When things are looking bleak on the loan front and college bills are getting sky-high, there may be a new option out there for you to consider. New loan sites are springing up where you can borrow money from friends and family. Not your typical begging and pleading from Mom and Aunt Lorraine or borrowing a couple bucks from a friend, but legitimate loans with actual terms and interest rates that will help you finish school and get that college degree that you’ve always dreamed about.
Tough Times Create Tough Finances
These difficult economic times have created challenging financial situations for many college students. Even though the stimulus bill that was recently signed into law has pushed more money into the federal loan and grant programs like the Pell Grant and Perkins Loan programs, not every student qualifies for those programs, and even for those that do, there is only so much money to go around and still more tuition to be paid above and beyond what federal financing might cover.
Students must then turn to other financial aid options. These might include Stafford Loans and other low interest federal loans, but again, there is only so much available, and these can only cover a fraction of some of the high tuition costs that students face. There are higher-rate private loans out there, and many students turn to those, but these can saddle students with variable interest rates that can be as high as five to seven percent above the prime rate. And as that prime rate rises, these loans can become incredibly hard to pay back. If the student can consolidate them to a lower rate, they are wise to do so, but it only helps so much. Fortunately, there is another option.
Peer Lending Arrives on the Scene
Social loans, which are created when students borrow money from friends and family through new online sources, are the newest way to finance higher education. Also known as peer lending, these social loans are created by legitimate lending websites and involve signing loan contracts between parties. There are set interest rates that can be fixed or variable depending on how the loan is set up, and a payment schedule is also determined.
The student can borrow from one or several lenders to obtain the amount of money needed to pay for college. Some of the loans have stipulations attached, such as maintaining a certain minimum grade point average (GPA) or performing a certain number of hours of volunteer work as part of the repayment plan. In many cases, students feel more obligation to pay back these loans in a timely manner, often paying them back first before paying back other loans, because they know the people who have loaned them the money and it’s a social obligation as well as a business obligation.
Types of Peer Lending Sites
Some of the social lending sites are non-profit sites matching donors with students looking for loans, while others are registered with the SEC because they are set up in such a way that their loans are actually sold as securities, where lenders are also receiving a return on their investment. Other websites are set up so that donors offer small monetary gifts to students needing college tuition. Gifted money doesn’t require repayment, and in some cases it works as a student getting donations from sponsors.