A new way to pay: Using peer-to-peer lending to fund postgraduate study
Friday 26 April 2013
It's never been harder for students to pay for postgraduate degrees. Fees are rocketing up while funding dries up, even while Masters degrees are becoming more important professional tools than ever. So what's to be done?
The recent surge in the peer-to-peer lending market has created the possibility for a new method of postgraduate study funding. Peer-to-peer lending websites such as Zopa and Funding Circle allow individuals and small to medium enterprises (SMEs) to loan money from investors, which then expect a profit on the interest earned once the loan is repaid, and this model can be applied to loans for postgraduate study.
The process of peer-to-peer lending is analogous with the method in which many UK students currently fund their postgraduate degrees: borrowing money from family and friends. Matthew Gilley, a student at the University of Kent, plans to fund a postgraduate degree in journalism using money from his family; he calls it an 'informal loan'. While Zopa requires that the user must have a sustainable income to be able to borrow, and Funding Circle loans predominantly to business initiatives, GraduRates is a recently founded website which attempts to cater specifically to prospective postgraduate students.
Jothan Webb, founder and CEO of GraduRates, believes that there is a 'postgraduate-sized gap in the market'.
"Other peer-to-peer lenders have covered MBAs, but no-one is looking at the wider postgraduate education market,” he says.
GraduRates provides peer-to-peer loans for a postgraduate degree, which can be paid back over a five-year period with the student paying off the interest while studying, and the remainder of the loan on graduation.
Earlier this year, 11 vice-chancellors of leading universities expressed growing concern over the lack of funding for post-graduate study Webb agrees that 'postgraduate education is underfunded in the UK' and echoes many of the concerns listed by the vice-chancellors, noting that 'postgraduate funding is key to the economic future of the UK'.
The creation of GraduRates was partly conceived as a method to make postgraduate study affordable for 'students who do not have access to financing at a sensible price'. This is with reference to the falling rates of acceptance to Professional and Career Development Loans, below 45 per cent in 2012, and the increasing rates of interest applied to the schemes.
While the idea of peer-to-peer postgraduate study seems like a feasible plan for many students, Gilley shares some reservations over the likelihood of investors becoming interested, arguing that he 'wouldn’t give my money to a postgraduate'. He also notes that, with regards to loans from family and friends 'you and your family trust each other to be responsible with the loan'.
Webb admits that 'there are key problems in economic returns on degrees. This is pronounced when we look at the earnings potential of a pure arts degree vs a business or finance postgraduate degree'. The solution he proposes is 'by requiring that the loans are co-signed by a parent or guardian'.
This method of funding postgraduate study comes in the wake of what is a growing industry. It was reported late in 2012 that peer-to-peer lending websites present an alternative to banks by cutting out the middle man and putting borrowers in direct contact with their investors. Andrew Haldane, a director for financial stability, told The Independent that 'the mono-banking culture we have had since the 1990s is on its way out'.
The concept of peer-to-peer lending for postgraduate study could be an alternative to the ever immanent postgraduate funding crisis.
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