Just say no to peer-to-peer student loans ... at least for now
Filed under: College, Kids and Money
According to BusinessWeek, "In recent months, peer-to-peer lending sites such as Prosper and Virgin Money USA have introduced student loans or started marketing existing offerings to families looking for college funds. Others, including startups GreenNote and Fynanz, are focused exclusively on making college loans."It's not a surprising development. Peer-to-peer lending has been growing in popularity for years and the tightened credit market is making it tougher for some students to secure loans for college.
There may be a future in peer-to-peer student loans but I don't see it happening anytime soon. Here's why:
- Subsidized student loans are always preferable. Before exploring any private loans, college students should complete the FAFSA form and take steps to see how much they can borrow at artificially low interest rates.
- Large financial institutions have the ability to tailor loans to the needs of students. The loans can be stretched out over long periods, deferred under certain circumstances, and more. Sites like Prosper.com are really not the place for complex financial instruments.
- The world of student loans is highly competitive, and various websites including eStudentLoan.com make it easy to compare rates and terms between various banks. It's unlikely that you'll be able to get a better rate from a peer-to-peer site -- unless of course you're borrowing from friends. But if you're borrowing from friends, why do you need a networking site to act as a middleman for a hefty fee?
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Reader Comments (Page 1 of 1)
5-14-2008 @ 2:37PM
William Kermode said...
I am the Community Development Manager at Fynanz.com & I just came across your post. I just thought I'd make a few points about p2p lending for students.
Firstly, you are totally right that a student should fill out a FAFSA and that other forms of financial aid should be exhausted before they apply for a private loan. Fynanz directs them to do this before even considering our loans.
Secondly, students can appeal to individuals in their description and encourage lenders to bid on their loans...whether or not that constitutes "tailoring" is debatable. However, Fynanz offers a grace period and forbearance periods to those who take out a loan from us.
Finally, we offer a 30 day return policy. We try to be as flexible as we can. After all, these are students and we want them to be able to pay back the money that they borrowed for their degree.
While p2p lending may not be for everyone, we merely serve as a platform where those who need money to pay for their school and those who want to help students succeed can work together.
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