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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
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. 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. 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. 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. 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