Pros and Cons of Using Crowdfunding to Pay Off Your Student Loans

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
Get real rates from up to 4 Lenders at once Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Laurel Road. Laurel Road Disclosures VARIABLE APR – APR is subject to increase after consummation. 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. 2 Important Disclosures for SoFi. SoFi Disclosures Student Loan Refinance: Fixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org) 3 Important Disclosures for CommonBond. CommonBond Disclosures Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018. 4 Important Disclosures for Citizens Bank. Citizens Bank Disclosures Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
	2.57% – 5.87%	Undergrad & Graduate	Visit Earnest
	2.80% – 6.38%1	Undergrad & Graduate	Visit Laurel Road
	2.48% – 7.52%2	Undergrad & Graduate	Visit SoFi
	2.47% – 7.99%	Undergrad & Graduate	Visit Lendkey
	2.57% – 6.65%3	Undergrad & Graduate	Visit CommonBond
	2.72% – 8.17%4	Undergrad & Graduate	Visit Citizens