Web sites link students with those willing to lend

The credit crunch has driven dozens of lenders out of the student loan market. But a number of new Web sites are trying to sidestep the traditional players, facilitating loans between students and anonymous investors or even friends and family members.

The latest startup player in the so-called “peer-to-peer” student lending market, GreenNote, marks its official launch today. The timing is intended to attract interest as students piece together financial aid over the summer.

Fynanz, a competitor that matches up students anonymously with investors, says it's gotten 180,000 applications in the last three days alone.

The sites are popping up as many lenders have stopped issuing federally subsidized loans. Such loans are still available — contrary to sky-is-falling predictions — but students are having to hunt for banks or turn to the federal government itself.

Meanwhile, the credit squeeze is affecting some students as they try to find private loans, which more and more students need once they hit the ceiling on cheaper federal aid.

Peer-to-peer loans are trying to step into that private-loan market, though they likely won't amount to more than a tiny sliver of it anytime soon.

The idea is that students can secure better terms by turning to individual investors willing to back them. Investors may get satisfaction from helping out a child, relative or friend. And if the lender knows the borrower personally, it lessens the likelihood of late payments or default.

“I do think they have some long-term promise,” said Mark Kantrowitz, who runs the Web site “I can see something like alumni using one of these sites as a way to provide loans for current students.”

Indeed, three supporters of New York University have put up $500,000 through Fynanz to be available to students there.

Sites like Prosper and Zopa have already tried to tap into the broader world of peer-to-peer lending, using the Internet to match up people who need to borrow for a range of reasons with strangers willing to back them.

Fynanz, which debuted in March and now operates in 16 states, called itself the first such service to target student loans. The site evaluates students for credit risk and matches them with an individual investor or investors, who bid to finance the loans.

“It's been a very eye-opening experience as to just how many people are out there who actually want to fund students,” said CC Chaman, the Fynanz chief executive.

GreenNote, the site debuting today, focuses largely on formalizing and servicing loans between people who already know each other.