Kids and Money: Social network Web site links college students with lenders

By STEVE ROSEN
THE KANSAS CITY STAR

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His name is Bill, and he needs $7,800 in student loans.

Interested in helping? The DeVry University student from Chicago hopes to graduate in December 2009 with training in Web development and computer information systems.

"I am a hardworking, smart person," wrote Bill. "I work part time, play sports, participate in charities with my fraternity. I am also known to fulfill all of my promises, so I would pay off my loans on time after I graduate."

Her name is Larisa, a biology major attending Auburn University. She wants to become a dentist, but must come up with $17,000 to continue her education. Thanks to a $7,800 pledge from one lender, she is almost halfway there.

"Because of my parents, I have the drive and work ethic to fulfill my goal to become a dentist," Larisa wrote.

I read the two profiles at GreenNote.com, a Web site launched last week to help students generate financial aid for college. The Silicon Valley startup is relying on a social networking program to attract college funds.

As such, GreenNote seeks to create what chief executive and co-founder Akash Agarwal calls a "pledge drive for education." Agarwal, 39, is a Harvard MBA graduate with 16 years of business management experience in the high-tech industry. For at least the past year, Agarwal has been developing this Web venture, whose investors include the influential Menlo Ventures.

GreenNote is among a growing number of online companies focusing on microlending, the extension of small loans to those in need.

"I've seen microloans' application in developing countries," said Agarwal, "and I wanted to see how we can develop this in our country."

The inspiration for GreenNote also came partly from his difficulties in obtaining aid for college. But the program represents something bigger, Agarwal said: "The current credit crunch and rising tuition costs have created an environment where students need to raise money that won't leave them overly burdened after graduation."

GreenNote relies on pooling pledges of $100 and up from investors who tap into its Web site, www.greennote.com. Investors can register and click on students' profiles.

A minimum of $1,000 in pledges is required for students to maintain their profile on GreenNote. Money that's pledged on a loan earns a fixed-rate return pegged to the federal nonsubsidized Stafford Loan rate, currently 6.8 percent. GreenNote takes 1 percent as a fee for handling loan documentation through the repayment, making the payoff to the investor 5.8 percent.

After graduation, students can defer repayment of the loan for five years, and have up to 10 years to pay the debt.

Agarwal said he envisions a typical GreenNote borrower needing about $5,000, with funds coming from five to eight lenders.

GreenNote is for students who may have exhausted traditional financial aid channels and still have a funding gap, Agarwal said. As for lenders, he added, the program aims to attract "people who want to help people who want to help themselves." Any college student can register with GreenNote.

Interestingly -- and this is what initially made me skeptical -- the company does not perform credit checks on students, require a co-signer on loan agreements or proof of U.S. citizenship.

But there are checks and balances.

GreenNote certifies that a student attends a particular school and verifies other personal information. Loan money is sent from GreenNote to the school financial aid office, and loans in default are turned over to collection agencies.

GreenNote has gotten the attention of the National Association of Student Financial Aid Administrators. The financing approach is "interesting and unique," said Philip Day, president of the organization.

However, Day expressed concerns about privacy issues and how GreenNote loans are factored into a student's overall need-based financial aid. He said all such "private loans" should be submitted and certified by college financial aid officers to ensure that the student isn't receiving more aid than is needed. GreenNote spokesman Evie Smith said her company expects to work closely with financial aid offices.

Despite the risks associated with this ambitious program, I support any endeavor that increases the odds of students being able to afford a college education. In these times, creative financial thinking can be a good thing.