Some student loan borrowers taking advantage of the GameStop (GME) wave fueled by Reddit are betting that they could use the proceeds to pay off their debts.
“I can’t think of anything I have seen that is almost as insane as what is happening with GameStop now,” said Anthony Chukumba, an analyst at Loop Capital Markets, on Yahoo Finance Live (video above).
The video game retailer’s stock has soared more than 130% in the past few days, before falling sharply during midday trading on Monday. The stock surge started after short sellers and Reddit users on r / wallstreetbets (WSB) clashed over the direction of the stocks.
“I love you 😘,” posted a WSB user, along with a screenshot of the consolidated payment for his $ 23,504.45 student loan scheduled for Monday, January 25th. In the comments, the user elaborated that the reward is “the final payment on my student loans” and added that they never “thought I would have paid it off so soon”.
The user, a 28-year-old South American who has a BFA in graphic design and asked not to be identified for privacy reasons, told Yahoo Finance that he started paying attention to GameStop in November and started buying weekly calls before making over $ 80,000 last week.
When asked why they did not expect the expected forgiveness of student debt during the Biden government, they replied: “I do not believe the current government will do anything about student debt … getting rid of that debt was more important to me. “
In Twitter, Dylan Steele, a student at Valdosta State University and manager of a fitness chain in Georgia, also said he plans to use GME’s profits to pay off his student loans.
In an email to Yahoo Finance, he said he bought shares on January 20 and sold them on January 25, with a profit of about $ 9,000.
“I currently have about $ 12,000 in student debt and I intend to pay it off before August, with the majority coming from this windfall,” he explained, adding that he plans to attend law school after the summer.
Another user, who had yet to cash out his student loans, also expressed joy at his profits and the fact that they could soon be debt-free thanks to the stock.
‘Playing with stocks is risky’
Other Reddit users were considering spending their student loans to buy GME shares.
According to the certification statement on the Federal Student Aid Free Application form, the student submitting it must agree to use federal and / or state financial aid “just to pay the cost of attending” college.
“You are obliged to use the funds only for the cost of education … it absolutely does not mean stock purchases and credit card payments,” said Betsy Mayotte, president and founder of the Student Loan Consultants Institute (TISLA), to Yahoo Finance. Mayotte added that purchases of shares with student loan money could present complications if the user initiated bankruptcy in the future.
Another user also said that he was putting “all my student loan money” on GameStop and Palantir. Others expressed regret in retrospect for not considering a similar move.
I am perplexed, I would have liked to buy some GME last week, when it started to burst. could have cleaned up my student loans 😂
– ˜ ”* ° •. ᖽᐸ ㄚ ㄥ 乇. • ° * ”˜ (@Khillsbro) January 25, 2021
The trend has left some experts “concerned that the state of the market is overbought,” Travis Hornsby, founder of Student Loan Planner, told Yahoo Finance. “If the Federal Reserve does something against interest rates or President Biden’s stimulus overheats the economy and interest rates go up, these children will be destroyed.”
And “my advice is that I understand that an investor who has made ten times as much money this year is likely to think that personal finance experts like me are idiots,” he added. “But just consider selling your original investment and letting the rest go. People with big winnings are like the friend of your bachelor party who hits the roulette wheel 5 times and feels unstoppable. Get a little off the table and if you keep going up, you’ll still be rich. If it crashes, at least you haven’t lost. “
Mayotte also advised caution.
“I mean, if you make money, as you do, whether on the stock exchange or the lottery, and use it to pay off your student loans … that’s a good thing,” she said. “But people shouldn’t necessarily be playing on the stock market for the purpose of paying off their student loans … playing with stocks is risky.”
The markets continue to digest rapid movements: stocks fluctuated wildly on Monday, rising more than 100% before turning negative and then rising again by more than 20% on the day.
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Aarthi is a reporter at Yahoo Finance. She can be reached at [email protected]. Follow her on twitter @aarthiswami.
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