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Can’t Get Tuition Money? Try Social Lending

A relatively new and Web-based form of lending could offer cash-strapped students an alternative way to finance tuitions and other college expenses.

Called “social lending,” the concept involves borrowers seeking funds from people they might know personally, such as family and friends. Also called “peer-to-peer” lending, social lending could involve a firm setting up an online auction for the student borrower who would get a loan based on the maximum amount of interest he or she would be willing to pay.

The concept should provide some relief since students and their parents are now scrambling to find financing in a tough economic climate.

States short of tax revenue are cutting funds to provide loans and some, such as California which is a severe budget crisis, are piling on new fees to the 2009-2010 tuitions that some students have already paid. Other states with serious student loan issues include Michigan, Utah, Illinois and Pennsylvania.

“We have ways to get money but many students just don’t know about the kinds of services firms such as ours offer,” says Tiffany Fox, a spokeswoman for San Francisco-based, which sets up online auctions that allow bidding on loans students custom design for themselves. has built up to 850,000 members involved in all types of lending from credit card debt consolidation to home financing to student loans since it was founded in February 2006, Fox says.

Students with a minimum credit score of 640 can write loan applications for up to $25,000 that they would pay at a fixed rate in three years. No deferrals are allowed. The loan application is then put up for auction and the winners are those proposing the highest interest rate that the students are willing to accept, Fox says. Those bidding could include family and friends of the student.

Virgin Money, a Waltham, Mass.-based social lender, helps borrowers and would-be lenders such as family set up workable contracts. Virgin Money can set up a promissory note describing the terms of the loan such as the interest rate, methods of payment and payment tracking. British billionaire Richard Branson’s “Virgin” business empire owns the firm.

No credit checks are done since they are assumed to be the duty of the lender. In the case of a default, the lender can call in the note or sue. Following a similar plan is GreenNote, now owned by TuitionU, which uses Web-based social networks to help students get loans. A borrower sets up a profile and posts his needs on a network, asking friends if they can contribute $100 or more. GreenNote then collects and documents the funds and turns the money over to the school.


Fixed interest rates are 6.8 percent, typically for 10-year terms. Payments can be deferred and there is a grace period of six months after graduation to start making payments. According to spokeswoman Evie Smith, GreenNote also gives students access to more than 80 credit unions.

One unique idea just starting out at Harvard University uses the Web to link student borrowers with alumni who want to contribute to their alma mater by helping them make direct students loans. Called UniThrive, the system involves the student borrower setting up as loan profile that is then turned over to willing alumni who can pledge anything from $50 to the loan’s full amount. UniThrive collects the money for the school. The student borrower updates his lenders five times a year on his academic progress. Loans are typically 0 percent interest and are paid back within five years of the student’s graduation.

Social lending sprouted several years ago, but got a big boost last year when the credit crisis hit. Badly damaged by their exposure to subprime mortgage lending, banks became tight with loans and demanded much higher standards of lenders. Turning to personal family and friends for money became a natural alternative.

With education funding also in crisis, social lending could be a useful alternative.

“Recent changes in retail bank lending have created the opportunity for a new and diverse group of resource providers to offer their financial support in connecting with students to help pay for education,” says Brian Cox, chief business development officer of “In the past few weeks as the college tuition bill comes due, we have experienced a spike in activity not only from students, but schools and new resource providers.”

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