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

For further information, contact:Al Alper - PresidentPeople Capital274 Madison Avenue, Suite 1400New York, NY 10016al alper@people2capital comal.alper@people2capital.comMobile: (917) 658-9008Office: (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 electronic or mechanical, including photocopying and recording, for any purpose without the express written consent of Quest Growth Partners, LLC (doing 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.

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The Education Funding Gap• Private Student Loans help fill

the gap between federal funding and total cost of higher education

Student Funding by Source (2007)

– Federal loan limits have not kept pace with tuition costs and are not expected to do so in the future

$113.5 Billion

Funding Gap

Personal/Family Funding/Home Equity

future– Over 4 years, undergraduates

can borrow a maximum of: $31 000 through the Federal

p

Private Loans

$31,000 through the Federal Family Education Loan Program (aka FFELP) *

$23,000 through Federal

Federal Loans

$ 3,000 t oug ede aStafford loan limits

– Average 4 year college costs: $136,528 for private *

Grants

, p $57,332 for public *

Source: National Center of Education Statistics and College Board, Trends in Student Aid 2007, Trends in College Pricing

Education Tax Benefits

* Source: College Board, Trends in College Pricing, 2008: cost for academic year 2008-2009

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The Private Student Loan in the Education Finance Waterfall• After the “free ride” and family and

federal assistance, there is only $18 billion is private education funding available before a student must enter

“Free ride”

•Grants•Scholarships

available before a student must enter the world of non-education financing:

– Consumer loans– Credit cards

Family•Tuition Payment Plan (family participation)

•Perkins Loan (school/campus-based school is lender withCredit cards• Federal loans and grants are very

limited, so even recipients of such funding need more funding

Federal

Perkins Loan (school/campus based, school is lender with Federal guarantee)

•Subsidized Loan or Unsubsidized Loan•PLUS Loans: Parent or Grad (must meet Adverse Credit Guidelines)

• Reasons why it’s only an $18b market (and this was in credit boom 2007!):

– Stringent FICO-oriented credit Private

•Private/Alternative Student Loans are the gap: providing all the benefits of an education loan, with better rates than consumer loans and credit cards

•This market is still very inefficient and burdened by FICO, funding only $18 billion annually

criteria– Co-borrower required– Main providers (banks, consumer

fi i ) ’ d d

Consumer Loan

•Private, unsecured, FICO-based loan•Not an education loan: no tax-efficiency and dischargeable to bankruptcy

financiers) aren’t educated enough on this product to effectively manage risk

Credit Cards

•The last resort for students with very high rates (that are typically variable rates)

•Unfriendly terms (high fees, no education finance benefits)•Fully exposed to new consumer finance regulation (i.e.

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Cards y p g (this may an even worse or non-existent option soon)

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)Traditionally low default rates around 2% (Private Loans, source: Sallie Mae 10K)

• Generally cannot be discharged in bankruptcyComparative Interest Rates

12.0% - 18.0%*

*Source: Sallie Mae estimates

Private Student Loans are a low risk asset class which earn attractive yields and diversify consumer portfolio risk

Source: Sallie Mae estimates

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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 properlyprofiled for credit risk, resulting in poor

• Issue: Limited sources for students, lenders, investors

quality loans

• People Capital has built a proprietary credit scoring – Human Capital Score™

f

• People Capital leverages peer-2-peer lending technology that matches lenders with borrowers

- Provides several loan productsOff f- Predicts 10 year income of students

and, therefore, ability to service debt- Algorithm based on metrics such as

school, major, test scores, GPA, etc.

- Offers investor portfolio customizations for higher risk-adjusted returns

- Liquidity for students and investors

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Team of ExpertsOfficer ExperienceThomas SheltonFounder & CEO

• Serial entrepreneur and co-inventor of the Human Capital Score TM

• Former VP strategy and operations for MyRichUncle – a private student loan providerF d f b d t t• Founder of consumer-based startups

Al AlperPresident & COO

• Seasoned technology operational executive and entrepreneur• Built several companies, including the first online ABL consumer debt purchasing

platform• Raised in excess of $100 million of growth funding• Raised in excess of $100 million of growth funding

Alan SamuelsChief Product Officer

• 17 years of financial services experience leading product development, marketing and business development

• 10 years executive experience at Standard & Poor's and Fitch Ratings

John NerenbergChief Information Officer

• CIO at Curomax Corporation, a web 2.0 consumer finance company (sold to Dealer Track)

• CIO for CIT Commercial Finance

Brendan PryorSVP St d t L

• 20 years of student loan operations and finance experience in established and start-up iSVP – Student Loans companies

• Corporate Officer at Sallie Mae, including Director of Loan Originations

Professor Stephen ShoreSenior Developer of HCS

• Is a leading academic in the field of insurance and risk management currently conducting research in human capital risk

• Ph D and A M Harvard University; A B Princeton University• Ph.D. and A.M., Harvard University; A.B Princeton University

