BookWatch: You can now use bitcoin to pay college tuition — but should you?

Every institution.

Accepting crypto in payment is smart business, and Bentley and Wharton are hardly the first vendors to do so. For more than a year, PayPal’s 324 million users have been able to use bitcoin to pay for goods and services with all 29 million businesses on the platform. Luxury retailers, including Gucci and fitness club Equinox (in New York City only), accept payment via bitcoin and other digital assets as well.

Money is money, regardless of format. All a school needs to do is establish operations enabling it to accept crypto. That’s easy nowadays; dozens of platforms facilitate the process, and it’s no more cumbersome than accepting credit cards. Bentley University, for example, uses the platform provided by Coinbase
COIN,
-12.60%,
a publicly traded crypto exchange.

But unlike cash, crypto prices fluctuate—a lot. The easy solution: vendors sell their crypto as soon as they receive it. With many platforms, this is done automatically for them.

Coffee shops accept crypto to look hip. But universities have better reasons: In addition to lots of free publicity, they’d be conveying to prospective students that they are advanced, state-of-the-art, cutting-edge. “We are paying attention to the latest developments in the global economy, and facilitating and fostering the development and use of innovative payment systems,” school spokesreps ought to be saying. “If we’re accepting crypto in payment, just imagine how current the classes are that you’ll be attending!”

So the decision is smart business for Bentley. But considering that Bentley’s tuition rack rate is $56,500 — excluding room, board, books and student fees—does it make sense for students to pay with crypto?

Well, you can’t pay for tuition with bitcoin unless you own some—and there’s no benefit in buying bitcoin merely for the purpose of transferring it to Bentley.

But 20% of U.S. adults own bitcoin, including a great many high-school seniors. Considering that bitcoin’s price has gained 40 million percent since its inception in 2009, it’s fair to say that many early adopters—some of the parents of those high-school seniors—have become amazingly wealthy through their crypto investments. The Association of Governing Boards of Colleges and Universities says bitcoin will produce the world’s first trillionaires by 2030. Savvy (or lucky) early investors have enough in bitcoin to pay for tuition (and maybe the school) even though bitcoin has fallen 54% from its all-time high of $68,000 set last November.

But be aware: paying for college with crypto could trigger a tax liability for you.

You see, the IRS says bitcoin is property. That means using it to pay for goods and services is the same as selling it, converting it to dollars, and using transferring the dollars to the vendor. In other words, paying tuition with bitcoin is the same as selling your bitcoin—and that is a capital transaction. If the price of bitcoin is higher than the price you paid for it, you’ll have a capital gain and you’ll owe taxes at capital-gains tax rates. Conversely, if the price is lower, you’ll have a capital loss.

Say you bought bitcoin for $10,000 and the price is $38,000 on the day you transfer it to Bentley. That gives you a $28,000 capital gain.

This is the same situation you’d face if you sold stocks, bonds, mutual funds, ETFs, real estate, baseball cards or artwork to pay for tuition (unless your money is in a 529 College Savings Plan — but that’s a topic for another day).  

Paying for major expenses with digital assets—houses, cars and, yes, college tuition — will become increasingly common. Bentley University is among the first to permit it, and will soon by joined by every other institution of higher education.

Ric Edelman is author of the “The Truth About Crypto; A Practical, Easy-to-Understand Guide to Bitcoin, Blockchain, NFTs, and Other Digital Assets”.

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