Seen On

Web Site Helps Students Fund College By Networking

BOSTON (WBZ) ― Just as some colleges break the $50,000 mark, the credit crunch is making it harder and harder for some students to secure the loans they desperately need. This change in the marketplace is creating a new type of borrowing that is growing in popularity.

Jennifer Reynolds is studying to be a licensed marriage and family counselor. Financing her degree costs about $27,000 a year. Since federally subsidized loans only cover a portion of her bill, she's raising the rest by connecting with family and friends through www.greennote.com.

It's one of a few new peer-to-peer lending sites designed to broker student loans.

Akash Agarwal, the founder and CEO of GreenNote explained how it works: "The friends and families of students can benefit by lending them money and help them through their education and the students benefit by getting money at low cost from people they know."

Each one of these peer-to-peer sites works differently. Some offer fixed rates, while others allow students to request a rate and then seek bidders. Some require co-signers and look into payment histories. Others actually do not check credit at all. There may also be a minimum or maximum loan amount, and you can count on fees being included. For example, borrowers can also expect to pay anywhere from 1 percent to 7 percent in origination costs.

Some of these sites will link absolute strangers, and others offer all kinds of loans. Neal Coxworth of www.fynanz.com said his site only offers student loans. They have been flooded with applications. "It seemed to really be an opportune time because many, many conventional student lenders had exited the marketplace.'

Right now, these are all private commercial companies that are answering a need they saw in that overall marketplace. But with college costs continuing to rise, and no end in site for the credit crunch, some experts think this approach will expand. Mark Kantrowitz of www.fin-aid.org outlined this possible scenario. "There is the potential here for colleges to setup their own peer-to-peer lending where they would connect alumni with current students."

So far, Jennifer has raised half of what she needs for her education. She's grateful to those who are helping her, and hopes she can do the same for some future student. "You want to support them in their goals and their dreams and see positive changes in their lives.'

It goes without saying that there is risk for both borrowers and lenders in any transaction. Experts say both parties need to read all the fine print very carefully.

(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)