Over 20 percent of all American students are investing in Bitcoin as a way to generate more income for school tuition and living expenses. Frighteningly, some of the students are directly investing their student loan money. Today, we take a look at this trend and why it’s becoming such a problem in an increasingly unstable economic environment.
• Students believe investing in Bitcoin is a sustainable short-term response to income needs for college. In today’s questionable economic times, and in the face of skyrocketing tuition, students have a harder time paying for school today than ever before.
• There has been significant debate about rising tuition costs in North America over the last five years. Most students graduate with tens of thousands of dollars worth of debt that can take as much as 30 years to pay off. Some analysts believe this is the equivalent of setting students up for failure.
• Despite the fact that nearly a quarter of all students are investing, there’s no evidence that such investments pan out. If a student invested $1,000 at the highest point, that money would be worth only a fraction of the initial investment.
• Some education and finance experts have pointed out the fact that using student loan money for investments is actually a breach of contract. At a press conference, the U.S. Department of Education said, “Federal student aid funds are to be used only to help meet the costs of attending an eligible institution of higher education. Investing is not considered an appropriate use of federal student aid funds.”
• Even if students do succeed in investing and making a profit, the terms of their student loans most likely mean they have to immediately pay it back to the creditor granting their loans. This may be an effective way to reduce the total amount owed, but it’s a questionable risk because of the low likelihood for success.
• Some colleges and universities are approaching the issue from a “harm reduction” standpoint. While they cannot encourage students to invest in Bitcoin, they are hosting classes to teach students how and when to invest safely. The goal is to help students see market volatility and work around it, instead of jumping in blind.
• Creditors are also questioning how students can afford to invest in cryptocurrencies, if they truly need loans. Generally, student loans are only granted to individuals considered to lack access to other monetary support options, including parents, work or commercial loans. The money is intended for living expenses, tuition, and books, not personal investing.
• What makes this type of investment so volatile is a combination of factors. Primarily, the concern is that a student could effectively lose their entire loan in the investment, yet still be responsible for paying it back. Cryptocurrencies are notorious for disappearing out of the blue, though Bitcoin seems to have more staying power.