What are interest rates?

Some people may have forgotten, but normally you pay for a debt. So, you borrow ten thousand euros and over the years you repay eleven, twelve or thirteen thousand euros. And by contrast, you can earn interest from the bank on your savings.

So, the interest rate on student loan debts is zero euros.

Yes, since 2017.

Can’t it stay that way?

Politicians have linked the interest rate to the interest rates that the Netherlands pays on government loans. The more the Netherlands needs to pay for a loan, the more the student pays in interest.

But isn’t that interest rate always low?

Not always. Thirty years ago, the interest rate on student loans was 9.49 percent compared with 3.58 percent in 2008. So, things can change fast. But borrowing from DUO is cheaper than borrowing from a bank.

When will DUO change my interest rate?

For former students, the interest rate is fixed for five years. So, if DUO set your interest rate at zero percent a year ago, it will stay at zero percent for some time, whatever happens in the world.

Negative interest! That still exists.

Yes, in the past, the Netherlands received money on loans. So, people paid money to be able to lend money to the Netherlands. But the interest rate on student loans is never lower than zero percent.

How does DUO set the rate?

That’s linked to the 5-year government loans. The question is still: what was the average interest paid by the government on these loans? In February, this interest rose above zero for the first time and in the past three months has risen to 1.3 percent.

Give us a calculation example.

OK, so pay attention. DUO always calculates from October to October. Say the interest rate rises that year in a straight line from zero to six percent, then the interest rate is an average three percent. Last October, the interest rate was half a percent below zero.

A couple of years ago, students protested against higher interest rates on student loans. What was that about?

So, we need to go back a bit. In the past, students had to repay their debt within fifteen years. However, with the new student loan system, that period was extended to 35 years. Including the run-up and any payment pauses, it might then take you 42 years to repay the loan. The former coalition wondered whether a different interest rate might then apply.

That sounds ominous.

The previous cabinet wanted to apply the interest rate on ten-year government loans. The average monthly sum would rise from 70 to 82 euros and students would pay an estimated five thousand euros in added interest. This would allow the government to save 226 million euros in the long term.

And then the students launched a protest.

Yes, the student loan system wasn’t popular anyway. And among politicians, there was a great deal of resistance to this rise in interest rates via the ten-year loans. The plan finally stranded in the Senate.

Can the senators delay the current rise in interest rate for a while?

That’s not how it works, because this rise is not the result of a new law. So, there’s nothing for the Senate to delay.

And doesn’t the cabinet want to do anything?

Probably not. In September 2023, the basic grant returns and it looks as if the cabinet feels it has been generous enough to students.

EM illustratie 15 nov 2020 Wiersema financien lening budget-03 geld duo studenten money students

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