Cheaper, Bigger, and Cooler Student Loans

New federal standards ease some of the financial pressure for students and their parents.

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Many parents also prefer private loans because they hope to eventually transfer the debt to the child. But advisers warn that although the student's name may be first on the loan, it can be hard to remove a parent's responsibility for the debt if the student ever defaults.

New and different: Several upstart companies have emerged to help students and parents looking for even cheaper and easier ways to borrow. Students who find a friend or relative willing to lend them college money can pay a small fee to Virgin Money or Greennote to do the paperwork to turn informal lending agreements into business deals that are billed and treated like bank loans. Fynanz is attempting to line up investors willing to lend to students they don't know. It typically demands students be backed by a cosigner.

These companies are so new they don't have much of a track record yet. But such "person to person" loans were, of course, the very first type of loans of any kind—including education loans. As the Internet weaves more connections between people like students who need cash and retirees and investors who are interested in investments, the future of student lending may look more like that of the distant past.

Updated on 7/2/08: A previous version of this story contained a quote from Tim Ranzetta of Student Lending Analytics.