A Better Source for Low-Interest College Loans May Be Just Around the Corner

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Money for collegeMoney to pay for a college education can be hard to come by. Saving in this economy is a challenge. Scholarships are competitive. And student loans often won't provide you with enough money to cover both tuition and all the other associated costs.

But some community-based groups are seeking to fill the affordable college financing gap. As a recent MarketWatch article discussed, these local lending groups are playing an increasingly important role in getting many students to college.

Comparing Loans

There are wide differences between types of student loans. On one hand, federal loans typically offer reasonable rates and generous terms, including loan deferment and forbearance under certain conditions. Yet many people need more money than those federal loans can provide, so they turn to private lenders. Their loans can carry much higher rates, making longer repayment periods necessary and thus postponing the day students and their families can get them paid off.

The loans offered by these hundreds of community-based groups fall somewhere in between. Using locally generated donations, these groups put together funds that offer loans to graduating high school seniors from their local schools.

Typically, the interest rates are comparable to what federal loans charge and therefore much more attractive than the average private loan rate. A few community groups even give out interest-free loans.

But community-group loans carry their own challenges. You can't expect the same flexibility in repayment terms and periods as federal loans offer, and they typically require parents to co-sign. Some also require collateral, up to and including parents' homes. As a result, defaulting on these loans can cause much more serious problems.

Moreover, because funding is limited by the generosity of local donors, students can't expect to receive huge amounts. Especially in a tough economy, donations can be hard to come by. And the community groups are also suffering from low returns on their investments.

Find Out More

To find out if your child may be eligible for a community-based loan, talk to your child's high school guidance counselor or principal. They should be able to get you pointed in the right direction if there's funding available.

Community-based loans won't solve all your problems. But when every dollar counts, even small loans could make a big difference.

For more on paying for college:


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smaselli12

This is just another way for "Community Organizers" to legally screw over people........again!

October 22 2012 at 3:07 PM Report abuse rate up rate down Reply
Anne

I hope they have found a way to lower the interest rates on thos students who need them. More often then not the student leaving schools of higher learning are in debt over their heads before they even start. I firmly believe that if a student who can not afford higher learning and has a high IQ , he should be able to attend without going into debt. The US could arrange a payback through work program for those qualified.

October 22 2012 at 3:06 PM Report abuse rate up rate down Reply
uacrack

what a horrible idea putting up parents house for student loans vs a stafford loan

October 22 2012 at 12:11 PM Report abuse rate up rate down Reply
jaguar6cy

Apparently we have to find even more ways to subsidize the greedy professors and administrators who ridicule the country, demonize capitalism and live off the financial suffering of their students. The need their high salaries, benefits, perks and retirement funds. They need a more palatial campus, built to luxury resort standards, in order to make them look and feel superior. They do all this by forcing students to wallow in poverty and live in suffering. They pretend it is "all for the greater social good" while they demonize business because it is only interested in making money. They are the ultimate hypocrites but even worse, because they pretend to be above all that while they steal the very lives of the students they mislead and abuse to satisfy their own greed. Students should occupy the campus (OTC) until their greed, thievery, fraud and abuse is ended.

October 20 2012 at 11:52 PM Report abuse rate up rate down Reply
1 reply to jaguar6cy's comment
smaselli12

Are you talking about the Academic elites, the true beautiful people of America? They all believe that under a system of socialism, they will be on top and considered the true elite class.........................What do you think?

October 22 2012 at 3:09 PM Report abuse rate up rate down Reply
jhrooney

Oh great, get community action groups involved. They get the money from the goverment, inflate the price by adding the overhead, and don't worry about anyone having to pay back the loans.
Something only Obama and his czars could love.

October 20 2012 at 12:56 AM Report abuse +2 rate up rate down Reply
socialfinance220

Hi Dan,

Great article. Have you heard about SoFi's disruptive, alumni-funded loan model (www.sofi.com)? You mentioned that community-group loans can carry challenges such as inflexible repayment terms and periods vs. federal loans and requiring parents to co-sign. SoFi loans offer many of the same protections as federal loans including income-based repayment and economic hardship forbearance and don't require a co-signer.

Alumni earn a market return. Students receive a better loan rate. Both sides benefit from the connections formed. Compare our rates online: www.sofi.com.

October 19 2012 at 8:50 PM Report abuse rate up rate down Reply
jdykbpl45

Can't get a loan? Blame Obama.

October 19 2012 at 12:40 PM Report abuse +2 rate up rate down Reply