After talking to founder Asheesh Advani on several occasions, we expect Virgin Money (US) to become a disruptive force in the student loan business. And with college costs rising and financing options declining (see previous coverage here), there's a need now for new approaches.

Against that backdrop, I was thrilled to see a link to Virgin Money's press release (here) in a Payments News roundup this morning. I eagerly fired up the blog editor to write about it, but quickly realized it was not the product I was hoping for.

While it's a good line extension, it's not so new (think Diet Coke adding lime). Student Payback is a well-named service to formalize friends & family loans to students, something the company already did with its Handshake and Handshake Plus services (see note 1).

The main difference, and why it costs $100 more, is that Student Payback allows up to 10 increases in the original loan amount with no additional fee. For example, each semester a new loan can be added without needing a new loan doc each time.

Analysis
Strategically, Student Payback appears to be right on the money. It allows VM to better target the P2P student loan market with the eventual goal of moving upstream, graduating from merely formalizing existing loan agreements, to actually brokering multi-party financing deals. For example, initial seed money could be from mom and dad with help from government/school programs. Then as the student progresses through their studies, additional financing could come from Virgin Money partner bank(s) and/or individuals/organizations with an interest in helping students at particular schools (eg. alumni) or those entering certain fields. Scholarships, grants, internships and other related activities could also be thrown in the mix.

Anyway, there's lots of opportunity especially with the growth of social networking and the exit of several large student lenders. Two startups showed new solutions at our Finovate Startup conference several weeks ago: GreenNote and SimpleTuition. And there are others entering the market such as Fynanz (previous post here) and Qifang, a Chinese startup TechCrunch wrote about in February (here).

Note:
1. See our Online Banking Report on P2P lending for more information.