Terry Savage
Networking for a Loan
Social networking is being used for everything these days, and the latest idea is to use this concept to raise money to finance a college education. Starting later this week, GreenNote will launch a new site dedicated to social networking aimed at raising money for college. The idea is to get low-cost loans from family, friends, or anyone in a social network who is interested in helping a worthy student. Even altruistic strangers might decide to get involved. It's sort of like an online "wedding registry" letting friends and family know what gifts you like. Except in this case, the people who get involved by offering money also get a rate of return on their investment in a student's education. The student simply creates a profile at GreenNote describing his or her talents, goals and financial needs. Prospective lenders respond with offers. Then, GreenNote formalizes the agreement between the student and lender into a legally binding note, and sets up a repayment program. There is no credit check required of the student, and no citizenship or co-signer retirements. The fixed interest rate on the note (interest starts accruing as soon as the funds are taken) is currently set at 6.8% (the same as unsubsidized Stafford loans). But the lenders can choose to waive the interest or charge a lower rate, or no interest at all. Repayment can be deferred for up to five years after graduation, and must be completed within a 10-year term. There are no prepayment penalties. This program costs the student only a one-time documentation fee of 2% of the amount borrowed. The lenders pay a fee of 1% of the outstanding amount over the term of the loan. If the student has multiple lenders, the student makes one payment and GreenNote distributes the payments to the various lenders, pro rata, by direct deposit to their respective bank accounts. I'm sure you're asking yourself why a perfect stranger, or even a relative, might be willing to lend money that is basically unsecured. Founder and CEO Akash Agarwal says: "We're just streamlining an existing process that already has billions of dollars being lent informally every year to help finance education. It's true microfinance. These borrowers are not asking for a handout, but the lenders are doing a very good deed in building a student's future, as well as using their money effectively because they get a fair return." Agarwal must have something going for him because this new venture has the former CEO of PayPal and Intuit on board, as well as major venture capital financing. |
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