Everything you ever wanted to know about student debt

The other day, she saw someone on television win €10,000 in a lottery, says 24-year-old Ylke van der Zwet. “And I thought: wow, that’s a lot of money! But if I were to win that amount of money, I would still have tens of thousands of euros in student debt. That’s when it really hit me how high my debt is. I think many students don’t realise it yet, but it really does become a mental burden later on.”

Van der Zwet is still studying. She already has almost €40,000 in student debt and expects to end up with around €60,000 in total. She started a bachelor’s degree in astronomy in Leiden in 2016 and is now following a two-year master’s in Communication Design for Innovation. But she has been struggling with a burnout for a year and a half and is seriously behind in her studies.

“I felt the pressure to constantly achieve high results and do other things besides my studies.” She is a member of the PvdA youth movement and was an ‘ambassador’ for her course of study. “I hardly had any time to relax. The only thing I did was play a bit of korfball, and then corona came along and that stopped too… I wore myself out.”

She then got back on her feet, but a month ago things went pear-shaped again because she had once more joined a small board for eight hours a week. “As that wasn’t on my CV yet.” She is now functioning at about 20 per cent, she estimates.

And what about her financial situation? Actually, it is not all that bad. Her parents pay her tuition fees and she lived at home for the first few years. She also borrows €750 per month, out of which she pays €430 in rent (“I live very cheaply”). The rest is for shopping, clothes, personal care, fun things and ‘saving a bit so I have a buffer’. She rarely goes out for a drink in a bar. She has an annual museum pass for exhibitions and a Cineville pass that lets her go to the movies as much as she likes.

“Now I’m worried that a basic student grant will soon be introduced and I will not be entitled to it because I have been studying too long.” She hopes there will be good compensation for missing out on the basic grant. “€10,000 would make a huge difference.”

€10,000, that is as much as the winner of the lottery is getting. It is also roughly what she has missed out on in basic student grants, she has worked out. Meanwhile, she is looking to the future with some apprehension. With the debt she has at the moment, she suspects it will not be easy to buy a house.

The highest amount of student debt is €199,410.17. This is evident from a file that the HOP requested from DUO, the student finance agency. However, such an excessive debt is an exception.

DUO has provided us with a ‘picture’ of student debts in March 2022. These are the student debts of everyone who has to repay them. Some have been repaying them for years; others may have only just started. This includes not only higher vocational (HBOers) and university students, but also intermediate vocational students (MBOers).

There are 1,560,289 borrowers in total, which is 220,000 more than in 2016. Almost half are less than €10,000 in the red at DUO. These can be relatively small amounts: four percent have less than €500 outstanding.

On the other hand, one in five of those who are repaying their debts (316,000 people) has a debt of more than €30,000, and the spread among this group of people with high debts is enormous. More than 100,000 people owe at least €50,000 to DUO and 1,000 of these even owe more than a €100,000.

How do you end up with such a high amount of debt? You can borrow over €500 every month, and even over €900 if you are not getting a supplementary grant. The tuition fee allowance is now €90 (half the tuition fee) and in normal years it is €180. Let’s say you borrow a €1,000 a month. If you do that for seven years – for example, for a medical study with a one-year extension – you can easily end up with a debt of €84,000.

What about the outliers above €100,000? You have to make maximum use of all the available options, says a DUO spokesperson. For example, after completing your (HAVO) secondary education, you can study for years at an intermediate vocational college (MBO) on a student grant without obtaining a diploma, and then start an expensive private university course for which you can then apply for an extra tuition fee allowance (because you can). If you take out the maximum loan for year upon year, the amount can increase exponentially. And if you do not graduate in the end, you have to pay back everything, i.e., the basic student grant, supplementary student grant and the OV public transport card.

And last but not least: this amount increases even more if you fail to pay it off. Then fines pile on top of that and the bailiff pays you a visit. DUO cannot say anything about that single highest debt of almost €200,000 for privacy reasons, but this is more or less how it went down.

With the disappearance of the basic student grant, students are borrowing more. On average, they borrow €600 per month when they go to university, and €520 when they go to a university of applied sciences – if they borrow at all.

