In a recent survey conducted by The Student Loan Report, we found that 21.2 percent of current college students with student loan debt have used financial aid money to fund a cryptocurrency investment.
The survey was administered over the course of four days and the participants were asked the following question: "Have you ever used student loan money to invest in cryptocurrencies like Bitcoin?"
More than one-fifth of college students are dipping their toes, or maybe diving in head-first, in the virtual currency space, and they are using their student loans to do it. This can be especially risky for students who are using private student loans for this as these loans have higher interest rates and harsher repayment terms as compared to federal student loans.
Student loan borrowers would be able to pull off such a maneuver because they are given their remaining student loan funds to be used on "living expenses." Sometimes, student debtors borrow more than they end up needing for that semester of classes. Once the borrower's college or university's financial aid office uses the necessary financial aid to pay for courses, they send a refund check to the borrower.
Essentially, there is no system in place to ensure the debtor is using the leftover money for college living expenses. Therefore, borrowers may spend that money any way they wish.
And apparently for a sizeable number of students, the best use of that money is to invest in virtual currencies like Bitcoin, Ethereum, Ripple, and many others.
Cryptocurrency was the hottest investment of 2017, especially for young Americans, so it is easy to understand why many college borrowers would think it was a savvy way to spend their refund checks. Some might have even figured that they would be able to quickly pay off their student debt because not long ago every single virtual currency was experiencing seemingly unstoppable growth.
In 2018, however, those days of astronomical price growth seem distant. 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.
Could they have used spent, or even saved, this money more prudently? Absolutely. A perfect example would be stowing that money away in a high-yield savings account that they could later use to chip away at their student debt.
But there is always the chance that there is another period of explosive growth for virtual currency, and these borrowers will be laughing all the way to the bank. Or, they could just as easily lose all of that financial aid money that they just invested in Bitcoin.
1,000 current college students that have student loan debt were surveyed on the single question discussed in this article. Pollfish conducted this survey on behalf of The Student Loan Report. The survey began on Feb. 22, 2018 and finished collecting results on March 18, 2018.