If you are having trouble paying for college, maybe you can hit up your social network for a loan. That’s the idea behind GreenNote, another peer-to-peer lending startup that is launching this week. (The site is still going through load testing, but should be up fully by Wednesday). Prosper, Zopa, and Lending Club (which is under regulatory scrutiny) already offer general P2P loans, but GreenNote is more like Fynanz or China’s QiFang, in that it is focussed only on student loans.
These tend to have lower default rates and there is a rising need for them. The funding gap between the average four-year cost of going to a state college and available federal loans is at least $22,000, according to the company. For private universities, that gap can be more than $100,000. P2P lending startups like GreenNote see that gap as a huge opportunity. In aggregate, there was a $113 billion funding gap in 2007, $95 billion of which was paid for by personal and family funds.
But GreenNote is not about matching high-risk borrowers with lenders who want a higher return. It is about tapping into the altruism of family and friends who want to chip in to help finance the college education of a student they already know. CEO Akash Agarwal says:
This is really getting your social network to help you—asking your social network to step up, and not asking for a hand-out.
The loans are designed to mimic a federal Stafford loan—the interest rate at launch is 6.8 percent. The rate is fixed, payments are deferred for up to five years, and then students have 10 years to pay back the loan. No co-signers are needed, and GreenNote loans are open to non-U.S. citizens.
Lenders can pitch in as little as $100. In that sense, it takes more of a micro-finance approach. GreenNote keeps track of who owes what to whom, takes care of the paperwork, collects the funds, and then distributes the payments after the student graduates and starts paying back the loan. GreenNote takes a 2 percent fee up front from the student out of the principle of the loan, and another 1 percent from the lenders out of the interest. (Fynanz, in contrast, only takes a 1 percent fee).
GreenNote raised $4.2 million in a series A round last October from Menlo Ventures and Glenbrook Partners.
I signed up for prosper.com but found out that there is a 25k limit.
I have more than 25k on my 3 credit cards. That’s useless. I actually need a 2 million dollar investment for my business.
Where is the propser.com for me?
These small amounts are completely pointless. The whole point of p2p borrowing is to get money that the bank thinks is too big a risk right?
Why not have a prosper.com for me or for SMEs?
“I have more than 25k on my 3 credit cards. ”
Just to clarify, I have more than 25k of credit, not debt.
The social aspect is interesting.
It gives family and friends a great way to help someone with their college education by allowing them to give more than they could.
However, will the fact that the lenders are relatives increase the default rate?
Since nobody else is replying here,
Realistically a 25k loan will last you no more than 2 months in Southern California if you’re thrifty.
I think there is a real need for a p2p website that mirrors venture capital investments where prospective borrowers post their own term sheets to the public. Like a pseudo stock exchange but with guaranteed investment returns.
If you’re going to ask why I don’t implement such a good idea, I have no resources in financial consulting to realize it.
I think such a project would be far more popular than these microloans for Americans. The typical American adult has more than 25k cash on hand so it makes these microloans pointless for our public.
I’m interested to see how this pans out over the next few months. I think the height of the student loan annual cycle picks up in June as students get their packages from schools - itemizing all the expenses.
The other thing that makes this timely for them and http://www.fynanz.com is the article in the NYTimes today about lenders like Citibank and Chase deciding NOT to lend to students at community colleges and mid-tier schools. So student need to seek out alternatives like P2P lending sites - and they should probably stay away from prosper.com and such IF they want the tax advantage. (As I understand it, the interest on student loans is tax deductible…and it may be tough to prove it was a student loan if it didn’t follow the stringent guidelines that I imagine the likes of Fynanz follow).
This is weak. myfreetuition.com giving coeds tuition money to take off their clothes will blow this out of the water…
Chris, the reason no one sets up a site like that is because what you have described it’s pretty much against federal law. There are a ton of federal regulations for good reason about how companies take investment, the disclosures they need to provide and the sophistication of the investors who are allowed to participate. Angel investors are filling the gap you’re talking about right now but pretty much all Angels are accredited investors which means they have more than $1M in assets. Combined Angels invest more than Venture Capital firms each year with some of the more prominent groups such as Keiretsu forum funding $30M+ in deals yearly. The reason any average Joe isn’t allowed to invest at this level is because there have been 10,000s of people ripped off over the years by people less honest than yourself and the protections in place are absolutely necessary. It’s one thing to fund a loan for college or to pay off credit cards but $2M for a company needs to be more organized to protect the investors.
I can’t find myfreetuition.com that you mentioned (#6). I could use the free tuition. What’s the URL? Can’t be the obvious one, there.
I’ll glady take my clothes off for just about anybody who is willing to pay.
Heck, I’ll do it for free right now!
(stands up, begins unbuttoning pants . . . )
There.
Now, how do I add a video comment (heh heh)?
I know many of the readers here are from a California perspective where $25K won’t last but a few months, but these micro loans available from GreenNote are really an important part of our economy. Most of the large banks (Citi, Chase, etc.) are dropping their student loan programs at spcific schools, mostly community colleges and small public schools. They are doing this because the community college students that graduate only need about $4K per year and do not promise to make six figure salaries upon graduation. I see organizations like GreenNote providing an invaluable service to this level of student population need who do have large networks and might be able to gather enough people to provide yearly tuition.
The other big benefit of GreenNote is that is locks the interest rate to the federally regulated rate of 6.8%. Many students who get turned down by the big banks have to choose a private loan company where interest rates can soar to 20%. This means when students graduate they are in significant debt for many years. This causes students to not pursue higher education or just pursue jobs that pay extremely well and not teaching jobs or civil service jobs.
I am working on a new model to help such students, not in providing loans, but in providing pay back methods. Charity for Debt is a new non profit that pays student loan debt off for time spent working at a local charity or non profit. We hope to partner with companies like GreenNote and SimpleTuition.com to allow more students the opportunity of education, which many of us take for granted. Check it out if you are interested - http://www.charityfordebt.org - we are just getting started in DC and Dallas.
amazing idea ! p2p loans thru social networking. wats next? And yes micro-financing is defly not such a bad idea
There is another peer to peer student loan marketplace called CapAlly. Looks like they are a hybrid of both GreenNote and Fynanz. Their goal, as stated on their website, is to link students to financial support and professional guidance.
http://www.CapAlly.com
GreenNote nice???
I think greennote is a nice site. It seem its webmaster is a hot member at a dating site. It called http://www.richromances.com or something. More pictures can be found under her profile.