College students are using student loans to invest in bitcoin. Yes, really

If you were to pick two things that could define the financial future of today’s college students, you could do worse than “Bitcoin” and “crippling student loan debt.”

So what happens when you combine the tantalizing prospect of a new global currency with a long future of monthly debt payments? Apparently, some are willing to find out. A new survey found that college kids are using money from their student loans to buy Bitcoin and other digital currencies.

One-fifth of 1,000 students polled by The Student Loan Report, a website that reports on debt issues from the perspective of students, said they had used some of the money set aside for their living expenses to invest in cryptocurrencies. The survey was conducted by Pollfish, which specializes in online polling.

“Younger Americans are certainly the most enthusiastic about cryptocurrency; they are the most active investors and want to get involved in the space in any way possible,” Student Loan Report founder Drew Cloud told the Globe. “However, I truly thought the percentage would be lower. As a college student, your budget is thin and that extra money could be used on rent, groceries, or books.”

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Putting aside the wisdom of investing in volatile cryptocurrencies, Boston attorney Adam S. Minsky said it was legally questionable to do so with student-loan money. A specialist in student-loan matters, Minsky said the federal government might question whether such investments are related to students’ education.

“I would err to the side of it not being a kosher thing to do legally, but regardless of that I don’t think it’s a wise thing to do financially,” he said.

So-called cryptocurrencies, developed to facilitate secure online transactions, simultaneously became the hottest and most poorly-understood financial instruments of 2017. Bitcoin began last year trading at below $1,000 and at one point were worth close to $20,000.

Meanwhile, companies issuing alternative cryptocurrencies and tokens have been able to raise billions of dollars from eager buyers.

It’s apparently enough to draw in young investors who only have borrowed money to offer, according to Student Loan Report.

And if cryptocurrency investments looked like a path to free money at one point, they decidedly are not. Bitcoin has fallen back down to about $8,500 in recent months, making big losers of many who bought in late.

In an article discussing the survey, Cloud noted that if students have extra loan proceeds for now, they should consider “stowing that money away in a high-yield savings account that they could later use to chip away at their student debt.”

But, he added, they might be right to take a flier on Bitcoin.

“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.”

The survey did not ask any other questions, so it’s not clear how much students were investing.

Christian Catalini, an MIT professor who studies cryptocurrency, said he hopes it wasn’t much.

“People should not invest a single dollar in this that they can’t afford to lose immediately,” Catalini said. “If some of these students have been successful at shortening their loan or something else, I think it’s important to realize that might have been a random, lucky draw.”

However, he said student interest in Bitcoin and other digital assets marks a real generational divide in thinking about finance.

“There is a new generation of consumers that tend to have no faith in traditional financial institutions, and I think they are approaching this asset with curiosity and excitement,” Catalini said.

Remy Kaldawy, president of the investing club at Worcester Polytechnic Institute, said the student group has seen growing interest in the past year as it made cryptocurrency trading a larger focus of its discussions. But Kaldawy said he doesn’t know anybody who has used student-loan money to trade assets he considers “way too risky to trade with borrowed money.”

“I personally think it is a terrible idea to make any leveraged investments at all in cryptocurrency,” he said.

Andy Rosen can be reached at [email protected]

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