Costs for higher education are soaring, and with students up against rising interest rates, it’s harder than ever to finance a college education. Students and parents borrowed an estimated $17.1 billion in private loans in 2006-7, representing 22% of all lending that year. Now the subprime mortgage meltdown has changed the student loan landscape, and not necessarily for the better.
“A lot of easy money was going into education via the home acting as a piggy bank through refinancing,” says Akash Agarwal, CEO of GreenNote, a social networking and microfinance website. “That has completely stopped.” It’s increasingly difficult for parents to take out home equity lines, and students are looking away from traditional avenues such as Sallie Mae (SLM) and Bank of America (BAC) in favor of more creative ways to finance their education. (Yearly expenses for a public university, including room and board and financial aid, have risen to $9,980 a year from $7,650 according to the College Board, a non-profit examination board. The average net cost for a private college is $23,000, up from $18,050.)
Enter social networking and the phenomenon known as peer-to-peer lending. New companies such as Fynanz and GreenNote are offering students another place to look for loans, the internet. Fynanz offers an online marketplace similar in structure to peer-to-peer lending sites such as Prosper.com, but focuses solely on the student loan market. After a student creates online profile detailing goals, interests and financial need, non-institutional lenders can shop through profiles based on majors, academic institutions or other interests.