Opportunities for Lenders: Profit from the $113+ Billion
Funding Gap in the Private Student Loan Market


For further info...
The Education Funding Gap
  •      Private Student Loans help fill                                            Student Fund...
The Private Student Loan in the Education Finance Waterfall
•   After the “free ride” and family and                  •Gra...
Private Student Loans: An Attractive Asset Class
•   Target Market: $113+ billion
•   Growth: expected at 25% each year
• ...
About People Capital
•   Founded in 2006, People Capital is finance company that directly address
    two major inefficien...
Team of Experts
Officer                     Experience
Thomas Shelton              • Serial entrepreneur and co-inventor o...
How Risk is Mitigated: The Human Capital Score™
•   Issues in Traditional Private Student Lending:
     – The current cred...
The Products
                                10 or 15 year repayment, $50 minimum monthly payment
Standard Private Loan
 ...
How it Works: The Online Lending Platform
                                                                            Lend...
Return & Auction Process
       Borrowers             Auction Process                Lender




1. Process for borrower to...
Payments Flow
1. After bids have been placed and
   loan is originated, People Capital
   funds the entire loan
2. Simulta...
Investment Cash Flow: Making the Loan
                                                                     1
             ...
Loan Payments


                           Investor Bank Account                2
                                        ...
Collections Process Flow




                           14
Platform Provides Tools For Control
 •     The versatile and intuitive platform provides tools to search and create
      ...
Superior Advantages
                  • Market driven automated auction enables lenders to maximize
Returns
              ...
Best In Class Solution
•   Traditional student lending companies (e.g. Sallie Mae or Student Loan
    Corp.) or credit car...
The People Capital Solution
•   An online lending platform, which matches lenders with borrowers, based on
    proprietary...
Additional Materials
available upon request:
    il bl             t
Al Alper, President & COO
mobile: (917) 658-9008
emai...
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People Capital - Opportunity For Lenders

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People Capital - Opportunity For Lenders

