Paying for college is only getting more expensive and interest rates on government-subsidized student loans have gone up. One alternative to save money is to start a family loan pool.
As Reuters points out, some families have taken to creating a pool of money that extended family members can pull from for college education at a reduced rate. The advantage being that students can get a lower interest rate than they might otherwise pay with a private or government loan. Reuters explains how they work:
Family loan pools are similar to family banks, which typically take the form of a trust or limited liability company. But family loan pools are more narrow in scope, since family banks can sometimes take equity stakes in ventures and make grants as well as loans.
Under a loan pool, a family sets up a trust and bequests an initial sum into it. They then establish rules for how family members qualify for the loans, how long they have to pay them back and what happens if they default.
Of course, family loan pools bring certain complications. For starters, it would require a fairly large extended family. If you don't talk to them much, it may not be possible to set one up. It can also introduce new tensions in a family if members can't separate personal and financial issues. Still, if your family can pull it off, you could save a lot of money.
A loan pool to help clients help family float school bills | Reuters via FiveCentNickel
Photo by Marion Doss.
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