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From the Ground Up

A financial-aid counselor recommended the service to her when she realized she'd need to find a private loan to pay for summer classes. "At first I didn't know if this was for me because I didn't feel like I had a strong network of people I could e-mail," said Alvarado, 23.

She then started reaching out to former professors, friends and family members. Her sister contributed $100. So did her boyfriend's mother. A woman she used to do volunteer work for loaned $150. A cousin contributed $1,000. The remaining balance -- $1,650 -- came from total strangers.

Unlike typical private education loans, which carry interest rates of 12 to 20 percent, GreenNote loans carry terms similar to federally subsidized student loans. Many loans have a rate of about 6 percent, and some are lower. Borrowers have a six-month grace period after graduating before they have to start making payments.

Alvarado's loan has an 8 percent rate, and she has 10 years after graduating to pay it back. She said she thinks people are less likely to default on a loan from individuals, rather than institutions, even if they don't know their lenders.

"It's more personal -- people who are lending me the money really believe in me, and that motivates me a lot," she said. "They're investing in me, and I'll do the best I can because I don't want that to go to waste."

Akash Agarwal, GreenNote's founder and chief executive, said the system helps students build credit. It can hurt them, as well: If they default, GreenNote will report them to a collection agency.

"You're being underwritten by the social connection," Agarwal said. "The pressure to pay back a loan is pretty visible because you know where the money is coming from -- it's coming out of someone's pocket, not some bank warehouse."

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