Could this be an entirely new way to finance a education?

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Could this be an entirely new way to finance a education?

Postby John Bear » Sun Feb 26, 2006 8:09 pm

I am most intrigued by an article in the current (Feb. 25) Economist, page 79, called "Bankless Banking." It described a new kind of internet service that matches people who need relatively small amounts of money with people looking to lend small amounts of money and get higher than savings account interest.

Would-be borrowers post "bids" saying how much they need, and what interest rate they will pay. Lenders (including ordinary people, not banks) then bid for the right to make the loan, based on amount, duration, and the borrower's credit rating.

To reduce the lenders' risk, their loan ($5,000 is the example given) would be spread across many borrowers, 50 or more.

There is a social networking feature available, as well, in which groups of lenders (e.g. Harvard Business School alumni) or borrowers (theoretically, Applicants to the Such-and-such University MBA program) communicate, and share information.

The US company, Prosper Marketplace, seems to be brand new. Could not find a website, but many articles about it, and a few help wanted ads on Craigs List. The older company, Zopa (www.zopa.com). apparently operates just in England.

It will be most interesting to see if this process can work for paying school tuition. If I were a school, I'd encourage my applicants to give it a try. If I were planning to apply for a degree program, I'd also look into it. Perhaps someone here will be a guinea pig and report back.
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Postby Jigamafloo » Mon Feb 27, 2006 12:21 am

This is the link, Dr. Bear. Plenty of active "bids" for lenders already.

http://www.prosper.com/public/welcome/default.aspx
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Postby Jigamafloo » Mon Feb 27, 2006 4:19 am

And, per your suggestion, done. I'm looking for a way to start Grad school early after my Military TA runs out for the year in April (concurrent with my undergrad award from Bellevue Univ.), so this seemed like a good idea. New TA allowance will kick in in Oct. 07.

I submitted a request for $1500 (two classes at military tuition rate through Touro University International), and per Prospers business model (multiple lenders bidding on a piece of the loan), within two hours the loan was up to $475 funded.

I'll update as the process finishes, but this could be a viable way for financing an education....
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Postby Jigamafloo » Thu Mar 02, 2006 1:26 am

And again, for anyone interested success! It took two and a half days, but once the "EBay" style bidding ended, I have a $1500 dollar loan funded for the advertised purpose of continuing education. As far as the process:

- Sign up is mandatory to request a loan amount. During the process, it calculates your debt to income ratio and assigns you a credit "grade" (A - D, and HR for High Risk). Credit is checked through Experian. These two factors are displayed on your listing.

- As Dr. Bear noted, there are many special interest groups (students, veterans, many alumni groupings, etc). I didn't sign up or join one, but in retrospect it increases your chances if you do. To a certain extent, you take on the group's credibility (which can help mitigate, to an extent, a poor credit score).

- You essentially advertise a requested loan amount at a given interest rate (which you also request), and choose a 3, 5, or 7 day listing (again, much like EBay).

- Loans are "bid" on by people willing to fund a certain amount of the request; mine had a total of 15, in amounts varying from $50.00 to $250.00. Prosper then acts as a clearinghouse for the monthly payments, and distributes the proceeds in turn at the rate proportional to the amount funded.

- Money is requested for all kinds of reasons, varying from "Get me out of debt" to "Want to take a vacation", but there are quite a few loan requests for education costs (tuition and books) as well.

Hope this helps someone! Looks like we may have a viable model here.
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Postby Guest » Sat Mar 18, 2006 4:21 pm

Personally, I see a better way to fund college. Lend money and make a residual income from the investment. Use that income to pay for college. :D

If this works (as it appears it will), there is an oppertunity to make (or lose) an incredible amount of money here.
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