Students turn to peers to fund college

Email to a Friend

Alex Slobodkin/iStock

With the credit crisis causing banks to tighten their lending belts, the tuition gap (the cost of college after federal loans) expanding and parents strapped for cash, peer-to-peer (P2P) loans are gaining in popularity. These loans are expected to climb to $5.8 billion by 2010 from $282 million in 2006, according to Celent, a financial research and consulting firm. Big players include Lending Club, Prosper, Virgin Money and Zopa. Although P2P loans might be easier to get than conventional student loans from banks, they won’t be forgiven if you decide to teach or enter the Peace Corps, warns Brandon J. Mendelson, author of “The Graduate Student Survival Blog.” And he points out that banks are more likely to alter your interest rate and repayment terms if you get into trouble.

Rather than lend money, gives away five to seven scholarships per month to students. Candidates are required to blog on online forums set up to discuss issues on students’ minds. Winners are chosen based on peer review. The trick to winning is to be persuasive and empathetic to others’ views, says President Jim Wolfston.