  1. 1. Opportunities for Lenders: Profit from the $113+ Billion Funding Gap in the Private Student Loan Market For further information, contact: Al Alper - President People Capital 274 Madison Avenue, Suite 1400 New York, NY 10016 al.alper@people2capital.com al alper@people2capital com Mobile: (917) 658-9008 Office: (212) 401-1216 x13 This document contains trade secret information. Please be aware that no part of this presentation may be reproduced in any form or by any means, electronic or mechanical, including photocopying and recording, for any purpose without the express written consent of Quest Growth Partners LLC (doing mechanical recording Partners, business as People Capital). In addition, due to the proprietary nature of Quest Growth Partners’ methodologies and other information enclosed herein, this presentation may not be shown to any third party without the prior written consent of Quest Growth Partners, LLC. visit us at: www.people2capital.com
  2. 2. The Education Funding Gap • Private Student Loans help fill Student Funding by Source (2007) the gap between federal funding and total cost of higher education – Federal loan limits have not kept $113.5 pace with tuition costs and are Billion Personal/Family not expected to do so in the Funding Funding/Home Equity Gap p future – Over 4 years, undergraduates Private Loans can borrow a maximum of:  $31 000 through the Federal $31,000 Family Education Loan Federal Loans Program (aka FFELP) *  $23,000 through Federal $ 3,000 t oug ede a Stafford loan limits – Average 4 year college costs: Grants  $136,528 for private * , p Education Tax Benefits  $57,332 for public * * Source: College Board, Trends in College Pricing, 2008: cost for academic Source: National Center of Education Statistics and College Board, Trends in year 2008-2009 Student Aid 2007, Trends in College Pricing 2
  3. 3. The Private Student Loan in the Education Finance Waterfall • After the “free ride” and family and •Grants •Scholarships federal assistance, there is only $18 “Free ride” billion is private education funding available before a student must enter the world of non-education financing: •Tuition Payment Plan (family participation) Family – Consumer loans – Credit cards •Perkins Loan (school/campus-based school is lender with Perkins (school/campus based, Federal guarantee) • Federal loans and grants are very •Subsidized Loan or Unsubsidized Loan Federal •PLUS Loans: Parent or Grad (must meet Adverse Credit limited, so even recipients of such Guidelines) funding need more funding •Private/Alternative Student Loans are the gap: providing • Reasons why it’s only an $18b market all the benefits of an education loan, with better rates than (and this was in credit boom 2007!): consumer loans and credit cards Private •This market is still very inefficient and burdened by FICO, – Stringent FICO-oriented credit funding only $18 billion annually criteria •Private, unsecured, FICO-based loan – Co-borrower required Consumer •Not an education loan: no tax-efficiency and dischargeable Loan to bankruptcy – Main providers (banks, consumer financiers) aren’t educated fi i ) ’ d d enough on this product to •The last resort for students with very high rates (that are typically variable rates) effectively manage risk •Unfriendly terms (high fees, no education finance benefits) Credit Cards •Fully exposed to new consumer finance regulation ( y p g (i.e. this may an even worse or non-existent option soon) 3
  4. 4. Private Student Loans: An Attractive Asset Class • Target Market: $113+ billion • Growth: expected at 25% each year • Traditionally low default rates around 2% (Private Loans source: Sallie Mae 10K) Loans, • Generally cannot be discharged in bankruptcy Comparative Interest Rates 12.0% - 18.0%* *Source: Sallie Mae estimates Source: Private Student Loans are a low risk asset class which earn attractive yields and diversify consumer portfolio risk 4
  5. 5. About People Capital • Founded in 2006, People Capital is finance company that directly address two major inefficiencies in the student loan market: – Credit risk analysis – Loan origination and servicing • People Capital’s online platform matches lenders with borrowers based on proprietary credit risk analytics and offers higher risk adjusted returns Credit Risk Analysis: Loan Origination and Servicing: The Human Capital Score™ Peer Lending Platform • Issue: Thin-file students aren’t properly • Issue: Limited sources for students, profiled for credit risk, resulting in poor lenders, investors quality loans • People Capital leverages peer-2-peer lending technology that matches lenders • People Capital has built a proprietary with borrowers credit scoring – Human Capital Score™ - Provides several loan products - Predicts 10 year income of students f - Off Offers investor portfolio f and, therefore, ability to service debt customizations for higher risk- - Algorithm based on metrics such as adjusted returns school, major, test scores, GPA, etc. - Liquidity for students and investors 5