Robert Lavet (of Powers, Pyles, Sutter & Verville)General Counsel

• Previously General Counsel to SLM Corporation (Sallie Mae) where he managed the Legal, Corporate Compliance and Student Loan Servicing Policy functions

• Currently leads Education Practice Group at PPSV

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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 graduationlevels 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 theProvide 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 poolp g p

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

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The Products

Standard Private Loan 10 or 15 year repayment, $50 minimum monthly payment Interest-only with straight amortization

1 to 5 year interest only with balloon paymentBalloon Loan 1 to 5 year interest-only with balloon payment Immediate repayment, $50 minimum monthly payment

Straight Amortized Loan 3 year fully amortized loan Immediate repayment

General Features

p y Monthly payments of principal and interest

• 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

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How it Works: The Online Lending Platform

Student Registration Platform Lender Deployment Options

Student registers on the People Capital platform.

“DIRECT” – the lender is the 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

Completes a profile …

PROFILE

High School St Johns

any student loan that match his/her criteria, e.g.

SAT > 2000, Major = English, FICO > 600

“INDIRECT” – the lender has PC act as agent to follow its

High SchoolSATACTCollegeDegreeMajorGPAFICOCo-borrower?HCS

St. Johns1200

-Duke

BAEnglish

3.5595Yes5+

specific bidding criteria• Large scale investor – but seeks to self-

manage

• Creates automatic bidding rules

• Uses Auto-Bid tools to find any loans that match his/her criteria, e.g. For every student loan that meets the

… and makes a Loan Request

every student loan that meets the following criteria, automatically offer , e.g., $10,000 @ 14%:

College = Mid-West, Major = Engineering, FICO > 600, HCS >7+

I need $20,000Interest only5 year term

Loan is placed on the platform

“INTERMEDIARY” – the lender has fund manager act as agent to follow fund mandate• Large scale investor – but prefers to

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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

Return & Auction Process

Borrowers Auction Process Lender

1. Completes profile based on risk/return preferences.

1. Process for borrower to submit offer in the auction

- Example: Lender will invest $5 million in a portfolio of loans.

College: Ivy League

auction

2. Completes Registration

3. Completes profile- College: Ivy League

- Major: Engineering

- FICO®> 600

4. Makes loan request

5. Submits offer into the auction

- HCS™>+7

- Bid interest rate>14%

2 Fund PC account2. Fund PC account

3. Review offers in auction

4. Bid on offer based on profile criteria

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criteria

Payments Flow1. 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 lendersg

3. Lenders receive Member Payment Dependant Note (“Notes”)

4 The Notes will bear interest from4. 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 are5. Monthly payments net of fees are deposited directly into the accounts of the lenders

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Investment Cash Flow: Making the Loan

Investor/Lender Master

Investor Bank Account 1

Investor/Lender registers with

People CapitalWire or ACH Account

(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 andAccount and makes a check co-payable to university and student borrower

2

Loan auction concludes and PEOPLE CAPITAL PLATFORM operations begin Check Issued

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Loan Payments

MasterInvestor Bank Account 2 Master Account(trust)

1. The system loads the borrower’s monthly loan payment, which

2

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 owes Monthly

Loan Payment

loan payment file sent to

Investor Bank Account

Borrower Bank Account (verified)Payment Account Account (verified)

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Collections Process Flow

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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 th h llpreferences and help manage their loan portfolios

Search by

Sort through all loans by college, field of study, Human Capital Score™, vantage grade, loan

keyword or sort by category

Save criteria to

g ,amount, and % funded

Save criteria to automatically fill loans that satisfy parameters

15Loan details available including borrower information and loan details

Loan Listing Screenshot

Superior Advantages

Returns • Market driven automated auction enables lenders to maximize returns

• The Human Capital Score™ enables lenders to consider a

Risk Management

pborrowers expected income in their risk profile

• Minimize risk by utilizing 10-year income projections to analyzeborrower’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 Diversification

participate in a portion of the loan• Create a portfolio of loans diversified by any combination of

criteria including term, loan size, demographics, academics, etc.

Asset Specific Transparency

• Detailed data available for each loan including HCS™, FICO®, GPA, SAT scores etc.

• 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

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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• New peer-to-peer companies (e.g. Lending Club or Prosper) meet general credit needs of borrowers and do not help lenders assess specific risk

• Consumer loans are dischargeable in bankruptcyLoans offered to students are a mismatch for students’ income profiles as• 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

P l C i l i h l li l di h i i l f dPeople Capital is the only online lending company that is entirely focused only on the private student loan market and has the proprietary technology to mitigate risk via the Human Capital Score™

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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 i k dj t d trisk adjusted returns

• 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 schoolsy– Proprietary credit risk tools for lenders– Full asset transparency– Long- and short-term loans – with deferred payment featuresg p y

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Additional Materials

il bl tavailable upon request:Al Alper, President & COOmobile: (917) 658-9008email: al.alper@people2capital.com

• Summary of Lender Opportunity -2 pages

• Introduction to People Capital ~18 pagesp p p g

• Technology Brief ~17 pages

• Human Capital Score ~24 pagesg

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