It seems like every time I see a headline about student loans, it’s all doom and gloom. Loans are in default and students are struggling to make their payments. But there are two new programs in the student loan mix that may be beneficial to borrowers and drastically reduce default rates. That’s a win-win for everybody! Check out the loan programs being offered by San Francisco startup SoFi and a Sallie Mae flexible loan that is growing in popularity. Maybe one of these could be the key to funding your education while lessening your risk of onerous student loan debt crushing you once you graduate!

Socializing the Student Loan Process

One of the most significant factors in student loan default is unemployment or underemployment. If graduates were fully employed, that would go a long way to them having the financial resources to pay promptly. San Francisco startup SoFi seeks to disrupt the traditional process that can leave graduates without the means to pay. Four Stanford business school alumni developed the notion of offering lower interest private loans to graduate school students funded by school alumni and interested investors.

Co-founder Dan Macklin says, “In the summer of 2011, we began with $2 million from 40 investors and made loans to 100 Stanford Business School students. We have since expanded to 79 schools and $100 million. This year, we expect to $800 [million] and we’re broadly on track to reach that now that we’re one month in.” The idea was to offer graduate students a lower rate than the current 6.8%-7.9% they can borrow at, but with the idea that those funding the loans will be integrated into the process through social media and networking.

SoFi isn’t the only firm looking to socialize the student loan process. Another socialized lender is CommonBond, which has thrown its hat in the ring to compete with SoFi. CommonBond is busy matching alumni investors with deserving student borrowers. Inc Magazine said, “CommonBond is filling a void in the student lending space by raising capital from individual investors.”

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SoFi works primarily with schools with low default rates. Ivy league schools like Harvard, Stanford and MIT run drastically lower default rates than the system indicates at large – as low as 1%! SoFi considers credit rating when making loans, unlike Federal loans, which helps avoid some types of default. SoFi makes loans to graduate students still in school and also offers refinancing of existing student loans.

But it’s the social component that is even more significant in avoiding defaults. Macklin says, “If someone does lose their job, there is a network of people that have a vested interest in making sure that person gets another job and can continue to pay off the loan.” Because many of the funders are alumni, they have skin in the game when it comes to making sure borrowers get and keep jobs. For a student, this is a huge win-win. You’ll get a lower interest rate and an advocate when it comes to any employment roadblocks or hiccups!

Tackling Debt In Real Time

Many banks and lenders are partnering with Sallie Mae to offer loans that can save borrowers significantly on interest and see them paying off loans much faster than expected. This new plan is called the “Smart Option Student Loan” and allows students to make smaller payments while they’re still in school. While it may seem counter-intuitive to pay while you’re still borrowing, fact is, that approach can save you big bucks in the long term and make your post-graduation loan debt much more manageable.

There are three different repayment options to fit within your budget:

– Deferred Repayment Option – you can opt to pay nothing while in school or to send in payments of any size when you can at any time to save on interest and principle.

– Fixed Repayment Option – you can opt to make affordable monthly payments while in school – as low as $25 – to save 10% or more on the total cost of your loan

– Interest Repayment Option – you can opt to make interest only payments while in school – and save 20% or more on the total cost of your loan over time

If you can swing either the low monthly payment option or make periodic payments while you’ve got a summer job between semesters, you can lower the payments you’ll face once you graduate. What’s also good about Smart Option Student Loans is that you are limited to borrowing what you need to pay for your education. Other loans will let you borrow beyond what you need up to a cap and this can get you in over your head!

Whether you are a graduate or undergraduate student, these two loan programs may be a smarter way for you to borrow and to pay off your debt sooner than you ever expected. For more help managing your student loans, try getting help from the experts on how to optimize student debt.