alternative.
Otherwise, I don’t see where peer to peer student loans fit into the marketplace in any differentiated way compared to private student loans.
More Lending Platforms Help Expand Market
P2P industry insiders and observers have been expecting the LendingClub IPO for a while now – the tipping point for them happened around 2013. However, for the broader market, the tipping point on LendingClub, and P2P more broadly, has yet to arrive. The LendingClub IPO should start to change that.
Also, the advent of more online direct lending platforms will help make the market – and the players in it – a larger part of the national conversation, as more people are directly affected by the industry in a micro way.
I would also expect an acceleration of awareness as time goes on, since some of the new online direct lenders are reaching origination milestones at a faster pace than LendingClub and Prosper, the two P2P pioneers in the space, did in the beginning. At CommonBond, for example, we’ll reach $500M in originations faster than LendingClub and Prosper did.
And while we’re making predictions, I wouldn’t be surprised if “peer to peer” leaves the financial vernacular within the next 5 years, in favor of “online direct lending” or “marketplace lending” (or something else that catches on, in the meantime).
Bottom line: While traditional P2P platforms might be more expensive than federal government loans, certain platforms expressly focused on student lending, such as CommonBond, have rates that are significantly less than the federal government’s.
P2P Lending Doesn’t Solve The Issue
The issue is not where the money comes from but what options student have when they become overloaded in massive student loan debt.
The current exploding student loan debt problems are not about just lenders or students. They are also about colleges and universities that encourage and facilitate people to take out massive loans for degrees that will never result in enough income to pay for the loan. And this is further exacerbated by students who blindly assume student loan debt is good debt.