With interest rates on student debt rising above zero percent for the first time in years, it’s becoming clear that rates will vary between different cohorts of students. For students in the current loan system, the interest rate will be raised to 0.46 percent, which is slightly higher than previously predicted. As of 1 January, the interest rate will be almost four times higher (1.78 percent) for vocational students and current and former higher education students who still fall under the old system.
Unfair to vocational students
Minister Dijkgraaf feels this is unfair to current vocational students and will soon submit a legislative amendment to the House of Representatives proposing to harmonise the repayment rules for vocational and higher education. The Education Executive Agency (DUO) published the new interest rates in october.
Under the new scheme, vocational students enrolling for the first time in the 2023-2024 academic year will pay the same 0.46 percent interest rate as higher education students under the loan system. Moreover, they will have 35 years – instead of 15 – to repay their debt.
The new repayment rules will not only apply to future vocational students as of 2023-2024, but also to current vocational students, who will be in their second or third year at that time. They will be given ‘transitional rights’, allowing them to choose between the old and new repayment terms. Those who don’t make a choice will automatically fall under the new system, which means their interest rates will be lower as well.
The current loan system’s repayment rules have been in place since 2015, when the government repealed the basic student grant and – in return – adjusted the loan conditions. These conditions were not adjusted for vocational students, who remained entitled to the basic student grant and the performance grant, nor were they adjusted for students in higher education who received a basic student grant for the entire duration of their studies. As such, the old system’s repayment rules still apply to these students.
140,000 students and graduates
The Ministry of Education stresses that the interest rate hike on 1 January 2023 will not immediately apply to all students and graduates yet, as DUO fixes students’ interest rates for five-year periods. For example, those who started repaying their debt this year will continue to pay zero percent interest for another four years. About 140,000 students and graduates will see their monthly repayments go up next year, the ministry estimates.
For a student who falls under the current loan system with a remaining debt of 20,000 euros and 20 years left to repay, an interest rate of 0.46 percent means their monthly instalment will increase by 3.91 euros. Those who still fall under the old loan system will pay 1.78 percent interest, which translates to a 5.16 euro monthly increase.
Student organisation ISO has expressed concern. “This interest rate will not immediately cause serious financial problems right now”, the organisation’s chair, Terri van der Velden, writes in a press release. “However, we do worry about a bleak scenario in which interest rates skyrocket in the coming years.” That’s why Van der Velden is calling for a cap on interest rates for student debt: “It would be a relief to know that the ball and chain you’ll be lugging around can’t keep growing indefinitely.”
HOP, Hein Cuppen