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GreenNote Connects Student Borrowers And Independent Lenders

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By Steve Rosen McClatchy Newspapers

The Tampa Tribune

Published: June 15, 2008

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 hard-working, smart person," Bill wrote. "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 halfway there.

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

I was introduced to Bill and Larisa by reading their profiles at GreenNote.com, a Web site launched recently to help students generate low-cost financial aid for college. The Silicon Valley start-up is relying on a social networking program - rather than traditional lending outlets - 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. Investors include the influential Menlo Ventures in Menlo Park, Calif.
Microlending Venture

GreenNote is among a growing number of online companies focusing on microlending, the extension of small loans to those in need. It may be the first to use the Internet to link college borrowers with prospective lenders.

"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 from Agarwal's difficulties in obtaining aid for college. But the program represents something bigger, he 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. Investors can register and click on profiles created by students who describe their educational backgrounds and goals. Potential lenders could be family, friends, an alumni from the student's college - anyone interested in providing college funding.

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 unsubsidized Stafford Loan rate that's currently 6.8 percent. GreenNote takes 1 percent as a management fee for handling loan documentation through the repayment, making the payoff to the investor 5.8 percent under current conditions.

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

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

Lacks Some Checks And Balances

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 show proof of U.S. citizenship.

But that's not to say there are no checks and balances. GreenNote certifies that a student attends a particular school and verifies other personal information. Loan money is sent directly from GreenNote to the school financial aid office, and loans in default will be turned over to collection agencies.

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

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