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Websites Facilitate Student Loans From Lenders

As Student Loans Businesses Dwindle, Anonymous Lenders Step In

NEW YORK (CBS) ― Dozens of lenders have pulled out of the student loan business, leaving the college-bound student desperate to pay rising tuition bills. Now, a number of new websites claim they can help by facilitating loans between students and anonymous investors. But is it safe? CBS 2's Consumer Reporter Kirstin Cole has more.

School may be out, but now the real homework is about to begin.

"I've heard a lot of students say they've had to take off semesters to just work to keep up with rent, it's hard," said Jenna Leitman.

More than 40 different lenders have pulled out of the student loan business over the last year, and with a much greater number of students competing for federal funding, paying for college is no longer a no-brainer. 

"The reality is parents can pay less and less of the out of pocket," said Neal Coxworth of Fynanz.

Especially with sky-rocketing tuitions, the cost of a four-year public college is now about $6,000 a semester. For private schools however, it's over $30,000 a year!

"That's where alternative and private loans come in," said Coxworth.

The latest brainchild of this desperate student loan market: "Peer to Peer Lending." Instead of investing in the stock market one invests in putting a kid through college. The student then pays the loan back at a competitive interest rate. Neal Coxworth is with Fynanz, just one of several of these start-up sites.

"They are able to view a number of different loan requests from many different students from all different types of schools, bid on the one they feel best about and have the opportunity to earn a fair return," said Coxworth, adding, "they really should take a look at what the long term comittment will be."

But some caution this type of lending is just in its infancy, saying it's unregulated. 

"In an unregulated industry like peer to peer lending, I would be worried about whether or not these companies would follow the same standards and protocalls that congress has mandated for federal loans," said Rod Bugarin of Applywise.com.

What happens if a student defaults? There are guarantees of 50 cents to 100% back on the dollar, but the hope is that if an investor is an alumni or personally knows the student, there will be less of a chance the student will default.

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