Archive for the ‘Student Loans’ Category

Ain’t Too Proud to Beg?  If you’re a college student or recent graduate with student loans to pay off you may want to check out a new online service called SponsorMyDegree.com.

The site matches students and recent graduates with individuals and companies willing to help pay for their education.  It’s basically glorified begging, as these contributions ar not loans and the student is not expected to provide any goods or services in exchange for the donations to their college funds.

Student users set up a free profile and tell prospective donors about their studies, hobbies, plans or anything else of potential interest to someone who might slide them some cash.  They can promote their listings to friends and family who can donate to them through the site.  They can withdraw money if they get a minimum of twenty dollars.

People and corporations who donate to students can give as little as five dollars.  Major corporate fundings can be allocated for as little as a dollar.

SponsorMyDegree.com is not a charity, and contributions to students are not tax deductible.  The site makes money by targeted advertising and students are a very attractive target market.  No one wants to bombarded by spammy e-mails, but there’s no such thing as a free lunch and it’s probably worth it if you can get some books paid at the very least.  Just set your e-mail filter to high.

There seems to be a host of new student funding options lately, like peer2peer services and now, the pure handout.

This may be because the government has opted to remove private banks from the student loan origination process, limiting some choice in this process.  The credit crisis also limits students’ options now.

So if you’d like to get some help with your student debt this is a potentially viable source of cash.  But don’t try to game the system if you’re not a student; the service does verify student enrollment through a central clearinghouse.

New student lending rules that go into effect on July 1, 2010 will bar private banks from issuing federally-subsidized student loans and make the Federal government will be the sole source provider for low-cost Stafford loans.

In cutting out middle man, Congress has acted to save the taxpayers money and direct the money that otherwise would go to companies like Sallie Mae back into the pockets of students in the form of more grants and other aid. That’s good news.

Unfortunately this will mean the students will also have dramatically fewer choices for getting college money moving forward. With many banks having already scaled back their student loans due to the credit crisis, this move by the Obama administration will just about signal the death knell for low-cost student loans from the private sector.

With one interesting exception.

Just like peer-to-peer lending sites like Prosper.com and Lending Club allow individuals to borrow from other individuals at rates that are typically much lower than the unsecured loan rates offered by banks, a company called People Capital now offers a peer-to-peer lending platform where students are matched with college funding sources — be they individual investors, philanthropic/affinity groups or even financial institutions.

This should be especially attractive to undergraduates who can solicit their parents, grandparents, aunts, uncles and family friends to help put them through school while still getting their money back with interest.

Who can turn down a fresh-faced freshman asking for a little helping hand?

However there are stipulations. To borrow money through People Capital an applicant must:

• Be enrolled at least half time and pursuing a degree at a Title IV-eligible US educational institution.
• Be both a citizen and a resident of the United States.
• Have a valid Social Security number.
• Be at least eighteen and the age of majority in your state of residence which must be a state in which People Capital is currently lending. Despite this being an online service, each state much grant a charter for People Capital to make loans.

Like other P2P sites, investors bid on loans to fund in an auction process, and the lender offering the lowest interest rate wins funding of the loan.  Money from the lender’s People Capital account is then sent to student’s college.

Also noteworthy is the high barrier to participate as a lender in this forum.  Currently, all People Capital lenders must be accredited investors as defined under Rule 501 of Regulation D promulgated under the Securities Act of 1933. This basically limits investors to high net-worth individuals, banks, retirement funds and other heavy hitters.

This is very different from other sites where $25 or so gets you into the lending game.

I am a big fan of P2P lending and think that this could be an excellent funding source when all Federal financial aid, scholarships and grants have been exhausted. Always go for the cheap money first, but a cost-effective way to get a college degree is nothing to shake a stick at.

Every year the American taxpayers provide close to $9 billion in subsidies to banks in the student loan business, and guaranteed losses when former students were unable to pay.  Sounds like a great deal for the banks, not so much for taxpayers and students.

That’s why the Obama administration is looking to cut out the middleman and as a result cut out the legs of the financial institutions who have both provided access to college funding for millions of students but also have been accused of serious abuses in search of the golden fleece.

So with the proposed government takeover of the student loan business looming, 800 pound gorilla Sallie Mae needed to find a new profit gravy train and fast. And it has chosen, not surprisingly, retail banking.

Leveraging its excellent name recognition, Sallie’s first foray into the online banking business is a savings account with a 1.35 percent annual interest rate to go along with online certificates of deposit paying higher rates. According to their website, their High-Yield Savings Account boasts an Annual Percentage Yield (APY) that is five times the national average and charges no monthly fees. It’s even FDIC-insured to boot.

To sweeten the deal, Sallie has teamed up with the college savings site UPromise to boost the returns with a 10% match bonus on Upromise earnings if a customer links these two accounts within 90 days of opening a Sallie Mae High-Yield Savings Account with either set up of an Automatic Savings Plan with a monthly deposit of $25 or more, or an initial funding of $5,000 or more.

Salle Mae has had a banking charter for about five years, and they’re finally putting it to good (at least for them) use.