After all, not everyone is knocking on DUO’s door. Previously, 40 percent of university applied science (HBO) students did not borrow anything.  When the basic student grant was abolished, this dropped to 30 percent among the first batch of students (who started in September 2015). This is still a large group of non-borrowers. Nothing has changed at the university. With or without a basic student grant, one in five students does not want to borrow any money.

High debts have become more and more common amongst other types of students. One in four first-year university students had more than €40,000 in debt five years later. The same applies to one in nine university of applied sciences students. This was considerably less in previous years (around 16 percent in universities and 7 percent in universities of applied sciences).

The average student debt – excluding non-borrowers – rose by about €5,000 to over €24,000. Academic university students (€29,235) borrow more than students at universities of applied sciences (€21,637). These debts may increase even more as some are still studying.

How long do you drag a student debt around with you? If you have the money, you can pay it all off in one go – if you feel like it. But how long should it take? Here are all the rules.

The first two calendar years after you graduate, you do not have to pay anything to DUO. So, if you graduate today, you will only start paying off your debt in January 2025. You are allowed to take 35 years to do that. Moreover, you may stop repaying for 60 months (a total of five years) if it is not convenient.

In other words, that amounts to 42 years and a few months. For example, if you graduate at age 24, you can continue to repay until you reach the age of 66. Only then is the remainder, if any, waived. Paying it off until you retire? That’s right, in principle.

How much will you pay then? With an interest rate of zero percent, it is very straightforward. If you owe €30,000, divide that by 35 multiplied by 12 months. So, you would then be paying back €71.43 every month.

But DUO also takes your income into account. In this example, if you earn €40,000 gross per year, the monthly amount will drop by €10. If you earn €30,000, the monthly amount you repay will drop to less than €30 and if your income is €22,930 (just over €1,900 per month), you do not have to pay anything.

Do you have a partner? Then both incomes count, as do both student debts. Therefore, you cannot say: ‘What have I got to do with his/her debt?’  You are partners where repayments are concerned.

Because of the new loan system, a frequently heard criticism is that you can no longer buy a house. Is that true? We ask financial specialist Karin Boog of the Dutch Home Owners Association.

Let’s state the obvious: student debts are nothing new. When students were still receiving a basic student grant, they could borrow money. The conditions were less favourable then: you had to repay the debt with higher monthly instalments within 15 years.

The effect on the mortgage? Debts under the old system carried twice as much weight when it came to a mortgage. An ‘old’ DUO debt of €10,000 meant a mortgage of €19,000 less. “With commercial loans it is even worse”, Boog warns. “If you borrow €10,000 for a car, for example, your maximum mortgage is easily €50,000 lower.”

In the new loan system (from September 2015), you will no longer receive a basic student grant, but you can borrow under more favourable conditions: repayment is possible over 35 years and the monthly amount is lower. A debt of €10,000 translates into a maximum mortgage of €10,250 less. That is almost a ratio of one to one.

When were you better off: In the era with or without a basic student grant? That depends. Are you borrowing a lot or not so much? In the old system, your debt would have been lower, but in the new system the conditions are more favourable. There is a tipping point. Anyone who has to borrow a lot is better off under the new system than under the old one.

You can do the on the website of the Dutch Home Owners Association. If, for example, you miss out on a basic student grant of €14,000 (four years of living expenses) and borrow an additional €17,000, you will end up with a student debt of €31,000. Your maximum mortgage is then slightly higher than that of a former student with a basic student grant and a loan of just €17,000.

Yet student debt is actually a relatively small problem compared to the rapid rise in housing prices that is continuing unabated. Just 10 years ago, the average house cost €227,000. “In the last months of 2021, the average house price was more than €438,000 and new construction is even more expensive”, Boog points out.

There is a solution: you can choose not to disclose your debt. This is possible because student debts are not registered with the Netherlands Credit Registration Agency (BKR), unlike all other debts. The four political parties in favour of the loan system and most other parties do not want this.

