Student loan system increases inequality

The current student loan system in place in the Netherlands is receiving increasing amounts of criticism for several reasons. Critics claim that the structure is creating unnecessary inequality between students from different socio-economic backgrounds. At the moment, the so-called ‘social loan system’ provides university students with the opportunity to take out practically interest-free loans. In 2015/16, the new system replaced the old system, in which an initial loan became a grant as long as students graduated within ten years of starting their studies. The new system provides only a loan, which has to be paid back after graduating – or failing to graduate. So what exactly were the reasons for this transition and why is it, once again, under fire?

Interestingly, the old system was abolished partly in the hopes of bringing about more equality amongst students. Certain political parties felt that students who were essentially guaranteed a successful career, for example those following medicine or law courses, were capable of taking out a loan to do so, since they would be able to pay back the loan with their high future salaries. The new loan system was intended to motivate students to finish their studies and enter the job market quickly to avoid building up substantial debt. Furthermore, some argued that the opportunity to acquire a diploma within ten years, after which the loan would become a grant, gradually became the main motivation for academic achievement. Keeping these arguments in mind, one begins to wonder whether the current system really has targeted the core of these issues.

Regarding the question whether the new loan system has brought about more harm than good, politicians are arguing that it has caused more inequality than before. Students are experiencing extra pressure due to their fear of financial instability after graduation. Specifically, those from lower economic backgrounds, who are unable to receive financial support from their parents, experience the loan system as a burden. These students can take out an additional loan, adding to the total amount they have to pay back after their studies. Students from well-off families have to borrow less, so they start their careers on a better financial footing than those from poorer backgrounds. For these students, the constant worry about how their loans are going to impact their future is making it difficult to enjoy what older generations refer to as ‘the most carefree time in your life’. A student loan may impact your possibilities to buy a house in the future and may put pressure on students to choose a field in which they can earn a high salary, rather than doing what they really enjoy. Any delay in obtaining their degree will add to the loan, thus limiting their options to switch fields as their interests fluctuate and putting undue pressure on students to not fail any exams. This stage of life is uncertain enough, let alone having to worry about their financial future as well.

The discrepancies between student experiences are growing as they are becoming more and more dependent on support from their parents. Students from well-off families are able to study worry-free, sometimes without a loan at all. Others start their academic career in the knowledge that they will end up with substantial student debt. The loan system assumes that parents are able to support their children: more than two thirds of students receive some monetary support from their parents and the amount they receive is growing as well. However, a considerable fraction of the population is simply unable to support their children while at university, leaving them no choice but to take out a substantial loan – or not to get a degree at all. Another option is taking out a part-time job, in order to reduce the amount of money they have to borrow, but this of course impacts their studies.

Currently, support for the loan system is diminishing in the Dutch parliament. Parties previously in favour of the reform are now arguing for a return to the previous structure or an adaptation of the new system. Student organizations are expressing concerns, especially for students who are struggling to keep their heads afloat. Education in the past was reserved for the elite, something the modern generation is proud to have turned around. Nowadays, student loans are holding back less financially privileged young people, giving those from wealthier families a head start. It will be interesting to see how this debate progresses and what changes will be adopted. Hopefully any upcoming solutions will be a more promising fit for the long term.

Written by Charlotte Seijger