School loans have been an item of worry lately, not only because of the extraordinary pace of growth in debt amounts but also in interest rates assessed to them. There are several options beyond private loans or subsidized loans, such as community-based school loans, which are getting traction.
Getting loans from the public
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 specifics. However, the MarketWatch article Daily Finance quoted did have a few more specifics.
The donors get solicited for funds with “crowd sourcing,” and the program is very similar to that. Loans are given with the cash people put to the communal pot.
According to MarketWatch, it’s not even new; one such organization, the Canton Student Loan Organization of Canton, Ohio, has existed since 1922 and has lent $27 million to more than 5,000 students.
The loans are paid back with interest just like other crowd funded personal loans sites such as Prosper.
Not quite private or public
Daily Finance, Bankrate and MarketWatch all made it clear that community-based student loans, with regards to cost, are someplace between federal school loans and private student loans.
The cost of going to a community bank or credit union for a private loan is higher than going to Sallie Mae normally. Sallie Mae accounted for 46 percent of all Consumer Financial Protection Bureau complaints made about school loans.
Private loans can be as high as 16 percent interest, and federal Stafford loans almost always have the best rates. Community-based loans typically are much harsher and require massive forms of collateral, according to MarketWatch, but interest can range from no interest at all to around 8 percent.
Might not cover college
According to Bankrate, community-based school 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 cash to lend the federal government or big banks do.
You may want to go to a credit union for their loan consolidation programs, and there are also programs similar to these ones that offer college financing, according to CBS. The terms are usually pretty good. Make sure parents and students are both doing the research to determine what is best.
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