1 in 5 students used loan money for investing in cryptocurrency, study shows

Posted at 7:25 PM, Mar 30, 2018
and last updated 2018-03-30 20:25:02-04

College students and loans seem to go hand in hand, and student loan debt is an ever increasing problem in the U.S.

But it might surprise you what some college students are doing with any excess loan money they may have after paying for things like tuition, books, and housing.

A study by the Student Loan Report found that approximately one out of every five students with loans have used loan money in some form to invest in cryptocurrencies—in other words, things like Bitcoin.

But financial advisers caution that may not be the best decision.

“My gut reaction,” said financial advisor Martin Walsh with Brown and Tedstrom, “is that it’s probably a bad idea.”

Walsh said using borrowed dollars to invest in speculative assets, such as Bitcoin, would make him “very nervous.”

Cryptocurrency is the formal word for a type of digital money that uses encryption to transfer funds, independently of a central bank.

Walsh cautions:  “buyer beware.”

“There’s been a ton of talk about cryptocurrency over the last year,” Walsh said, “mostly because of the massive run up in price.”

Bitcoin — the biggest player in the Crypto game—saw prices for their “coins” at around $20,000 in December. But fast forward two months to February and the price plummeted to $8,000.

Walsh has had clients ask about it mostly because “their friends have invested in them and have made money.”  But he says that as a general rule the firm he works for, Brown and Tedstrom, won’t advise clients to invest in cryptocurrency.

“It seems fun and easy, and things have doubled, tripled, even quadrupled. But there’s incredible volatility in investing in bitcoin and other cryptocurrencies,” said Walsh.

Paul Foley, a big supporter of the technology behind cryptocurrency, says he has invested “quite a bit” in Ethereum, another player in the cryptocurrency realm. He says anyone investing now should see this as a “10 to 15 year plan”—not a short term way to make money.

“I plan on holding for a very long time,” said Foley.

But even he says that the notion of using borrowed funds, i.e. student loans, to invest in speculative assets like Ethereum is “a terrible idea.”

Both Foley and Walsh say anyone looking to invest in this emerging field needs to do their homework. They both believe that the more uneducated people there are who decide to jump in the market on a whim, the greater the chances of a “bubble” bursting, similar to the housing market crash of 2008.