Viral success stories of people who used the post-pandemic stock market to trade their way out of mountains of student loan debt keep inspiring do-it-yourself investors.
But while equities have provided a time-honored route to wealth creation for generations of Americans, aspects of these latest get-out-of-debt-quick efforts sit uneasily with Wall Street’s conservative-investing old guard. With the fight against inflation whipping up volatility across asset classes, and exotica like cryptocurrency still finding its way into retail portfolios, they warn that the risk of bad outcomes is as high as it’s ever been.
“The majority of people managing their own portfolios have only known how to generate returns using growth stocks,” Julian Emanuel, chief equity & quantitative strategist at Evercore ISI, said of once-lofty sectors like tech that have seen valuations come down to Earth this year.
Ilianna Salas is undeterred. The 25-year-old Los Angeles native, is investing in companies like Sweetgreen Inc. and Olaplex Holdings Inc.
“No one wants to pay off their loans using regular income,” said Salas, who’s trading stocks in the hopes of earning enough to cover her payments of about $300 a month. “I feel like a lot of people are in the same boat.”
Americans owed $1.7 trillion in student loan debt at the end of last year, according to the Federal Reserve. There are no statistics on how many student debtors are currently investing, but they probably had cash available: In March, the Federal Reserve Bank of New York estimated that nearly 37 million student loan borrowers had roughly $195 billion worth of paused payments.
Now that the Biden administration has again extended the pause on federal student loan repayments, many retail traders are doubling down on stocks and crypto.
Nadia Vanderhall, a 37-year-old personal finance consultant living in North Carolina who started buying equities and funds during the 2008 financial crisis, is using the extra time before payments restart at the end of August to “leverage investing even more.” She’s now putting money into cybersecurity companies and electric vehicle manufacturers and adding more cryptocurrency to pare down the roughly $23,000 she still owes.
Jake Jolly, a senior investment strategist at BNY Mellon Investment Management, warns that “caution is warranted” in investing in cryptocurrencies, since it’s so difficult to figure out “a fair price.”
“It’s not something that you want to be doing willy-nilly and adding a significant part to your portfolio,” he said.
Despite professionals’ warnings about the investing risks, many student loan holders still want to try, even in a small way, since the viral tales of investors who paid off their debts with market gains resonate. One reason is that many of them know a real-life example of someone who was able to pull it off.
Chris Smerek, for example, was able to erase his $23,000 student loans after he began investing in 2020 as a New Year’s resolution. The 27-year-old Michigan native profited from Tesla Inc. and Apple Inc. stock splits, as well as well-timed put options on meme stocks like GameStop Corp.
“I’m thinking, ‘If I play this right, I can pay off my loans before the interest kicks back in,’” Smerek said, recalling GameStop’s price spike in January 2021. “Next day the stock jumps another 100%. I make my money and get out since this is the most volatile stock in the history of the market.”