With the private student loan market still limping along from the effect of the credit crunch, peer-to-peer (a.k.a “p2p”) student loan lending companies (like Fynanz, which I wrote about a couple weeks ago) seem to be building a following. With some of the personalized feel of social networking sites like MySpace and Facebook, this type of lending seems to appear comfortable to college-aged borrowers–but watch out! Just because it’s popular, doesn’t mean it’s the best decision for funding college!

Thumbs Up from Colleges?

Student-loan specific p2p sites like Fynanz and newcomer GreenNote are joining the ranks of other p2p lenders (like Prosper) in the loan market–and they seem to be building momentum.

In fact, GreenNote is trying to build credibility with their market by getting schools to back them up. So far Santa Clara University and Menlo College (both in CA) have both linked to GreenNote from their Financial Aid websites. However, in an interview with the Chronicle of Higher Education, Santa Clara official Richard J. Toomey noted that they still didn’t know if the peer-to-peer lending concept would work out well! They are currently considering their referrals to GreenNote as being on a trial basis.

Borrowing from Family and Friends

One of the benefits peer-to-peer lending offers is an opportunity to borrow from family and friends for college, but even here, I believe there are better ways (for both parties) to set up a personal loan than by going through a website. In fact, this is something for which I work on with clients on an individual basis–certain options work better for different situations.

Borrow at Your Own Risk…

With the current peer-to-peer lending practice still so young, at this point I would not recommend you use this method of paying for college–even though schools may be open to it. Remember, at the end of the day it is you or your student–and not the school–who is responsible for understanding and complying with the terms of any student loan you borrow. (If it seems too good to be true, it probably is!)

Remember that taking out loans should usually be your last resort when it comes to paying for college, and even then (here comes the broken record…) federal loans are typically your best bet for borrowing for college!

All the best,
Deborah Fox

photo: Holding Hands 2 by spekulator