A relatively new and Web-based form of lending could offer cash-strapped students an alternative way to finance tuitions and other college expenses.
Called “social lending,” the concept involves borrowers seeking funds from people they might know personally, such as family and friends. Also called “peer-to-peer” lending, social lending could involve a firm setting up an online auction for the student borrower who would get a loan based on the maximum amount of interest he or she would be willing to pay.
The concept should provide some relief since students and their parents are now scrambling to find financing in a tough economic climate.
States short of tax revenue are cutting funds to provide loans and some, such as California which is a severe budget crisis, are piling on new fees to the 2009-2010 tuitions that some students have already paid. Other states with serious student loan issues include Michigan, Utah, Illinois and Pennsylvania.
“We have ways to get money but many students just don’t know about the kinds of services firms such as ours offer,” says Tiffany Fox, a spokeswoman for San Francisco-based Prosper.com, which sets up online auctions that allow bidding on loans students custom design for themselves.
Prosper.com has built up to 850,000 members involved in all types of lending from credit card debt consolidation to home financing to student loans since it was founded in February 2006, Fox says.
Students with a minimum credit score of 640 can write loan applications for up to $25,000 that they would pay at a fixed rate in three years. No deferrals are allowed. The loan application is then put up for auction and the winners are those proposing the highest interest rate that the students are willing to accept, Fox says. Those bidding could include family and friends of the student.
