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.
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