College students are already facing crippling student loan debt upon graduation; maybe that’s why one in five seems to figure they have nothing to lose by using student loans to purchase Bitcoin.
Cryptocurrency remains a secondary concern to most college students behind student loan debt. By the end of 2017, college students and graduates had amassed a combined $1.38 trillion in student loan debt, according to the Federal Reserve Bank of New York. Of that debt, 9.3% was past due — a higher percentage than mortgage (1.1%), credit card (4.6%), or auto loan debt (2.3%).
The average college student with loans graduates carrying more than $37,000 in debt, according to college and scholarship site Cappex. That debt is carried by more than 70% of all graduates and is up from $12,759 two decades ago, when just 54% of all students graduated with debt.
None of that has stopped college students from gambling with their student loans, however. Among 1,000 students polled by the Student Loan Report, 21.2% answered “yes” to the question, “Have you ever used student loan money to invest in cryptocurrencies like Bitcoin?”
Around this time last year, that would’ve been a wise investment. Bitcoin was selling for $1,093 at the beginning of April 2017 and has since seen its value rise to nearly $8,700. However, if college students had that idea late last semester, when Bitcoin was selling at more than $19,000, they’ve already lost nearly half of their investment.
Fellow cryptocurrency Ethereum followed a similar pattern: Selling for $50 a year ago, peaking at roughly $1,300 in January and hovering close to $530 now. Those short-term losses aren’t so easy for a student to absorb, either. The Bureau of Labor Statistics puts the overall unemployment rate at 4.1%, but that rises to 7.2% for adults ages 20 to 24 and 14.5% for those ages 18 and 19. A steep dip in cryptocurrency value just takes more cash out of students’ pockets.
“In 2018… those days of astronomical price growth seem distant,” a Student Loan Report spokesperson explained. “Virtual currencies, especially Bitcoin and Ethereum (the two biggest), have significantly fallen off from their record-high prices, and the daily price fluctuations are more in line with normal stocks.”
Student borrowers sometimes take out more money than they need for classes and use their remaining student loan funds for “living expenses.” Once a college or university’s financial aid office takes its cut for courses, they send a refund check to the borrower. That borrower — even a student borrower — can spend the money however they’d like.
Cryptocurrency may be risky and speculative, but it may not be the dumbest way to spend leftover student loan funds. According to another survey by student loan refinancing site LendEDU (which owns Student Loan Report), nearly half — 44.4% — of all college students with loans planned to use student loan money to help pay for a spring break trip. That number climbed to 56.8% of students borrowers who were going away for break.
“Apparently, this money will come in handy for student borrowers looking to put together the last leg of funding for their spring break trips,” says Mike Brown, research analyst at LendEDU.
These don’t just sound like bad financial ideas — they also wade into a potentially murky legal area. When student loan money is spent on something other than college or education-related expenses (room, board, books, supplies, etc.), the legal community says students might get themselves in trouble for making the splurge.
Boston attorney Adam S. Minsky, who specializes in cases related to student loans, told the Boston Globe that he questioned the legality of spending student loans on Bitcoin. He also notes that federal authorities might do the same.
“I would err to the side of it not being a kosher thing to do legally,” he told the Globe, “but regardless of that I don’t think it’s a wise thing to do financially.”
The safest bet for student loan money is still college tuition itself. According to a 2014 study by Pew Research Center, those who graduated with bachelor’s degrees or better saw their unemployment rate drop to 2.5% compared to 4.4% for those with some college education or an associate’s degree or 5.2% for high school graduates. More than 70% of those with bachelor’s degrees or better are employed, compared to 54% to 64% of those without said degrees.
Perhaps most importantly, the median annual income of college graduates ranged from $57,200 for those with a bachelor’s degree to $85,228 for those with professional degrees. That’s compared to $37,436 for high school graduates and roughly $40,000 for those with some college or an associate’s degree. Over a lifetime, that pay differential can add up to hundreds of thousands of dollars.
While the Student Loan Report suggests putting extra student loan money in a high-yield savings account to pay off student loan debt, LendEDU’s Brown says other risky expenses should be covered by different loans entirely. “More likely than not, parents won’t ask to be paid back,” he says, “but the Department of Education will!”