The increase in interest rates on student loans: Five questions
The National Union of Students and FNV Young & United are holding a protest today at the House of Representatives because of the increase in interest rates on student loans. What is going on? And is such an increase actually allowed just like that? Five questions.
What’s going on?
From January 1st, 2024, the Ministry of Education, Culture, and Science will raise the interest rate on student debts. That interest is linked to the interest the government itself pays on loans on the international currency market. Due to inflation, that interest rate has risen sharply, meaning that students who repay their study debt within 15 years will face an interest rate of 2.95 percent (now 1.78 percent) starting next year. For students repaying within 35 years, the interest rate is 2.56 percent (now 0.46 percent). The new interest rates are the highest in 14 years - interest rates were actually at 0 percent from 2017 to 2022 - and for some students and graduates, this means that their study debt will be thousands of euros higher.
Who does this apply to?
About 1.6 million current and former students have study debt. Students who stop their student loans after graduation enter the “run-up phase” from the following January 1st: a two-year period during which they do not have to pay anything back. The interest rate will be fixed for five years starting from that run-up phase.
So those who graduate now and enter the run-up phase beginning 2024 will pay the new interest rate for five years. For repayers, the interest rate only goes up when their new five-year fixed rate period starts in 2024.
Here’s how it works: you graduated in 2016 with student debt. In 2017, the run-up phase then started and the interest rate was fixed for five years: the interest rate was then 0 percent. From 2021, the new fixed-interest period began, and the interest rate was fixed at the then prevailing interest rate: 0 percent. In 2026, the rate of the new fixed-rate period will be determined. It may remain the same, or it may be higher.
Some of the students who are now affected by the higher interest rate are part of the so-called “unlucky generation” from after 2015: the group of students who fell within the social loan system and thus did not receive a basic grant. Education Minister Jet Bussemaker stated at the time that loan fears were absolutely unnecessary because students could borrow under favorable conditions.
As of this year, students are receiving a basic grant again. As a result, the number of borrowing students has decreased by more than 90,000, according to the Education Executive Agency (DUO). The total Dutch student debt last year was €28.2 billion, an increase of 1.7 billion compared to the previous year.
This time last year, college and university students were still furious that the interest rate would increase from 0 to 0.46 percent on January 1, 2023. Student organizations said they were concerned about the financial position of (graduate) students.
Prime Minister Rutte said at the time that he saw no benefit in an interest ceiling and that he saw no possibilities to further accommodate students without a basic grant. “That whole social loan system was fine by me, from my personal perspective,” he said. “You don’t repay anything when you get on welfare. When you start earning well, you start paying off according to income.” He also warned of the high cost - billions - of raising or lowering the interest rate.
Some students managed to get around the higher interest rate for a while with a trick: they stopped repaying their student loans in early 2023 to lock in the low interest rate for five years because even then the expectation was that interest rates would continue to rise.
Can interest rates be raised just like that?
Good question, and also one that experts are currently considering. Legally, the interest rate on the loan may be increased or decreased, but consulting firm Legal Advice Wanted, which previously started lawsuits over student energy surcharges, still wants to file a case against the Dutch government. The agency argues that students have been insufficiently informed about a possible increase in interest on student debt. According to the consultancy, the government has not fulfilled its obligation of responsibility for care.
How are politicians responding to students’ concerns?
D66 and SP have proposed setting the interest rate on study debt of the “unlucky generation” at 0 percent, but that costs too much money, according to outgoing education minister Dijkgraaf. He said he well understands the concerns but also stated that it will cost a lot of money. He also said systems in DUO would then have to be adjusted, which could not be done before 2026. GroenLinks wanted to freeze the interest rate for at least the coming year at the current rate of 0.46 percent, but Dijkgraaf sees no room for this in the education budget and no chance of adjusting the law before the end of this year.
What do students want to achieve with the protest?
The National Student Union (LSVb) is angry because the “unlucky generation” has never received adequate compensation, according to the union. The interest rate hike would have a “devastating effect” on students and former students, writes president Elisa Weehuizen in a statement. “Both students and parents are letting us know in large numbers that this interest rate increase is the straw that breaks the camel’s back.” The union also points to broader problems than just interest rate increases: “National student debt is rising, rents are shooting through the roof, tuition is rising, I could go on and on. [...] We demand a cancellation of student debt and a permanent increase in the basic scholarship. The current situation is simply unlivable for students.”
President Yasmin Ait Abderrahman of FNV Young & United also calls the anger of the (former) students justified. “This is about an entire generation that will never be able to buy a house or even build a financially secure future on their own because of this increase in interest rates, while the same government assured them at the time that borrowing would be safe. Therefore, that interest rate must go back to zero.” Asva student union, based in Amsterdam, also expressed criticism in an opinion piece on Folia. “The unlucky generation has fallen victim to a financial experiment, for which the government is now unwilling to provide adequate compensation,” President Izabella Voortman and Vice President Ilona Polle wrote in the piece.
During the protest, the activists are addressing political parties that have the opportunity to reverse the interest rate increase after the elections. A petition by the activists has now been signed more than 140,000 times.
The interest rate protest will take place this afternoon at 2:00 p.m. at the Lower House in The Hague.