  6. 6. Team of Experts Officer Experience Thomas Shelton • Serial entrepreneur and co-inventor of the Human Capital Score TM Founder & CEO • Former VP strategy and operations for MyRichUncle – a private student loan provider • F Founder of consumer-based startups d f b d t t Al Alper • Seasoned technology operational executive and entrepreneur President & COO • Built several companies, including the first online ABL consumer debt purchasing platform • Raised in excess of $100 million of growth funding Alan Samuels • 17 years of financial services experience leading product development, marketing and Chief Product Officer business development • 10 years executive experience at Standard & Poor's and Fitch Ratings John Nerenberg • CIO at Curomax Corporation, a web 2.0 consumer finance company (sold to Dealer Chief Information Officer Track) • CIO for CIT Commercial Finance Brendan Pryor • 20 years of student loan operations and finance experience in established and start-up SVP – St d t Loans Student L companies i • Corporate Officer at Sallie Mae, including Director of Loan Originations Professor Stephen Shore • Is a leading academic in the field of insurance and risk management currently Senior Developer of HCS conducting research in human capital risk • Ph D and A M Harvard University; A.B Princeton University Ph.D. A.M., AB Robert Lavet (of Powers, • Previously General Counsel to SLM Corporation (Sallie Mae) where he managed the Pyles, Sutter & Verville) Legal, Corporate Compliance and Student Loan Servicing Policy functions General Counsel • Currently leads Education Practice Group at PPSV 6
  7. 7. How Risk is Mitigated: The Human Capital Score™ • Issues in Traditional Private Student Lending: – The current credit risk metric, the FICO® score, is inappropriate for students as it is based on credit payment history, and thus, students receive low FICO® scores – Thin file students are not profiled accurately with existing credit tools. While enjoying historically low default rates, “bad” credit risks are still underpriced and “good” credit risks are systematically overlooked • The Human Capital Score™ (HCS) – Completed by Wharton Academics based on 10-year back-testing on earnings levels of students across majors and schools post graduation – Algorithm utilizes “human capital” data including demographic, geographic, college, major, standardized test scores, GPA, etc. – Provide coefficients that predict future income for 10 years, and hence the students’ ability to repay loans – Produces fine gradients of credit risk: HCS provides a 1-9 scale with “+” and “-” – Identifies true “prime” credit borrowers from large p p g pool The Human Capital Score™ utilizes a range of data sets and attributes to assess the relative creditworthiness of students with little or no credit history 7
  8. 8. The Products  10 or 15 year repayment, $50 minimum monthly payment Standard Private Loan  Interest-only with straight amortization  1 to 5 year interest only with balloon payment interest-only Balloon Loan  Immediate repayment, $50 minimum monthly payment  3 year fully amortized loan Straight Amortized Loan  Immediate repayment p y  Monthly payments of principal and interest General Features • Check disbursement/single disbursement made co-payable to borrower and school • Fixed interest rate • Origination fee at disbursement • Borrower/co-borrower payments received via ACH • All loans may have fractional or sole ownership participation • No Forbearance or Deferment Fully compliant loan products mean they are standardized, legally compliant, tax efficient and generally not dischargeable in bankruptcy 8
  9. 9. How it Works: The Online Lending Platform Lender Deployment Student Registration Platform Options Student registers on the “DIRECT” – the lender is the People Capital platform. agent making all decisions • “Hands on” • Likes to select each loan individually, one-by-one • Uses Search and Filter tools to find any student loan that match his/her criteria, e.g. Completes a profile … SAT > 2000, Major = English, FICO > 600 PROFILE “INDIRECT” – the lender has High School St Johns St. PC act as agent to follow its SAT 1200 specific bidding criteria ACT - College Duke • Large scale investor – but seeks to self- Degree BA manage Major English • Creates automatic bidding rules GPA 3.5 FICO 595 • Uses Auto-Bid tools to find any loans Co-borrower? Yes that match his/her criteria, e.g. For HCS 5+ every student loan that meets the following criteria, automatically offer , e.g., $10,000 @ 14%: … and makes a Loan Request College = Mid-West, Major = Engineering, FICO > 600, HCS >7+ I need $20,000 Interest only 5 year term “INTERMEDIARY” – the lender has fund manager act as agent to follow fund mandate • Large scale investor – but prefers to Loan is placed on the platform invest with a fund manager • Invests money with Fund Manager who invests in a student loan portfolio based upon fund mandate 9
  10. 10. Return & Auction Process Borrowers Auction Process Lender 1. Process for borrower to 1. Completes profile based on submit offer in the risk/return preferences. auction - Example: Lender will 2. Completes Registration invest $5 million in a portfolio of loans. 3. Completes profile - College: Ivy League 4. Makes loan request - Major: Engineering 5. Submits offer into the auction - FICO®> 600 - HCS™>+7 - Bid interest rate>14% 2. 2 Fund PC account 3. Review offers in auction 4. Bid on offer based on profile criteria 10
  11. 11. Payments Flow 1. After bids have been placed and loan is originated, People Capital funds the entire loan 2. Simultaneously, People Capital withdraws the funds from the accounts of the winning lenders g 3. Lenders receive Member Payment Dependant Note (“Notes”) 4. 4 The Notes will bear interest from the date of issuance, fully amortizing according to the amortization schedule of the member loan for which the Notes are sold 5. Monthly payments net of fees are deposited directly into the accounts of the lenders 11
