Exal Iraheta

Exal Iraheta, who is attempting to use the website 'Go Fund Me' to pay of his student loans on October 29, 2013. ( Lenny Gilmore/ RedEye ) (Lenny Gilmore / / October 28, 2013)

When Exal Iraheta found out he had defaulted on a $17,105 student loan, his first reaction was dread.

"I immediately was like, what am I supposed to do?" he said. "You feel like you're sinking. Instantly."

Though Iraheta works full-time as a media adviser at his alma mater, the School of the Art Institute of Chicago, the 27-year-old Logan Square resident said he is barely making ends meet. He has rent and medical bills to pay, a credit card in collections and about $120,000 in other student debt. His parents, who co-signed all his loans, are in no position to help. His credit is too poor to qualify for new loans.

After a few months of wrangling with a collection agency, he turned to a venue he knew well: the Internet.

"Social media was something I had already embraced," he said. "At that point, I was like, let's do this. I don't have anything to lose as it is."

In October, he created a profile on the crowdfunding site GoFundMe to ask for money to pay off the defaulted loan. In less than a month, he had raised more than $3,800.

Online social networking has skyrocketed in popularity and utility over the past few years, at the same time outstanding student debt has passed the $1 trillion mark and triggered talk of a crisis. As digital natives consider creative ways to pay down their debt burdens, options have emerged that until recently did not exist. Using online social networks and private donors in place of traditional financial institutions, borrowers now can refinance, bargain, crowd-fund or wage-garnish their loans away—unorthodox, but relatively untested, ways of dealing with an industry has been stagnant for decades.

"I'm always up for ideas that are innovative and that might help," said Heather Jarvis, an attorney and advocate for student borrowers based in Wilmington, N.C. "In general, the social media platforms and the alternative ideas coming up are a good thing ... I also often wonder to what extent any of those things will really make a huge difference."

Student debt almost tripled between 2004 and 2012, and the average student loan balance per person rose 70 percent, according to a report from the Federal Reserve of New York. The federal Consumer Financial Protection Bureau estimates that more than 7 million borrowers have defaulted on a student loan.

In other words, Iraheta is hardly alone.

Eric Metelka, a Columbia University business school graduate living in Lakeview, refinanced most of his six-figure business school debt through SoFi, a startup that works with alumni networks to refinance loans privately. The 2-year-old company, whose name is an abbreviated nod to "social financing," offered him a 4.42 percent variable interest rate over 10 years. He likes the lower rate—the rates on his original loans averaged 7 percent—and describes his experience as consumer-friendly.

"Sallie Mae is gross, for lack of a better word, right?" said Metelka, 28. "They're cold. You go on the websites, the websites are hard to navigate."

User-friendliness is only a fraction of the overall problem to Chris Long, a certified financial planner in Wicker Park. Once the loan documents have been signed, he said, the damage is done.

"There's a limited amount that people can do once you've incurred it," he said. "It can't be discharged in bankruptcy. It's a tragedy that we're allowing 18-year-olds to make decisions that affect the rest of their lives."

Jarvis warns against refinancing federal loans in particular, since in doing so, borrowers may lose certain options and safeguards that apply only to government loans, such as the Income-Based Repayment plan and the Public Service Loan Forgiveness program. But she's not necessarily opposed to getting creative.

"It remains true that the private sector is more likely to get innovative and kind of do cool stuff," she said.

That's what Upstart claims to do. The startup, founded last year, loans money to promising candidates who in turn promise to pay back a certain percentage of their future earnings.

"Tuition is up, and student loans are tricky things," said Brigitte Bradford, head of marketing at Upstart. "How do you get people up and going and confident at an earlier stage? ... We address this very directly."

Laura Renner, a University of Chicago business school graduate, paid for her International MBA with about $150,000 of student loans.

"My monthly payments are about the size of a mortgage," said Renner, 34. After getting more than $40,000 in Upstart funding this summer, the Bay Area resident says she can focus on growing her business without worrying about bills. Once she starts earning $30,000 a year or more, she'll start paying about 4 percent of her income to her backers—some of whom she says she has met in person to talk about her career plans.