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Can Crypto Loans Help with Student Debt?

Published 14 July, 2020

    With personal debt on the rise, particularly among Millennials and Gen Z, younger generations are exploring crypto-backed loans that can help them more efficiently manage their finances and climb out of the hole without having to sell off their crypto holdings.

    Gen Z makes up more than 27% of the U.S. population, and 24 million of them are adults as of 2020, according to the Pew Research Center. What Millennials and Gen Z have in common is record levels of debt, driven largely by the dramatic increase in college costs over the last decade. For example, the total amount outstanding on student loans is $1.67 trillion, with the average per borrower among the class of 2018 totalling nearly $30,000.

    As a result, the attitude of Gen Zers and Millennials to credit, money, and debt is evolving to increasingly include cryptocurrencies in their money mix. A survey from Blockchain Capital found that the percentage of respondents who have a positive view of Bitcoin rose from 34% to 43%, with 59% of the 18-34 age group having a positive outlook on Bitcoin as a financial innovation.

    “Both the newest and oldest members of the credit-eligible Gen Z generation are beginning to enter the credit market for the very first time,” said Matt Komos, vice president of research and consulting at TransUnion. “The rapid growth in Gen Z credit activity is occurring despite many of these individuals having grown up during the Great Recession.”

    This increasing reliance on lending and credit may be compounded by the coronavirus and its economic effects across the globe. Around half of the oldest Gen Zers (ages 18 to 23) and 40% of Millennials say that they or someone in their household has lost a job or taken a cut in pay due to the outbreak, significantly higher than the shares of Gen Xers (36%) and Baby Boomers (25%) who said the same.

    With mounting debt and a potential economic downturn, thanks to the COVID-19 pandemic, Millennials and Gen Zers are actively considering how they can shift the management of their debt to more flexible financial products. An active desire to embrace new financial services that leverage crypto assets is increasingly seen by these groups as a practical solution to the long-term control of their debts.

    Borrowing Against Crypto to Pay Off Other Debt

    One of the core traits of Gen Z and the Millennial generation is their affinity for digital services and products. This attraction also extends to cryptocurrencies. Persistent debt, an uncertain future, and the desire to embrace new digital financial products and services is the trinity pushing these groups toward leveraging their crypto assets. 

    Paying down student loan debt via a loan supported with crypto assets can be a significant money saver. According to NerdWallet, private student loan interest rates can be up to 14.5% for fixed-rate loans and up to 12.99% for variable-rate loans. By comparison, a BlockFi loan can start as low as 4.5%. Under these circumstances, a private $50,000 loan over 10 years has average payments of $530 per month, compared to $354 per month over one year with BlockFi.

    These crypto-backed loans are also fast and efficient to set up and manage. In other words, using a crypto-based loan can be a powerful way to take greater control of debt. If the loan remains at a healthy loan-to-value (LTV) ratio, collateral is returned after the balance is paid down.

    For crypto holders saddled with student debt, not using their crypto assets to reduce their immediate outgoings and put in place more dynamic systems to manage their longer-term finances could be a missed opportunity to transform their financial health. With uncertain times ahead, taking control of debt should be a priority. A crypto-based loan is a practical step that can be taken today.

    Why Crypto Ownership is Climbing

    Born into an environment where online services dominate every facet of their daily lives, using cryptocurrencies is as familiar to Gen Z as credit cards were to their parents’ generation. Digital investing is a clear and present trend among Gen Zers. Research from Edelman concluded that a quarter of respondents in this demographic are using cryptocurrency, while an additional 31% are considering it.

    Put simply, the affinity for digital currencies is accelerating. In some cases, the faith in crypto assets is outstripping the traditional stock market. Guy Hirsch, managing director of eToro U.S., said: “We’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. At the heart of this change are the asset classes themselves.”

    The way Gen Zers and Millennials view their financial future and the services, products, and professionals that will help them manage their money is rapidly changing. Compared to prior generations, today’s younger consumers are more wary of wealth managers and voice stronger preferences for the convenience provided by mobile apps, new digitally based investment models, and greater scepticism about traditional finance.

    As Millennials and Gen Zers grapple with an uncertain financial future, they can take more control today by leveraging their crypto assets. “Some experts claim Generation Z is the DIY generation and is, therefore, less likely than even millennials to use the services of professional investment advisers,” said Noelle Acheson at Coindesk. “YouTube, TikTok and social investment apps, where strategies are shared, gives ample opportunity to mimic and learn from others.”

    What’s clear is that when it comes to investment choice, financial well-being, and debt management, Millennials and their Gen Z counterparts want to do things differently. The distrust of centralized institutions is pushing them towards more innovative and potentially rewarding investment products, such as crypto-backed loans.

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    Disclaimer: Rates for BlockFi products are subject to change. Digital currency is not legal tender, is not backed by the government, and BIA accounts are not subject to FDIC or SIPC protections. Security is our top priority. Please see our Vulnerability Disclosure Form and Bug Bounty Program.
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