  12. 12. Investment Cash Flow: Making the Loan 1 Investor Bank Account Investor/Lender Master registers with Wire or ACH Account People Capital (trust) 1. The investor deposits investment/loan amount into the Master Account at Chase Bank (this is a trust account) 2. People Capital withdraws the loan amount from the Master Account and makes a check co payable to university and co-payable 2 student borrower Loan auction concludes and PEOPLE CAPITAL PLATFORM operations begin Check Issued 12
  13. 13. Loan Payments Investor Bank Account 2 Master Account (trust) 1. The system loads the borrower’s monthly loan payment, which withdraws the payment due from the borrower’s bank account and deposits it into the Master Account 2. The Master Account then pays the net loan payment to the investor’s bank account 1 Borrower loan payment owes Monthly file sent to Loan Investor Bank Borrower Bank Payment Account Account (verified) 13
  14. 14. Collections Process Flow 14
  15. 15. Platform Provides Tools For Control • The versatile and intuitive platform provides tools to search and create portfolios and a dashboard to monitor and review performance – Automated web based platform is an efficient process to deploy funds based on specific risk profile and return requirements – Auto-bidding criteria, determined by the risk appetite of the lender, will facilitate efficient identification and selection of potential loans – Auto bidding tools can alert lenders of loans that match their specified criteria or automatically bid on them – Tools for lenders to identify their ideal borrower profile based on return/risk preferences and help manage their loan portfolios S t through all Sort th h ll loans by college, field of study, Human Capital Score™, vantage Search by g , grade, loan keyword or sort amount, and % by category funded Save criteria to automatically fill loans that satisfy parameters Loan Listing Screenshot Loan details available including borrower information and loan details 15
  16. 16. Superior Advantages • Market driven automated auction enables lenders to maximize Returns returns • The Human Capital Score™ enables lenders to consider a p borrowers expected income in their risk profile Risk • Minimize risk by utilizing 10-year income projections to analyze Management borrower’s ability to repay loans • Risk management tools monitor risk via detailed performance data for each loan • Manage exposure risk by choosing to fund a loan in full or to Portfolio participate in a portion of the loan Diversification • Create a portfolio of loans diversified by any combination of criteria including term, loan size, demographics, academics, etc. • Detailed data available for each loan including HCS™, FICO®, Asset Specific GPA, SAT scores etc. Transparency • Access to updated and detailed academic profiles of borrowers People Capital has created a marketplace that will allow lenders to search and customize portfolios to meet their target risk and return profiles 16
  17. 17. Best In Class Solution • Traditional student lending companies (e.g. Sallie Mae or Student Loan Corp.) or credit card companies (e.g. MasterCard or Discover) are unattractive to investors • Credit risk is based on overcollateralization rather than underlying loans • One-size-fits-all packaging does not allow for individual risk preferences and portfolio optimization • Lack of transparency – does not offer direct access to the underlying, individual loans • New peer-to-peer companies (e.g. Lending Club or Prosper) meet general peer to peer (e g credit needs of borrowers and do not help lenders assess specific risk • Consumer loans are dischargeable in bankruptcy • Loans offered to students are a mismatch for students’ income profiles as they do not provide for deferments while in school, nor tax deductibility –thus they increase the risk of defaults for this demographic People Capital is the only online lending company that is entirely focused P l C i li h l li l di h i i l f d only on the private student loan market and has the proprietary technology to mitigate risk via the Human Capital Score™ 17
  18. 18. The People Capital Solution • An online lending platform, which matches lenders with borrowers, based on proprietary credit risk analytics, The Human Capital Score™, offers higher risk adjusted returns i k dj t d t • People Capital’s platform brings liquidity to the private student loan market and expands access to credit for students • The platform is uniquely built to support the private student loan industry and offers full-service loan origination and servicing features. • This platform offers an innovative combination of student loan products and features including: – Identification verifications – Loan disbursements directly to schools y – Proprietary credit risk tools for lenders – Full asset transparency – Long- and short-term loans – with deferred payment features g p y 18
  19. 19. Additional Materials available upon request: il bl t Al Alper, President & COO mobile: (917) 658-9008 email: al.alper@people2capital.com • Summary of Lender Opportunity -2 pages • Introduction to People Capital ~18 p g p p pages • Technology Brief ~17 pages • Human Capital Score ~24 pages g 19

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