According to an article released by Scope Weekly, a recent survey found that 21.2 percent of college students that have outstanding loans used their financial aid money to invest in cryptocurrencies. This Student Loan Hero report survey was done over the course of four days, surveying 1,000 students. The survey did not detail what cryptocurrencies they invested in and how much fo their financial aid they used.
These borrowers end up with this extra money because the amount they get usually receive covers their tuition, but then they get a refund check for any of the funds that are left over. This money is supposed to be used for living expenses, but there are currently no rules that dictate how this money is spent. As such, many are trying to make it big with cryptocurrencies by borrowing money, but this is not a great investment strategy.
The Problem with Borrowing Money to Invest
The logic many of these students are using is that if they borrow money to invest in cryptocurrencies, they can capitalize on its growing value. But with any type of investment, there are risks. Professionals that guide people in making investments find ways to mitigate the risk of a loss. In this case, the problem is if you end up borrowing money to invest in cryptocurrencies, and the value plummets, then you are left with paying back the borrowed money and the devalued cryptocurrency you bought.
One factor that is driving more and more inexperienced people to invest in cryptocurrency is the trading platforms themselves. There aren’t any fees attached and there isn’t a spending ceiling. By downloading an application on their mobile device, these people are now empowered to make investments in cryptocurrency with very little entry barriers.
Using the Money for What It Was Intended For
In March, the Federal Reserve raised the short-term interest rate by 0.25 percent. When this happens, loan payments tend to increase, forcing borrowers to adjust their budgets so that they can continue to afford everyday necessities. Thus, it is not a good idea to use this leftover money for investing. Instead, it should be used for things it was intended for—anything related to living expenses.
Although the stories of people capitalizing on the cryptocurrency buzz seem like a hard and fast way to get rich quick, all investments have a certain amount of risk. The stories that I have heard involved people investing in cryptocurrencies well before the recent buying craze. As such, they were at the right place at the right time with their investment. So, in the meantime, you should stick with paying the important things, like rent and food, rather than putting yourself in an even deeper hole financially.
