Using Student Loans To Buy Cryptocurrency: Wise Move, Or Expensive Lesson?

Bitcoin and other cryptocurrencies have been hot for several years, but we haven’t seen anything like 2017’s record high of more than $19,000. Although, between January and March 2018, Bitcoin drastically fell 45% from $13,412.44 to $7,266.07. This decline seems to be caused by the regulatory scrutiny in several countries like China, the U.S. and Argentina.

Despite the rise and fall of Bitcoin, many people still see opportunity in investing, even if it won’t make them an overnight millionaire.

To jump on this opportunity, college students have been using student loans to fund their cryptocurrency investments. In their minds, if the value continues to increase, the potential for profit far outweighs the risk that it might be a bubble.

College Students Love Cryptocurrency

It’s understandable that so many young people want to invest in cryptocurrency. Not that long ago, cryptocurrencies were gaining value at a seemingly unstoppable rate. As a college student with a large amount of loan debt, investing in cryptocurrency can seem like the perfect way to pay off that debt. Fortune.com reported on a small study of 1,000 college students to find out if they’ve used educational loan money to invest in cryptocurrency like Bitcoin, Ethereum, and Ripple. The results? One in five college students surveyed said they had.

To clarify, students can’t use the entirety of their student loans to invest in cryptocurrency. Students don’t have access to all their funds since most lenders pay schools directly. Sometimes students end up borrowing more than they need and once their courses are paid for, the student is mailed a refund check for the difference. Most people just send it back to the lender.

Some also receive checks tocover living expenses. According to the Department of Education regulations, living expenses must be related to education; however, that’s impossible to regulate.

Using Student Loan Money Makes Your Investment More Expensive

These checks don’t come interest-free; they’re still part of your loan.That means if you receive a $1,000 check and use it to invest in Bitcoin, you’re going to have to pay it back plus about 4-7% interest. That means you’re paying 4-7% more than the current market value for your cryptocurrency. The true cost of your investment requires calculating the premium you’re paying by using loan money, plus the capital gains taxes you’ll need to pay on any profit earned.

Another thing to consider is that if you need that money for living expenses, but you use it to buy cryptocurrency, you might need to take out a short-term loan to cover your living expenses. Especially if you want to avoid the stress of overdraft fees that can put you in a cycle that makes it hard to make ends meet.

When You Have a Plan, Using Student Loans May Not Be a Bad Idea

At first glance, it seems like a bad idea to use student loan money to invest in something as volatile as cryptocurrency. However, like any investment, having a strategy can make all the difference.

A strategy provides the framework that will tell you when you need to get out. You need to know what your end goal is. For example, if you’re investing in Bitcoin with the intention to pay off your student loan debt in four years, once your holdings reach an amount that will pay off your loans, it makes sense to cash out. If, however, you’re intending to retire on your investment, that same amount won’t be enough to cash out.

Tips For Investing in Cryptocurrency in 2018

If you need the money you’re given for living expenses, it’s probably not a good idea to buy cryptocurrency with it. However, if you’ve got some room to play with, make sure you develop a plan and invest wisely.

Find out if a high-yielding savings account would provide a bigger return than cryptocurrency. A savings account is far less of a risk, and you’ll have certainty around your earnings. Explore other investment options before jumping into cryptocurrency if you’ve never invested in the stock market.

Most of all, ask yourself if you can be satisfied with your investment if it completely tanks. If not, you’re better off using your refund checks to pay back your loan.

Related Links:

The U.S Cryptocurrency Market Is About To Become More Competitive For Exchanges

This Cryptocurrency Is Challenging Facebook And Google's Advertising Duopoly