Microlending is moving into the U.S. student-loan market.
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 the 2006-07 school year, 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 Web site set to launch June 4. "That has completely stopped."
It's increasingly difficult for parents to take out home equity lines of credit, and students are looking away from traditional avenues such as
Sallie Mae (SLM Quote - Cramer on SLM - Stock Picks) and
Bank of America (BAC Quote - Cramer on BAC - Stock Picks) 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 nonprofit 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. Students create online profiles detailing goals, interests and financial needs, and noninstitutional lenders can shop through the profiles based on majors, academic institutions or other interests.
Juliana Bunim
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