Student loan interest rate rising: what does that mean for you?

The interest rate on student debt is going up to 0.4 percent, according to an article published last week in the newspaper Financieele Dagblad. 

I’m still studying. How will it affect me?
Your student debt will rise a bit faster. Students do not have to pay any interest yet but if, next year, you have a debt of 10,000 euros, for instance, your debt will be 40 euros higher one year later.

That doesn’t sound very alarming.
No, but interest rates could rise even more and that could add up considerably over the years. More than 100,000 people have now signed a petition against interest rates on student loans. It has been submitted to the Dutch Senate.

I started paying off my loan this year. Will my monthly payment go up in January?
No, it will not go up just yet. The Education Executive Agency (DUO) always fixes the interest rate for five years, so borrowers who are paying off their loan know where they stand. If you started paying this year, then your interest rate is zero percent and will remain so for another four years. Only then will you have to pay a new interest rate.

My debt is big, my salary is low. What can I do?
It’s very likely that it will make no difference. That’s because DUO takes your "ability to carry" into account. If you are unable to pay back the loan in 35 years, the remaining debt is written off. In that case, the interest rate is immaterial.

Can you give an example?
Your debt is 60,000 euros. You are single and you earn 40,000 euros per year. You ought to be paying back 143 euros per month, but that's not possible. Using DUO's calculator tool you can see your maximum monthly repayment: 61.89 euros. So over 35 years you pay 26,000 euros. All the debt and interest in excess of that amount is written off.

I graduated years ago. Is that significant?
If you got your student financing before 2015 and you had a basic student grant, you presumably come under the old student financing system. The law sounds a bit odd, but in that case you pay the same interest rate as senior secondary vocational education students.

So how high will the interest rate be?
According to the newspaper, the interest rate for senior secondary vocational education students is going up to 1.8 percent. Here too, the fixed term of five years is valid.

What is the reason for this difference?
The interest rate on student loans is relatively low because it is linked to the interest rate that the Dutch government has to pay for loans on the capital market. In the case of higher education, the government looks at the average interest rate over the course of a year. The interest on senior secondary vocational education student loans is based on the rates in the month of September alone. The type of loans varies a little too (terms of five years and three to five years respectively).

That's an odd difference.
Now that the basic student grant is coming back, the Minister of Education, Robbert Dijkgraaf, wants to make the loan conditions for senior secondary vocational education students easier as well. They will then also get 35 years, rather than 15, to pay back their debts. Maybe he will align the interest rates too.

Have the new interest rates been confirmed officially?
No and the Ministry is unwilling to do so at this stage. The Civil Service will soon compute the agreed interest rates and only then will the Minister confirm them officially. DUO will then pass on the details to students and borrowers.