College students are using loan money to buy bitcoins, report suggests

The purpose of student loans has remained unchanged for decades, but recently, some students have found new ways to make their money work. A recent study suggests that 1 in every five college students are using their student loan money to buy bitcoins and other cryptocurrencies.

The Student Loan Report surveyed 1,000 current college students and found that 21.2% are using their funds to buy bitcoins. As is evident, students are borrowing a little more money than they need to cover their tuition expenses and spending the extra on buying digital currencies. Some students even believe that Ethereum and Ripple are better investments than a bachelor’s degree in English Literature.

School administrators are not pleased with these practices, but there are no rules against the use of funds for non-school activities. Most of these funds are classified as ‘living expenses’ which students commonly use to manage costs of living apart from the tuition fee they pay with the loans.

However, Student Loan Report, the financial website behind the survey, notes that participating in such risky activities may make the students graduate with more debt than ever. At least 21.2% students thank Sallie Mae for their crypto investments. If their bets work, they could be able to pay their student loans in full or in part. It isn’t certain, however.

Founder of Student Loan Report, Drew Cloud commented on the survey, suggesting he was ‘surprised’ at the results. He said, “Living on a tight budget, one would think students would spend that money on groceries, rent or school supplies rather than bitcoin and ethereum.”

Crypto rush continues

It isn’t surprising to note that college students are getting attracted to the cryptocurrency sphere. Most top cryptocurrencies reached record high levels in 2017 with Bitcoin increasing 1700% in value and Ripple XRP more than quadrupling its price.

This led to a record level of investments last year. However, the mid-December 2017 frenzy has now ended. Bitcoin which traded for $19,000 three months ago is now lurking at $8,500. The volatility of these currencies could lead to big surprises- both good and bad.

Such investments are extremely risky, even if market volatility is not taken into account. First, the classification of an investment as ‘living expenses’ is not allowed as per Department of Education. Not only this, the rates of interest on student loans could be as high as 4 to 7 percent. If students are taking more loans than they need, they could end up with a bigger burden on their shoulders when they graduate.

In 2016-17, undergraduate students received $4,600 in federal student loans. Elyssa Kirkham from Student Loan Hero, a financial website for students, said that such investments should be avoided. She said, “Investing is not an educational expense, so it’s against the rules to use your student loan money to buy cryptocurrencies.”

She also suggested that the gains students make on their crypto holdings will likely be offset by the high rates of interest on their loans. The rest could be taken away by taxes. However, we must note that the study was done on a small group and its large-scale authenticity is yet to be proven.

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About the Author: Fred Krueger

Fred is a successful entrepreneur and investor. His passion to share his knowledge and to analyse the highly unregulated cryptocurrency market brought him here. His experience gives him a strategic edge amongst others.