‘Free’ Borrowing Seems Over for Students: What Does It Mean for Student Debt? † Currently

The time to borrow “free” money from the Education Executive Agency (DUO) appears to be over. For now, the interest rate is still 0 percent, but that may change from next year. What does that mean for students and their debt? Is it wise to pay off quickly?

The student interest is determined on the basis of other public loans issued by the Dutch government. This interest has been negative for years, so the interest on a student loan was 0 percent. Because of the current economic situation and high inflation, interest on student debt may exceed 1.5 percent in the coming years, fears Interstedelijk Studenten Overleg (ISO).

“By the time students have paid off their tuition debt in full, this could run into thousands of euros. That’s a lot of money, with a lot of worries,” said Lisanne de Ross, president of ISO. AP†

Consequences of high interest rates

DUO spokesman Bert Veil cannot confirm whether interest rates will rise. “It is our minister who sets the interest rate by December at the latest.” The new interest rate affects students who take out a new loan. But also for students who stopped paying their loans this year and for people who have been paying their loans for five years now. For them, interest is recalculated for five years.

Emma Mathan (26 years old) has a student debt of more than 70,000 euros. She took on this debt by borrowing the maximum from her eighteenth birthday. She used it to pay for her studies, rent, and groceries. “It’s a huge amount,” she says. “But it’s not unrealistic if you study for five or six years and borrow every month. A slight increase in the interest rate has a huge impact on the total amount, since even a low interest rate is a lot of money with such a high student debt,” says Mathan. .

However, as the interest rate rises, they do not intend to speed up repayment. “At the moment I invest my income. It comes back with a higher level of interest costs for the student debt. But if the percentage goes up further, I will try to pay it off as soon as possible.”

More and more people with student debt

The number of people with student debt has been increasing since the loan system was introduced in 2015, according to figures from Statistics Netherlands (CBS). In 2014, less than 1 million people had student debt, while in 2021 the average student debt was around 1.6 million (previously) €15,200.

A research conducted by Nybod (2021) showed that more than half of students who take out a student loan are anxious. The concerns mainly relate to the consequences of major financial decisions, such as buying a home. According to De Roos, other issues are now being added, such as increases in rent, energy and grocery costs and an expected increase in tuition fees.

Your student debt counts when you take out a mortgage, says financial advisor Rutger van Rust of Advies van Rutger. “It is good to know that the banks do not take the repaid part of your debt into account. They only calculate the initial amount of student debt. If you choose to pay off in full, it is important to realize that you cannot use the money for other things.”

Pay off student debt or not?

Whether it’s smart to pay off student debt as quickly as possible depends on your future plans, according to the financial advisor. “There is no one answer, it’s different for everyone.” He says that payment should not be made as quickly as possible. “DUO gives you 35. On average, you earn more and more over the years. Paying afterward will be easier.”

There are also students who invest with borrowed money. “That’s a possibility,” Van Royst said. “But it’s a good idea to check if the investment is right for you. You also have to be aware that there are risks involved and that it can often take a few years before you can get a return.”

According to Van Roest, having a buffer is the most important. “You’re using that money for unexpected costs, eg a refrigerator that breaks. So don’t use up your entire balance to pay off student debt.”