Students fear an increase in interest rates for student loans

In recent years, the interest on student loans was 0% due to a favourable economic climate. However, this year the scenario may change due to the rise in other interest rates. This can cost students a lot of money, according to Het Parool newspaper.

This feels like a step back from a study period characterized by setbacks and broken promises, writes master’s student Harold Janssen in FD newspaper. The interest on Dutch government bonds – which serves as a benchmark for the interest on student debt – was negative, but that has changed due to the current economic situation and rising inflation.

The payback interest rates for student loans are determined every year for a period of five years. For example, those who graduated in 2017 found out what their interest rate was at the end of that year: 0%. This rate came into effect in January of 2018 and lasted until the end of 2022. However, the rate that will be in force from January 2023 is expected to be much higher. Since the interest on student debt is fixed for five years, any interest rate increase will initially only affect students who graduated in 2017 or 2022. For someone who graduated in 2018, for example, the interest is fixed until the end of 2023.

The Dutch national students’ association ISO is concerned about the feared rise in interest rates. “This is another financial slap for students. After the empty promise about not counting student debt in mortgage applications, it now appears that students may have to pay hundreds of euros per year in interest.”

The Ministry of Education says it understands students’ concerns about rising costs, but also calls it ‘conceivable’ that the interest debt will rise. “It’s important to realize that the recent period of historically low interest rates was truly unique. Moreover, lenient repayment conditions still apply to student debts: those who earn little pay nothing, and what you repay remains dependent on your income.”

How much will students pay?
If the interest rate would become 1,5%, with the average student debt standing at €15,200, former students would have to pay back an extra €228 in interest per year. However, many students have a much higher debt, especially those who did not live with their parents during their course. The annual interest on a debt of €50,000, which is not an unusual amount of debt, can rise to €750 per year.

FD reports this increase is manageable, especially given the good income that many students can expect after graduation. It is, however, another setback in a long line of financial disappointments for this generation. These are the students who did not receive a basic grant as a gift, but had to pay back their entire grant – a policy that was in place for seven years but will be reversed soon. Furthermore, they who will no longer profit from the promised increase in the quality of education. And finally, they have received online education for two years and may have suffered from study delays as a result.

It’s important to remember that the opportunity to study at a good educational institution, with a loan with a low interest rate, is still a good deal compared to many other countries, according to FD. Also, being able to borrow money so cheaply is a major plus. The current tight labour market also means that students can expect a good job after graduating.

In June, the House of Representatives will vote on a motion to freeze tuition fees for 2023-2024. The ISO hopes for a majority, so that at least one cost item does not rise further.

Written Raphael Vieira