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Drowning in Financial Leverage: 

The Hidden Risks Behind Student Loan Investments

By Eun-jin Kim, Cub-Reporter

eunxvn@naver.com

On many Korean campuses, a new financial habit is spreading quietly among students. Instead of using student loans only for tuition or living costs, an increasing number of young people are borrowing money from the Korea Student Aid Foundation, commonly called KOSAF, and putting it into stocks or cryptocurrency. This trend, informally called “loan investing,” is growing because KOSAF loans are far easier to access than bank loans. The fixed interest rate is low and borrowers do not have to start repaying until they find a job and earn enough money. For cash-strapped students who want to enter the booming stock market, this loan can feel like free capital rather than a serious debt. However, financial experts warn that this comfortable structure hides a dangerous trap. When markets fall, students who borrowed to invest can lose both their principal and their ability to repay, turning what was meant to help them study into a heavy financial burden that follows them into adulthood.

Why Student Loans Look Like Easy Money

Image of the Korea Student Aid Foundation (KOSAF) website showing its 2026 second-semester loan interest rate table

The appeal of KOSAF loans comes directly from their structure. Unlike commercial bank loans, KOSAF offers a fixed annual interest rate of only 1.7%, and students do not need a credit check or a co-signer to apply. Undergraduate students can also borrow up to 24 million won in total for living expenses during their entire degree, in addition to full tuition coverage. More importantly, the “employment-linked repayment” program allows students to delay repayment until their annual income exceeds about 30.37 million won. In practice, this means many students carry the loan for years without paying a single won toward the principal.

For a generation watching stock indexes rise and hearing stories of friends who made quick profits, these conditions look like an opportunity rather than a burden. Because the loan is disbursed directly into a personal bank account, some students transfer part or all of it into a brokerage account soon after receiving it. Since there is no immediate repayment pressure, the psychological distance between “borrowed money” and “my money” quickly narrows, encouraging riskier investment decisions than students might otherwise make.

When Leverage Turns Into a Debt Trap

The consequences of this trend are already visible in official data. According to an analysis by a member of the National Assembly’s Political Affairs Committee, based on data from South Korea’s Financial Supervisory Service, the balance of margin loans* held by investors in their twenties surged from about 188.8 billion won in April 2025 to 423.9 billion won in April 2026, an increase of roughly 124.5%, or 2.24 times, in just one year. This was the sharpest increase among all age groups, well above the market-wide average growth rate. Margin loans allow investors to borrow money from securities firms to buy more stock than their own cash would allow, which means both potential gains and potential losses are magnified.

The danger becomes clear when stock prices drop. If the value of an investor’s holdings falls below a certain level, brokerage firms automatically sell the shares to recover their loan, a process called a forced liquidation. For young investors with little income and no financial cushion, a single forced liquidation can wipe out savings and leave them owing money they cannot repay. This risk is not only theoretical. Financial Supervisory Service data show that people in their twenties registered as credit delinquents reached 65,887 by July 2025, a 25.3% increase from 52,580 at the end of 2021, with unpaid stock and cryptocurrency investments cited as a major cause.

Mobile Apps Make the Risk Feel Smaller

Part of the problem lies in how easy investing has become. Mobile trading apps, or MTS, now let anyone buy or sell stocks within seconds using a smartphone. Many securities firms have added game-like features to these apps, such as badges for “top 1% returns,” push alerts for every price movement, and screens showing how much a stock has risen since a user sold it. Experts say these features are designed to keep users opening the app, but they also make investing feel more like a game than a financial decision, weakening users’ sense of risk.

In response, financial authorities and student support agencies have started strengthening protective measures. Since 2022, KOSAF and the Credit Counseling and Recovery Service have allowed students struggling with loan payments to apply for combined debt adjustment, which can reduce the principal by up to 30% and extend repayment periods up to 20 years. Lawmakers have also called for stricter monitoring of brokerage firms and expanded financial education for young borrowers, warning that reckless loan investing could become a wider social risk rather than just a personal one.

These cases show that a student loan is not simply free money; it is borrowed money that must eventually be repaid, and it can grow far heavier if it is used for speculation rather than for its original purpose. Learning to manage money responsibly, understanding investment risk, and building steady saving habits are skills every young adult needs long before they earn a full salary. A single semester of easy credit should never outweigh years of financial stability, yet that is exactly the trade many students are unknowingly making when they treat a student loan as investment capital.

In the end, university students should remember why KOSAF loans exist in the first place: to support education and basic living costs, not to fund short-term bets on the market. Only by using borrowed money for its intended purpose and building healthy financial habits early can young people achieve real, lasting economic independence instead of starting adulthood already trapped in debt.

Sources:

Polinews, “[Issue] Margin loan balance nears 35 trillion won as loans among people in their 20s surge,” Apr. 29, 2026. (www.polinews.co.kr)

Smart FN, “Credit delinquents in their 20s driven by ‘loan investing’ top 60,000,” Dec. 15, 2025. (www.smartfn.co.kr)

eToday, “Turning investment into a game: the ‘risky design’ of brokerage MTS apps,” May 20, 2026. (www.etoday.co.kr)

Korea Student Aid Foundation (KOSAF), 2026 second-semester student loan guidelines, via Seoul National University notice. (ie.snu.ac.kr)

Financial Services Commission, press release on the KOSAF–Credit Counseling and Recovery Service debt adjustment agreement. (fsc.go.kr)

Korea Student Aid Foundation (KOSAF), www.kosaf.go.kr