Student loans have been an item of concern lately, not only because of the incredible pace of growth in debt levels but also in interest rates assessed on them. There are some options beyond private loans or subsidized loans, such as community-based student loans, which are gaining traction.
Community-based student loans, another instance of crowd sourcing
A recent Daily Finance article discussed a growing number of community associations springing up around the country, offering community-based student loans that are being made to students heading off to college, albeit without a lot of details. However, the MarketWatch article Daily Finance quoted did have a few more details.
It isn’t dissimilar to the more recent phenomenon of “crowd funding” or “crowd sourcing,” in that donors are solicited for funds. They throw a certain amount into a communal pot, from which loans are made.
According to MarketWatch, it isn’t even new; one such organization, the Canton Student Loan Organization of Canton, Ohio, has been around since 1922 and has lent $27 million to more than 5,000 students.
However, just like crowd funded personal loans sites such as Lending Club or Prosper, those loans do have to be repaid with interest.
Between public and private
From the information available on MarketWatch, Daily Finance and Bankrate, community-based student loans, or rather student loans from community student or college aid associations, fit somewhere between federal student loans and private loans cost-wise.
A loan from a community association, community bank or credit union is still a private loan, but it’s usually lower-cost than going to Sallie Mae, which according to CBS accounted for 46 percent of all complaints made to the Consumer Financial Protection Bureau about student loans all on their lonesome.
Usually, federal Stafford loans have the best rates. Private loans range depending on lender, but can be as high as 16 percent. Community-based student loans can range from zero-percent interest, from some organizations and generally top out, according to MarketWatch, at 8 percent from most institutions. However, they also usually come with harsher terms, as many have shorter repayment periods and some require collateral up to and including the parent’s home.
Do some homework
According to BankRate, community-based student loans might not be enough to cover the total cost of college, but just enough to cover tuition and books. Many of these organizations just don’t have the money to lend the federal government or big banks do.
Credit unions likewise might be able to arrange some financing for college, though it might come in the form of a “personal loan for educational purposes.” However, they also might lend at better terms than a private lender. A number of credit unions are also, according to CBS, offering student loan consolidation programs. Each student and/or their parents will have to do their homework on community loan organizations and credit unions in their area to find out more.