Some student loan borrowers riding the Reddit-fueled GameStop (GME) wave are betting that they’ll be able to use the profits to pay off their debt.
“I cannot think of anything that I’ve seen that is nearly as insane as what is going on with GameStop right now,” Loop Capital Markets Analyst Anthony Chukumba said on Yahoo Finance Live (video above). “This is not a situation like Tesla where the stock keeps going up and up.“
The video game retailer’s shares soared more than 130% in recent days before falling dramatically during midday trading on Monday. The rise in shares began after short-sellers and Reddit users on r/wallstreetbets (WSB) clashed over the direction of the stock.
“I love you guys 😘,” one WSB user posted, along with a screenshot of his consolidated student loan payment of $23,504.45 scheduled on Monday, Jan. 25. In the comments, the user elaborated that the payoff is “the final payment on my student loans” and added that they never “thought I would have this paid off so soon.”
The user, a 28-year-old from the American South who has a BFA in graphic design and asked not be identified for privacy reasons, told Yahoo Finance that they started paying attention to GameStop back in November and began buying weekly calls before making about $80,000 last week.
When asked why they didn’t hold out for expected student debt forgiveness during the Biden administration, they responded: “I don’t believe the current administration is going to do anything about student debt… getting rid of that debt was more important for me.”
On Twitter, Dylan Steele, a student at Valdosta State University and a manager at a fitness chain in Georgia, also said he was planning to use his GME profits to pay off his student loans.
In an email to Yahoo Finance, he said he first purchased shares on Jan. 20 and sold on Jan. 25 for a profit of around $9,000.
“I currently hold around $12k in student debt I plan to pay it off before August with the majority coming from this unexpected windfall,” he explained, adding that he plans to attend law school after the summer.
Another user, who had not cashed out to pay their student loans yet, also expressed joy at his profits and at the fact that they could soon be debt-free thanks to the stock.
‘Playing with stocks is risky’
Other Reddit users were considering actually spending their student loans to buy GME shares.
It’s not immediately clear if such move is illegal and a misuse of funds, if they are using federal student loans. The Education Department did not respond to request for comments.
“You’re required to use the funds only for the cost of education... it absolutely does not mean stock purchases and credit card payments,” Betsy Mayotte, president and founder of The Institute of Student Loan Advisors (TISLA), told Yahoo Finance. Mayotte added that the stock purchases could present complications if the user were to initiate bankruptcy proceedings down the line.
Another user also said they were putting “all my student loan money” into GameStop and Palantir. Others expressed regret in hindsight for not considering a similar move.
i’m dumbfounded, wish i bought some GME last week when this first started poppin. could’ve had my student loans wiped clean 😂
— ˜”*°•. ᖽᐸ ㄚㄥ乇 .•°*”˜ (@Khillsbro) January 25, 2021
The trend has some experts “worried about the state of the market being way overbought,” Travis Hornsby, founder of Student Loan Planner, told Yahoo Finance. “If the Federal Reserve does anything to interest rates or President Biden’s stimulus overheats the economy and interest rates rise, these kids are going to get destroyed.”
And, “my advice is I understand an investor that's made 10 times their money this year probably thinks personal finance experts like me are idiots,” he added. “But consider just selling your original investment and letting the rest ride. People with huge gains are just like the friend at your bachelor party who's hit 5 times at roulette and feels unstoppable. Take some off the table and if it keeps soaring you'll still be wealthy. If it crashes at least you didn't lose.”
Mayotte also advised caution.
“I mean, if you make money, how you make it, whether it be the stock market, or the lottery, and you use it to pay off your student loans ... that's a good thing,” she said. “But people shouldn't necessarily play the stock market for the purpose of paying off their student loans ... playing with stocks is risky.”
The markets are continuing to digest the rapid moves: The stock fluctuated wildly on Monday, rising more than 100% before going negative and then jumping back up more than 20% on the day.
—
Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.
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'I love you guys': Redditor betting on GameStop used profits to pay off student loans - Yahoo Finance
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