For Students in Debt, Bitcoin on Their Minds

How do college students spend their valuable financial aid once tuition, housing and books are covered?

Recent survey findings suggest that perhaps hundreds of thousands of students pour that extra money into trendy yet risky cryptocurrencies, offering an odd counternarrative to that of the vulnerable undergraduate, at risk of hunger or homelessness.

A survey of 1,000 college students conducted by Student Loan Report, a Delaware news start-up, found that about one in five students with loans reported using student aid to buy Bitcoin or other cryptocurrencies, presumably in the hope that recent eye-popping increases in value could help pay off their debt. More than 21 percent said they’d used student loan money "to invest in cryptocurrencies like Bitcoin." (Note: Subsequent reporting by The Chronicle of Higher Education has determined that Drew Cloud, the purported founder of Student Loan Report, is a pseudonym for authors at Student Loan Report, LLC.)

Recent federal statistics show that about two-thirds of the U.S.'s 16 million college students have relied on loans to pay for college in recent years. Even if just one in 10 invested in cryptocurrencies, that would total more than one million amateur investors.

The survey’s methodology may have contributed to the high figure, as the firm that conducted it, Pollfish, found subjects via a “user panel” of more than 100 million people. Participants qualified for the survey by identifying themselves as college students carrying loan debt.

Dave Fanger, CEO and founder of Swell Investing, a Newport Beach, Calif., investment firm, said the 21 percent figure “seems rather high.”

But he said the new finding reflects something curious: a surprisingly high level of interest in such risky bets from younger investors. That matches recent research the firm commissioned: in January, Swell released a Harris Poll of about 2,000 Americans that asked how they’d invest a hypothetical $5,000 gift. It found that just 3 percent of baby boomers and members of Generation X would invest in cryptocurrency. By contrast, 12 percent of millennials (aged 18-34) said they’d dabble in cryptocurrency.

Fanger suggested that a key factor is what millennials might call FOMO: fear of missing out. Millennials, he said, also don’t generally trust traditional financial services companies.

In Swell’s survey, millennial men were more likely than women to take a risk on cryptocurrency -- 14 percent versus 9 percent -- when given a choice between digital currency investments and others. Those included savings accounts, mutual funds, real estate and retirement accounts.

“While risky, over all this trend could be a positive one for younger investors,” Fanger said. Many younger investors keep their money primarily in cash or savings, he pointed out. “Cryptocurrencies are exposing them to investing, including learning about balancing risk and reward and researching different investment philosophies.”

Fanger would not recommend that a student use loan proceeds for investing -- period -- let alone in something as risky as Bitcoin or related currencies.

“Plus, the environmental impact of cryptocurrency mining is something that every investor should research and consider before getting involved,” he said.

Two Very Different Student Debt Populations?

The new findings present an odd counterpoint to recent research on students’ financial well-being, including a survey from the Temple University sociologist Sara Goldrick-Rab, who found that about 36 percent of students at four-year colleges and universities said they experienced some form of homelessness in the past year. For community college students, the figure was even higher: 46 percent.

Goldrick-Rab also found that about 36 percent of four-year college students said they had recently experienced “low” or “very low” food security, meaning they skipped meals for substantial reasons. The proportion was slightly higher -- about 42 percent -- for two-year-college students.

Though Goldrick-Rab has acknowledged that students with hunger issues may be overrepresented in the results, other recent research from the Institute for College Access and Success has found that average student debt is rising. At graduation in 2016, it ranged from $20,000 in Utah to $36,350 in New Hampshire.

At risk or not, college students are indeed curious about cryptocurrency -- in a few cases, they’ve been “mining” it themselves via specially built computers that compete to solve cryptographic puzzles and win operators' prizes paid in Bitcoin.

But the process is power intensive, requiring large amounts of electricity. A few students have gotten around the expense by hijacking college-owned computers or connecting their own mining operations to campus power supplies, leaving colleges to foot the huge electricity bills. In a few cases, students have even set up mining operations in dorm rooms.

In 2013, students at Stanford University formed a Bitcoin research group, supervised by the Andreessen Horowitz partners Balaji Srinivisan and Vijay Pande, who had taught a computer science class on the topic. Since then, the occasional excesses of Stanford's so-called Bitcoin Mafia and others have prompted the university to take drastic measures: last January, it issued a notice on cryptocurrency mining, telling students that competing for the precious commissions had led to “compromised systems, misused university computing equipment, and personally owned mining devices using campus power.”

It warned that university resources "must not be used for personal financial gain."

Mark Huelsman, a senior policy analyst at Demos, the left-leaning public policy organization, said he understands why debt-burdened students might take the risk of losing money in cryptocurrency markets. “The risk inherent in higher education now is higher than it ever has been," he said.

While the payoff for a good education remains, the costs are increasingly being borne by families. Debt, he said, is now basically required in order to earn a college degree.

Huelsman said the Bitcoin phenomenon reminded him of when he was in college in the early 2000s and knew of classmates who played online poker "not even to necessarily pay off their loans, but more to make ends meet while they’re in school," he said.

Then as now, students with means can "bounce back" from losses, he said. But dabbling in risky schemes is a terrible idea for others.

"I would hope that the students who are most likely to struggle to repay their debt -- working-class students -- are not the ones investing in a very speculative currency," he said.