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A Guide to Crowdfunding Your Student Loans

June 04, 2019 · 6 minute read

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A Guide to Crowdfunding Your Student Loans

If the price of higher education is giving you sticker shock, you’re not alone.

The average cost for the 2018-19 academic year was nearly $10,000 for in-state residents at public colleges, and more than double that for out-of-state students. At private colleges, the average tuition and fees totaled a whopping $35,676!

If you’re lucky, financial aid, scholarships, or help from family can help you foot the bill for college or graduate school. Working while you’re in school can also help you afford living expenses.

But if isn’t enough, most students end up having to take out student loans to cover their costs. These days, 70% of undergraduates leave school with debt, an average of $37,172 each. Combined, Americans now hold $1.5 trillion in student loan debt!

Those loans can become a burden once you graduate, especially if you opt for a career in public service, art, or another low-paying field. Your debt can also become unmanageable if you run into unexpected economic difficulties due to medical bills, losing your job, caring for a parent, or other challenges.

When more traditional student loan repayment plans aren’t working, it can pay to think outside the box. One approach could be crowdfunding student loans. Here are some things to know about this creative new way to tackle your debt.

What Is Crowdfunding to Pay Off Debt?

Crowdfunding is the process of soliciting small contributions from multiple donors to meet a financial goal. Through online platforms like Kickstarter and GoFundMe, people have turned to crowdfunding to raise money for entrepreneurial ventures, medical crises, disaster victims, classroom supplies, and much more.

You can solicit donations from friends, family, and even complete strangers. By splitting the contributions among a large quantity of people, crowdfunding is a way to meet a big goal while not having to rely on finding one major source of funding.

Raising money online makes it easy to share your campaign widely and for people to contribute payments. Increasingly, people have been crowdfunding to pay debt, including fundraising for college. That can include textbooks, tuition, studying abroad, or living expenses—or, of course, student loans.

GoFundMe, one of the most popular crowdfunding sites, claims that users create more than 100,000 education-related fundraising campaigns that raise more than $70 million each year.

Is Crowdfunding for Repaying Student Loans a Good Idea?

There are pros and cons to turning to the crowdfunding model as a way of making a dent in your student loan debt. Let’s start with the positives. If your campaign is successful, it’s an easy way to earn money toward your debt, and you don’t have to do much in return. Earning and saving the same amount through a job would likely take much longer, depending on your living costs.

Similar to a wedding registry, a crowdfunding site also makes it much less awkward to ask people in your life for help, compared to just asking for money outright. You probably have lots of loved ones who would like to help you but don’t have an easy way to do it.

Another perk is that obtaining a lump sum and putting it toward your loan principal can greatly reduce the interest that accumulates and the amount you owe over the life of the loan. Finally, crowdfunding often works! There are many examples of successful campaigns out there to inspire you.

There are some downsides to consider. One is that a crowdfunding effort is likely to get you a chunk of money once, rather than a regular stream of funding.
Considering the size of most student loans, and the growth of interest over time, you may not get enough money to pay off the entire loan. So you’ll still have to figure out a way to consistently make your monthly payments.

Also, how much you earn will be unpredictable, depending on the strength of your campaign and networks, plus the generosity of donors, so it’s a bit risky to rely on this to stay solvent.

Another con is that depending on the size of the donation, you may need to pay taxes on the money, so you wouldn’t get to keep the entire amount you raise. Finally, even though a specialized site makes it easier, it may still feel uncomfortable to ask people you know for money, especially if they are facing their own debts and financial challenges.

Crowdfunding Dos and Don’ts

First, you need to pick a crowdfunding site to use. Kickstarter is one of the best-known platforms, but it may not be ideal for your purposes since it requires you to set and hit a minimum goal before collecting funds.

GoFundMe is also a popular platform and has the benefit of not requiring deadlines or minimum goals, so you can typically keep what you earn (after processing fees and taxes) and withdraw money immediately.

Other sites have started popping up that specialize in crowdfunding for student loans. These include LoanGifting, Gradifi, GradPath, and GiftofCollege, among others.

Review the terms carefully to figure out whether the platform keeps a percentage of funds donated, what processing fees are charged, whether it allows employers or the general public to contribute, and whether the money goes to your lender directly or comes to you in the form of cash.

Just setting up a profile and asking for cash probably won’t get you many donations, except from your mother. Here are a few tips for your campaign:
Setting a practical goal. If your fundraising goal sounds impossibly high, it could prevent some people from donating. Starting with a number that’s ambitious but reasonable may help, even if it means asking for less than your total student loan amount.

Spelling out what you’ll do with the money. Potential donors likely want to know what, exactly, their gift is supporting. And they probably want to be sure it’ll actually go toward student loans and not beer money. Making clear how exactly you will pay off the loan and how you will hold yourself accountable to donors can go a long way towards building trust.

Telling your personal story. People may be more likely to support you if they understand the impact they can have on your life. Telling your unique story can help make their gift about more than just debt. You could describe your past accomplishments and future goals, as well as how the support will help you achieve them. Try putting up photos and a video to help people connect with your goals emotionally.

Coming up with relevant rewards. Many crowdfunding sites offer incentives for people to donate by tying various gift amounts to specific rewards. People probably won’t be expecting you to offer fancy gifts—otherwise why would you be fundraising in the first place? But you can encourage people to donate by offering creative rewards that utilize your skill set. Good with computers? Offer to help people fix their machines or learn new software. Have a green thumb? Help donors with gardening. Are you crafty or a good cook? Offer participants some of your handmade goods.

Leveraging your network. You can start by sharing your campaign with people you know through email and social media. You can ask them to share it on their channels as well.
Keeping the momentum going. A successful campaign doesn’t end when you launch. Posting updates on your crowdfunding page regularly to keep people interested and remind them to donate could help you reach your goal.

Expressing gratitude. People are doing you a favor when you donate, so thank them early and often! It’ll make them feel good about their gifts and perhaps even encourage them to share your campaign or donate more down the line.

Thinking About Student Loan Refinancing

If you can fund your student loan debt in full through crowdfunding, congratulations! But most people can’t really depend on this as a long-term strategy and will have to find a way to pay off the rest of their balance.

If you’re still struggling with student debt, refinancing your student loans may be able to help make your loans more affordable. You can refinance federal loans, private loans, or a mix of both by taking out a new loan with a private lender like SoFi and using it to pay off your old ones. Note that if you do refinance federal loans with a private lender, you lose eligibility for federal student loan benefits like deferment and income-driven repayment programs.

You may be able to qualify for a lower interest rate or lower monthly payments, depending on your credit history and income. It could be worth checking what rates you’d qualify for by applying for pre-qualification online. If you refinance with SoFi, membership includes complimentary support from career coaches and protection during periods of unemployment for those who qualify. Plus there are no hidden fees.

Thinking Beyond Crowdfunding

With student debt growing exponentially, it’s worth considering creative solutions. Crowdfunding can be a relatively easy way to make a dent in your student loans without investing a lot of time.

But for most people, it won’t be enough to eliminate their debt completely. Refinancing your loans is another way to help make your loans more affordable, so you can be confident in your repayment strategy for the long haul.

Ready to get your student loans under control for the long term? If crowdfunding isn’t enough, see what refinancing with SoFi can do for you!


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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