Peer to Peer Lending for College Students?
May 22, 2008 By Debbie Dragon
By now you’re probably aware of peer to peer lending organizations, like Prosper.com. This type of lending allows people to post a request for a loan and for other people to lend them some of the money they’re requesting. Basically, people post their need for a loan, including how much money they’re looking for, what they’re going to use it for, and how they will repay the loan and lenders can come and “bid” how much they’re willing to lend them and at what interest rate. Lenders are able to see information about the borrowers credit so they can decide whether or not they want to take on the risk of lending to that person or not.
Starting on June 4th, there will be a new type of peer to peer lending targeted to college students. GreenNote is launching a national social networking service that will enable students to raise money to pay for school, regardless of their credit scores.
At first, it might seem unnecessary for this type of lending, because historically, most students didn’t have any trouble obtaining loans for education. Unfortunately, the state of the economy is affecting student loan lenders – particularly private loans that many students have to rely on if they don’t qualify for federal loan programs.
In previous years, many parents would take home equity loans from their homes to help finance their children’s higher education – but homes are no longer working as well as “cash machines” and it’s not as easy to get equity from your home as it once was.
Private lenders are charging interest rates as high as 20%, and the government has cut back on the amount of money they lend each year. On top of the difficulty obtaining funding to attend college, the price of collect itself is increasing.
Silicon Valley-based GreenNote is using the power of microfinance to allow students to receive affordable loans without a credit check, co-signer or proof of citizenship, while lenders earn a return on their money and the knowledge that they are making a positive contribution to the next generation. It’s extremely similar to how Prosper.com operates- except for the fact that it’s targeted to students needing money for college, and that it doesn’t require good credit. (Why? Because most students have not yet established a credit score or adequate credit histories that can be used to determine the level of risk). Loans through GreenNote tend to offer reasonable interest rates (about 6.8%) for students borrowing for college.
GreenNote is backed by Menlo Ventures, and has the former CEO at PayPal and Intuit on the team as well as executives from WBC Financial Group and Glenbrook Partners
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