Design and Evaluation of a Peer-to-Peer Student Lending Platform to Mitigate Information Asymmetry and Credit Risk

Abstract

Peer-to-peer (P2P) student lending platforms have emerged as an alternative source of funding for students who are unable to obtain loans from traditional lenders. Traditional loan systems have become less accessible and affordable for all students, and information asymmetry is a significant challenge that can have serious consequences for lenders and borrowers. The rising cost of higher education in many countries has made it challenging for some students to access the funds they need to finance their education. This study aims to design and implement a P2P student lending system that addresses these challenges. The research conducted enables the production of a P2P loan framework using PHP, Mysql, and Javascript that incorporates essential features gleaned from literature and existing P2P applications. The study improves the payback rate by reducing information asymmetry in the P2P lending system using the following methods; detailed applicant profiles, robust credit scoring models, income verification, transparent loan terms, and peer reviews and ratings. The prototype software development model was used to develop the P2P framework. The system is evaluated against industry-relevant metrics, such as loan characteristics, credit risk, and loan performance. The software was developed using HTML, JavaScript, PHP, and CSS, with the Operating System being Microsoft Windows 11. The result of the research is a more accessible and transparent lending system that supports students who require funds to complete their education after a thorough verifiction process by the system. The system was evaluated based on the reviews and ratings gotten from the clients and users. The implementation of this system can significantly impact the education sector by increasing access to funding for students.