Peer to Peer Student loans

Another in my series of HE learning from the banking world.  Today we explore Peer to Peer (P2P) lending and the rise of non-bank lenders, typically seeking a better return on their investment / savings than bank savings accounts can offer.

P2P lenders are not banks in the traditional sense as they do not offer true intermediation, by taking on the risk of loss from savers. However, they do try to match loan maturities, aggregate savings and are able to cover wide geographical areas via the Internet. They also provide reassurance to investors through use of credit scoring, due diligence reports in order to reduce perceived risk for the lenders and allow multiple lenders to bid for small trances of the loans to be funded thus spreading lending risk across a number of different borrowers.  Lenders can also sell their loan obligations on, if they can find a buyer.

But make no mistake.  If it all goes horribly wrong then it is not the P2P site that suffers loss - it is the individual lender.

So, Universities have students who require loans to study.  The terms and conditions of official student loans (and the quantum of funds provided) may not be to their liking and so they will seek other providers of finance.  International students who do not have access to educational loans may also benefit (and future EU students if the Brexit negotiations go against them).

Universities can be the (% fee taking) P2P platform, offering an academic due diligence report on each student or even bundling up loans of similar students into portfolios that can be "securitised" for additional liquidity needs.

Universities also have alumni.  many alumni have done well for themselves and may be able to risk part of their capital in a venture that not only offers a reward better than bank rate but also allows them the warm feeling of helping future graduates to fulfil their potential.  It will make a change for alumni to be offered a possible return on their "donation" to their old University.

The logic here is that graduates from "good", lets say AAA rated Universities, would be offered lower interest rates, whilst BBB Universities' students may not get loans at all.

What could possibly go wrong?