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Thanks to innovative DeFi platforms, there are now more options available for student borrowers who wish to repay their loans using crypto.
DeFi applications offer a range of financial services similar to the loans, insurance and savings accounts offered by traditional institutions.
The main difference is DeFi applications allow anyone to access these services, regardless of a person’s documentation, credit history or geography. Through DeFi, people have the ability to access collateralized and uncollateralized loans, and earn interest by lending, borrowing and staking crypto assets.
The first thing that makes these solutions appealing is that they offer better interest rates. In some cases, the borrowing rates are near zero.
Another factor is the possibility of accessing loans with a flexible repayment period. When taking DeFi loans, you do not need to make payments on a specific date each month. You can decide to skip a month or two without worrying about the damage it will have on your credit score.
Even more important, because these loans are issued via smart contracts and not by financial institutions you do not need to maintain a good credit score to access these loans.
DeFi loans also allow users to take loans against their crypto holdings to avoid missing out on potential bullish price movements and avoid paying capital gain taxes on sold digital assets. This removes the need to sell your crypto holdings to settle a debt or finance a project.
Another key difference about DeFi loans is that protocols often incentivize users to borrow. Think of it as being paid for taking out a loan. While this system is alien to the traditional financial system, it is a common strategy used by DeFi protocols to attract liquidity and reward users for contributing to their ecosystems. Users are usually rewarded with governance tokens, which allow participants to contribute to the day-to-day running of the protocol.
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Analysis – “Today’s problems meet tomorrow’s solutions with the current ability to pay student loans using decentralized assets. You can get around bad credit, high-interest rates, taxes, and more by leveraging your crypto assets to pay off debt. This is conceptually a great way to use crypto right now, although it is probably an exploit that is sure to be patched soon so that financial institutions can milk the most amount of profits from you as they can.” – Easton Nguyen
