Most commonly associated with funding small business startups, crowdfunding has gained a lot of traction in recent years. This form of alternative finance is also becoming popular for individuals struggling with student loan payments. But can crowdfunding really help you pay off student loan debt?
Although not usually viable for massive student loans, there have been several success stories for smaller campaigns.
How This Woman Used Crowdfunding to Pay Off Student Loan Debt
At age 30, Shannon Otto, a nurse, developed epilepsy and was unable to work for seven years. Her condition eventually improved, and she got her seizures under control. Unfortunately, she fell behind on her student loans while she was unemployed, and her nursing license was suspended. Her story gained national attention and was even featured in a New York Times article.
Otto eventually turned to crowdfunding platform GoFundMe for help paying her student loan and successfully raised over $9,000 from 31 donors. In turn, she was able to renew her license, resume nursing and get her career back on track.
How Much Money Has Been Raised Through Crowdfunding Student Loans?
A guide from GoFundMe found that between 2014 and 2017, over 130,000 campaigns raised $60 million on this site alone. The money generated came from over 850,000 donations for student loans and related expenses.
Of course, this is just one crowdfunding site of many, so the total amount of money raised is likely much higher. The data from GoFundMe shows that a large number of people are using this strategy to alleviate their student loan debt. It also proves that many donors are willing to contribute when there’s a compelling story behind a campaign.
Major Crowdfunding Websites to Help Pay Student Loans
There are multiple resources individuals can use for seeking crowdfunding. Here are some of the most popular:
GoFundMe – This site is known as “the leader in online education fundraising.” GoFundMe offers several education-based crowdfunding categories, including college tuition and student loan repayment.
LoanGifting – This is a student loan management resource that also offers crowdfunding. Unlike many other sites, the money raised goes directly into a student loan and isn’t handled by the recipient.
Indiegogo – Popular among small business startups, Indiegogo also helps fund education and learning.
How Does Crowdfunding for Student Loans Work?
It’s free to create an account on most crowdfunding sites, but there are some fees users should be aware of.
For instance, GoFundMe has a standard transaction fee of 2.9% for processing and charges $0.30 for each donation. Loan Gifting charges a 5% fee for each transaction that’s received. Indiegogo also charges a 5% platform fee for the money that’s successfully raised through a campaign. Besides that, they charge a processing fee of 2.9%, plus $0.30 per transaction.
Due to the fact that the money raised through crowdfunding is considered a gift, individuals don’t usually have to pay taxes. However, it’s always important to check the details and read the fine print so users know what to expect.
The Pros of Crowdfunding for Student Loan Debt
There are some significant benefits to crowdfunding a student loan.
Perhaps the biggest advantage is that it’s free and nothing is expected in return. When compared to business crowdfunding campaigns, where donors typically expect some type of reward, there’s no strings attached. It’s essentially free money that can help eliminate student loan debt, or at least take a chunk out of it.
Campaigns are fairly easy to launch, and individuals can have one up and going within minutes. They’re also highly customizable, where users can use a combination of text, images and videos to tell their story.
If a person is successful, it can potentially help with networking and finding employment opportunities. Crowdfunding sites offer a lot of visibility, and the exposure can spill over professionally, especially when there’s an interesting story.
The Cons of Crowdfunding for Student Loan Debt
There are two main issues with student loan crowdfunding.
First, many campaigns are unsuccessful. Browse through sites like GoFundMe and Indiegogo, and it quickly becomes clear that many people don’t reach their goals. Although there’s a fairly high success rate for high school age individuals looking for help with college tuition, it’s much lower for those who are looking to repay their student loans.
When they fail to reach their funding goal, they don’t receive any of the money with most crowdfunding sites.
Also, it’s not usually realistic for paying off large student loan debts. Most successful campaigns, like Shannon Otto’s, involve smaller amounts of money under $15,000. If someone has a large student loan of $100,000 or more, this will likely be insufficient for paying off the entire amount.
Tapping Into an Alternative Resource
Given the extent of the student loan crisis, many people are open to exploring alternative means of repayment, even if they’re slightly unconventional. Although it has its limitations, crowdfunding a student loan has worked for many people and is certainly an option to consider.
It’s just important to have realistic expectations when launching a campaign and make sure it’s captivating.
If you’re dealing with student loan debt, consider if refinancing your loans is right for you. It could potentially lower your interest rate and help you pay off your debt sooner.
Keep in mind refinancing federal student loans means a loss in many benefits – income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.