"To seek out funds, some students have turned to peer-to-peer lending sites, such as GreenNote and Fynanz, which focus exclusively on making college loans. After creating an online profile, users can court a variety of financiers, including friends, family, and perfect strangers. According to Kantrowitz, however, peer-to-peer lending funds are limited. 'Right now, they're just a drop in the bucket," he says. "But the idea is really interesting. In a decade, who knows what it could become?'" - BusinessWeek, December 30, 2008
Less than one week after this glowing endorsement from BusinessWeek, Fynanz has officially halted peer to peer lending due to "market conditions." They have revamped their website and are now offering financial institutions "a turn-key, web based solution that allows [them] to penetrate the growing private student loan market."
Fynanz became the first p2p lending platform focused exclusively on student loans in March 2008. Our first interview of Fynanz's founder, Chirag Chaman, was almost exactly one year ago. Fynanz quietly stopped brokering loans after Prosper received a cease and desist from the SEC about one month ago. The regulatory environment for p2p lending has caused Prosper, Zopa, Fynanz and Loanio to permanently or temporarily close their doors. Lending Club closed for several months in early 2008 and is now fully operational and registered with the SEC.
In our original interview with Chaman he said, "In a startup, I don't think there is a biggest challenge...it's only a challenge until you learn or come up with a creative way to overcome it, and 99% of the time you do." Chaman's approach to overcome the regulatory challenges appears to be to market their platform to credit unions.
Update (1/5): I received the following comments from Fynanz founder and president Chirag Chaman:
We're alive, well, and still servicing the existing loans that have been made by our current lenders. However, we have suspended accepting new borrowers and lenders. The primary reason for this is market conditions.
As interest rates declined to their current record lows, being variable rate loans, the loans sourced on the marketplace have became less palatable for our lenders. With fewer lenders bidding, it became challenging for Fynanz to fulfill loans in a timely fashion. With student loans its imperative to get the entire loan filled by a certain date — most of the time, the student really does not have the option to re-list as not meeting the payment deadline means not being able to register for classes. Since the situation was not turning around soon, we made a call to suspend any future P2P borrowing so as not to disappoint students who were in need of financing.
However, there is good news. In the coming months, we will provide students with education loan options for the upcoming academic season — and at attractive rates. We have opened up our platform to financial institutions that wish to establish a student loan program. Traditionally, private student loans have been offered by a select number of institutions given the expertise required to create and manage a program. A lot of them (mainly the large banks) have been affected by the credit crisis and curtailed their lending. But, there are many smaller banks and credit unions that are doing just fine and would like to make private student loans -- but do not have the infrastructure to do so. Now, by leveraging our platform and expertise, these banks and credit unions can offer student loans and we live up to our goal of bringing students attractive funding options.