Some college students consider trading cryptocurrencies to be a better use of their student loan money than traditional spending, such as school supplies and other living expenses. According to a study by The Student Loan Report, over one-fifth of university students with student loan debt indicated that they used their borrowings to invest in digital currency such as bitcoin as reported by the New York Post.
Also, students receiving federal student aid through loans can sometimes have excess funds, which can be used in any way that a student chooses, including investing.
- Some college students consider trading cryptocurrencies to be a better use of student loan money than paying for living expenses.
- Students receiving federal student aid through loans can have excess funds and receive a refund check to be used in any way.
- Losses from investing in digital currencies can add to the existing college debt burden.
The student loan news and information website found that more than 21% of the 1,000 students surveyed indicated that they used their borrowed cash to gamble on the highly volatile digital currency market.
While school administrators may look down upon the practice of using borrowed funds for non-school expenses, college students are able to use loans for "living expenses," a flexible category that covers a wide range of potential necessities.
College Loan Refund Checks
The U.S. Department of Education program called Federal Student Aid has guidelines for students who are receiving financial aid. Typically, once a student loan is approved, the funds are placed in the student's account at the college. The money is used to pay for expenses such as tuition, room, and board.
However, there are times when the loan funds exceed expenses, which is called a credit balance. The school must pay the student or parent the credit balance in the account within 14 days unless the student notifies the school that the funds are to be used for future expenses.
As a result, college students can receive a refund check from the college for the credit balance. The students can use the funds for books, other expenses, or whatever they choose. However, the funds still need to be paid back as part of the outstanding student loans. In other words, there's nothing that prohibits college students from spending their refund check on whatever they want, including investing in cryptocurrencies.
The College Debt Burden
The average amount of college debt for each graduate ranges from $20,000 to $25,000 with nearly three out of ten adults not able to make their payments. For those who attended college and are in between the ages 18 to 29 years old, 62% have college debt while obtaining their Bachelor's degree. If they earned a graduate degree, 75% of them used college debt.
Federal student loan interest rates range between 3% and 5% in 2020, depending on the type of loan and level of education. The average loan payment is between $200 and $300 per month.
Investing to Pay College Debt
Investing in the crypto-market can be a way to quickly add to the debt burden if bitcoin and other cryptos plummet in price. Conversely, for the lucky ones, an appreciation in crypto prices could help students pay off their debt faster.
Meanwhile, bitcoin has lost well over half of its value since reaching a record high just short of $20,000 in December 2017. Since early 2019, bitcoin's price has fluctuated wildly from approximately $3,500 to slightly more than $11,000 in 2020. For those investing in the digital currency, they would have had to time the market perfectly in 2019 to realize all of those gains.
For college students who are borrowing to invest in cryptos, they'd likely be better off putting that money to use and invest in themselves by obtaining a graduate degree or a professional certification. According to the Bureau of Labor Statistics (BLS), the weekly earnings for college graduates with a bachelor’s degree is $1,416 and $2,100 for those with a master's degree.
It's important to consider that when investing in digital currencies, there's the risk of loss and past prices don't guarantee future results. If the market doesn't go the right way, college students may get more of an education than they had planned on, including the ins and outs of market corrections.