Student loans can be expensive, time consuming, and put borrowers at the risk of going deeper into debt if they don’t stay on top of their payments. Yet one upside is that in 2016, the conventional method of taking years (or even decades) to chip away at your debt balance isn’t the only alternative.
Is it time to consider crowdfunding student loans as a viable option? Think about it: it’s become a popular platform for financing commercial ventures and a smart way for business startups and entrepreneurs to induce some much-needed cash flow.
Some borrowers may feel they’ve got nothing to lose; according to the Consumer Financial Protection Bureau, about 25 percent struggle to pay off their loans and more than 600,000 borrowers have landed in student loan default since 2012.
Yet with anything financial, there’ll be some pros and cons you should consider before going the student loan crowdfunding route.
Pros of crowdfunding to pay off student loans
1. Access to free money
A no-brainer: a successful crowdfunding campaign means that you’ll receive free money from the kindness of good-hearted people who want to see you tackle your debt, succeed financially, and move on with your life. Choose a crowdfunding platform with low fees, and you may come close to breaking even.
2. Nothing is expected in return
If you manage to carry out a donation crowdfunding model, the money is “gifted” to you with nothing expected in return: no interest, fees, or ancillary costs or charges.
According to the International Business Times, you may not even have to pay taxes on your crowdfunded gains. As of last year, if a donor doesn’t exceed the $14,000 annual gift tax exclusion, the recipient of the contribution doesn’t owe taxes on the money. That’s a pretty sweet deal.
3. It can build your marketing/outreach presence
Businesses use crowdfunding to their advantage all the time. By leveraging your platform to include social media, a website or blog, YouTube testimonials/videos and more, you’ll drum up publicity for your campaign and garner more interest (and money) from the public.
If you’re a recent grad seeking employment, this may help your chances at becoming more visible to employers as someone with an entrepreneurial business acumen, especially if your crowdfunding venture was successful.
4. It can ease up other financial burdens
It’s all too common that struggling with debt of any kind places people at risk of going into other types of debt (i.e. going into credit card debt to pay off student loans).
Raise enough money with crowdfunding and you can pay down a good portion (if not all) of your student loan debt load without having to dip into your savings, charge more money to your plastic, or take out a personal loan.
Cons of Crowdfunding for Student Loans
1. You might not raise enough money
A lack of interested donors or a crowdfunding goal that’s too high means you effort might not raise enough cash to make a dent in your debt.
The market is saturated with competition from recent grads clamoring for donations. The IB Times reported that just this past November, crowdfunding site GoFundMe.com had over 6,600 student loan related campaigns, and counting. Few, according to the site, had raised anything towards their goals.
2. Alternatives could send you into further debt
What, you say? How could that happen? If you use the peer-to-peer method, it’s possible.
One advantage of crowdfunding are the different models: if the donation method doesn’t pan out, you can aim for marketplace/peer-to-peer lending. But proceed at your own risk. P2P lending is just like getting any other loan, often with interest and fees attached to money fronted to you by an independent “backer.”
If you can’t pay that money back, you’ll end up in deeper monetary trouble.
3. Time is money spent
If your crowdfunding campaign doesn’t pan out, you’ll likely have spent time (and money) on marketing efforts that could have been spent seeking employment, furthering your professional skills, or looking for other ways to earn extra cash instead of the virtual handout that essentially is crowdfunding.
You may also risk the embarrassment of failing, which can leave you doubting if you’ll ever pay down your debt.
Student Loan-Specific Crowdfunding Sites
Crowdfunding sites are numerous, but some of these specialize in education financing:
- Piglt is a crowdfunding site where money raised at the end of a campaign is paid directly to your loan servicer or former school. Be mindful that you’ll pay a 5 percent fee for a successful campaign; 8 percent if you don’t reach your target dollar amount.
- GoFundMe is no doubt one of the more popular crowdfunding sites, and despite some of the cons listed above, there was nearly $13 million raised for education-related campaigns in 2014 alone.
Set Goals, Be Realistic
Be proactive, optimistic, yet realistic when setting your crowdfunding goals. Depending on your total student loan debt, your ideal donation goal may differ from someone else’s — so don’t worry about competition or comparison. You may be surprised at how much you’ll raise.
Take college grad Erin Fox, for example, who’d hoped to earn a few hundred dollars through GoFundMe. Instead, her crowdfunding campaign netted her $16,000 in just two months to put towards her $25,000 balance.
If you have student loan debt, consider crowdfunding an option to explore, but don’t count on it by any means.
You should explore other ways of freeing up cash towards your monthly payments: eat out less, take on roommates to split the rent, find frugal/free ways to socialize, take advantage of coupon codes and online deals, get a second, part-time job, refinance your loans to save on interest.
In the end, what matters is setting a goal — paying off your debt — and sticking with it.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|