A money lender has to take your income into account. If your monthly costs are too high, you may not be able to pay your mortgage and end up in trouble. These rules are there to protect you and at the BKR, money lenders will check whether homebuyers are withholding anything.

However, you can lie about student debts. “Don’t do it”, says financial specialist Karin Boog of the Dutch Home Owners Association. It is fraud and it can have all kinds of consequences. In principle, money lenders can even demand the mortgage in one lump sum if they find out. “Although I’ve never heard of that happening.”

But then again: if you do get into trouble, a money lender can play hardball. If you have not disclosed your student debt, you cannot count on any compassion. The National Mortgage Guarantee (help with payment problems for houses valued at up to €355,000) also ceases to apply.

Moreover, money lenders are increasingly requiring their clients to provide insight into the amount of student debt they owe to DUO. This has also caused a commotion in the Dutch House of Representatives, but it cannot realistically be prevented.

Opponents of the current loan system like to bash the VVD party: the liberals are the only ones who still consider the basic student grant to be nonsense and are not in favour of compensation for ‘unlucky students’. But once upon a time, a majority was in favour of the loan system. It was introduced in 2015 by a coalition government of the VVD and the PvdA, with political support from the then opposition parties D66 and GroenLinks.

The idea was: highly educated people have a better chance of getting a job and a good salary than others, so why should the government spend so much money on them? That money would be better spent on improving the quality of education.

For the VVD, it was a step towards the liberalisation of education: you pay for it yourself and you also profit from it yourself. For the left-wing parties, it was a question of levelling things out: less money is spent on people who can actually pay for it themselves. People just had to get over their ‘fear of borrowing’.

The loan system never became popular and GroenLinks was the first party to abandon it in 2019, thanks to Zihni Özdil, a member of parliament who took no notice of party discipline and. “A loan system undermines everything democracy and civilisation stand for”, he said. Later that year, he broke away from his party, where Jesse Klaver, the architect of the loan system, had led for some time.

The mainstream CDA party is also playing a key role. The Christian Democrats have always been opposed to the abolition of the basic student grant, but have in the past argued for higher tuition fees (which would amount to almost the same thing) and the long-term study fine (an increased tuition fee for students who delayed their studies by more than a year).

Beginning in September 2023, the basic student grant will be reinstated. Minister Dijkgraaf is expected to outline the details shortly, but we already know what it will cost: €1,000,000,000 per year. This amount has not come out of the blue. According to the Ministry of Education, Culture and Science, it will enable a grant to be paid both to people living away from home and those living at home.

In any event, it will be a grant subject to performance. You will only be entitled to a student grant if you get a diploma; otherwise you will have to pay it back. The same applies to the supplementary grant. It is meant as a big stick: just make sure you get your degree, otherwise you will end up with a higher student debt.

The changeover is bound to be interesting. What if you are a first-year student now? What will happen in September 2023 when you start your third year? Will you still get two years of study financing, or four years? Or nothing at all? We will have to wait and see. The Netherlands Association of Universities of Applied Sciences warns that prospective students will take a gap year en masse so that they can take advantage of the new student grant starting in September 2023.

In the meantime, previous crops of students are sadly witnessing how their predecessors got student grants and their successors will also get them, while they fall somewhere in between the cracks. And thanks to corona, their university education was also disappointing. They would like to receive compensation, but that is not going to happen. The government is only talking about a ‘concession’ and has earmarked €1,000,000,000 for that purpose.

Dijkgraaf also still has to flesh out the details of that concession, but it will amount to €1,000 to €1,500 per student. “Students for whom no basic student grant has been available will be able to choose between a reduction in their study debt or a study voucher”, the coalition agreement states. But does that only apply to graduates, or to everyone who has student debt?

Even the most meagre compensation would have cost €1.4 billion, according to officials, and this is a further 400 million under that. Student organisations will continue to fight for a better deal and Finance Minister Kaag has not yet completely closed the door, so who knows what the future will bring.

By the way, the first four groups of students under the loan system are already receiving a similar concession: a study voucher of €2,000 which they can use to pursue extra education for five to ten years after graduating.

Illustrations: www.freelogovectors.net. Editing: HOP.