Community Based Student Loans Another Option For Student Finance

Student loans and also student debt amounts have become something of an item recently. The debt level for college students and therefore graduates is exploding and many are looking at a multitude of options for funding their education. One option some might not be conscious of is community-based student loans, which are a lot like crowd-funding.

Getting loans from the general public

A recent Daily Finance article discussed a growing number of community associations springing up around the country, offering community-based school loans that are being made to students heading off to university, albeit without a ton 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'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.

Prosper is a crowd funded personal loans site. Just like those loans, these ones have interest and have to be paid back by the students.

Less than private or public

From the info available on MarketWatch, Daily Finance and Bankrate, community-based school loans, or rather school loans from community student or college aid organizations, fit somewhere between federal student loans and private loans cost-wise.

The Consumer Financial Protection Bureau got 46 percent of its student loan complaints from Sallie Mae, which is pretty e costly for private loans. You may also get private loans from a credit union or community bank, though they are usually cheaper.

Dependent upon the community-based student loan organization, interest can be anywhere from nothing to eight percent, according to MarketWatch. The catch is that the loans usually require a massive piece of collateral, such as a parent's home, and have much harsher terms. Federal Stafford loans have the very best rates and Private loan rates could be as high as 16 percent.

May not cover college

The idea of the community-based school loans is to help students cover tuition and books. They are not enough to help pay for all other university expenses, according to Bankrate. The federal government has a lot more money than small organizations.

A "personal loan for educational purposes" could be provided by credit unions in the same way, and the terms would be better than if you were to go to a private lender. Students and parents need to do the work to determine which program will work best for them. According to CBS, there are loan consolidation programs at credit unions that might be worth checking out.