The latest start-up player in the so-called "peer-to-peer" student lending market, GreenNote, marks its official launch Wednesday. The timing is intended to attract interest as students piece together financial aid over the summer.

The field is still fairly small but hoping for sharp seasonal increases. Fynanz, a competitor that matches up students anonymously with investors, said it's seen a big uptick this week, with applications for about $180,000 in loans arriving in just the last three days.

The sites are popping up as many lenders have stopped issuing federally subsidized loans. Such loans are still available — contrary to sky-is-falling predictions — but students are having to hunt for banks or turn to the federal government itself.

Meanwhile, the credit squeeze is affecting some students as they try to find private loans, which more and more students need once they hit the ceiling on cheaper federal aid.

Peer-to-peer loans are trying to step into that private-loan market, though they likely won't amount to more than a tiny sliver of it anytime soon.

The idea is that students can secure better terms by turning to individual investors willing to back them. Investors may get satisfaction from helping out a child, relative or friend. And if the lender knows the borrower personally, it lessens the likelihood of late payments or default.

"I do think they have some long-term promise," said Mark Kantrowitz, who runs the website finaid.org. "I can see something like alumni using one of these sites as a way to provide loans for current students."

Indeed, three supporters of New York University have put up $500,000 through Fynanz to be available to students there.

Sites like Prosper and Zopa have already tried to tap into the broader world of peer-to-peer lending, using the Internet to match up people who need to borrow for a range of reasons with strangers willing to back them.

Fynanz, which debuted in March and currently operates in 16 states, called itself the first such service to target student loans. The site evaluates students for credit risk and matches them with an individual investor or investors, who bid to finance the loans.

"It's been a very eye-opening experience as to just how many people are out there who actually want to fund students," said CC Chaman, the Fynanz chief executive. He said even nonprofit lending agencies have concluded Fynanz is an effective way to get their money to students, and are putting up funds.

GreenNote, the site debuting Wednesday, works differently. It focuses largely on formalizing and servicing loans between people who already know each other.

Students who need a private loan and have a bad credit history, but know people willing to lend to them, may find the terms attractive. There's no credit check and the interest rate is 6.8%, the same as a federal Stafford loan and better than most private loans and federal PLUS loans for parents.

GreenNote helps students conduct a "pledge drive" to raise capital. The downside is students may not be able to borrow all they need. GreenNote doesn't really get students access to money they don't already have access to — it essentially organizes the transactions among family and friends — though there is a "public" profile option allowing outsiders to loan money through the site. If students can get family and friends to just give them the money — or lend it at less than 6.8% — that's obviously a better deal.

There also are fees — 1 percentage point of the interest return for lenders, and 2% up front for borrowers. The interest isn't tax deductible. And lenders beware: GreenNote provides no guarantees against default.

But Akash Agarwal, CEO and founder of Redwood City, Calif.-based GreenNote, says many students have family and friends who are willing to subsidize their education — but only so far. They want a reasonable loan rate and a formal arrangement. Kantrowitz, of finaid.org, cautions fees and other factors may make such loans less appealing, but says there is value in having an outside party service loans between acquaintances, to avoid conflicts.

Enlarge AP This screenshot shows Zopa, one of a growing number of websites that has tried to tap into peer-to-peer lending.

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