Student loans have become a massive burden for millions of Americans. As of 2024, nearly 43 million borrowers owe a total of $1.77 trillion in student loans, with the majority being federal loans.
Be Aware: Coinbase Fees: Full Breakdown of How To Minimize Costs
Try This: The New Retirement Problem Boomers Are Facing
While traditional methods of repaying student loans involve using your income to make monthly payments, you can also use crypto to tackle debt. Here are two ways to pay down student loan debt with crypto.
Next, find out how you can pay your bills with cryptocurrency.
DeFi, or decentralized finance, is a financial service that runs on blockchain networks, like ethereum (ETH). Unlike traditional banks, DeFi platforms don’t rely on human approval. Instead, they use smart contracts to let people borrow, lend or earn interest on their digital assets.
So, how do DeFi loans work? Say you have $15,000 in student loan debt and own $30,000 worth of ETH. Since you don’t want to sell your ETH because you think the price will go up over time, you can use a DeFi platform like Aave or MakerDAO to deposit your ETH as collateral and borrow $15,000 in stablecoins.
Advertisement: High Yield Savings Offers
Powered by Money.com – Yahoo may earn commission from the links above.
You can then convert the stablecoins into U.S. dollars and pay off your student loan debt. Once you repay the borrowed amount plus the interest, you get your ETH back.
However, most DeFi platforms will only let you borrow 50% to 70% of your collateral’s value. This is called the Loan-to-Value (LTV) ratio. If the value of your crypto drops significantly, you may be liquidated, meaning the platform sells part of your digital asset to cover the loan.
Read Next: If Trump Eliminates the Department of Education, Do You Still Have To Pay Your Student Loans?
Lower interest rates: The first thing that makes DeFi loans attractive is the low interest rates and flexible repayment schedules. In some cases, borrowing rates are near zero.
No credit score required: Since these loans are issued via smart contracts and not by financial institutions, you don’t need to have a good credit score. Your crypto acts as the collateral instead of your credit history.
While using DeFi loans to pay down student loans has advantages, it’s not without risks.
Liquidation risk: If the value of your crypto drops too low, the platform could sell part or all of it to cover the loan.
Variable interest rates: The variable interest rates can spike during periods of high demand, making borrowing more expensive.
Smart contract risk: Since smart contracts are codes that are vulnerable to bugs, your collateral is at risk.
Story Continues
