Interest on student debt at highest level in 17 years

Interest on student debt is set to rise to almost 2.7 per cent, according to interest rates over the past year. This is higher than the maximum the government wants to impose.

Be warned: borrowing money costs money. Students pay interest on their student debt, and that starts while they are still studying. At the current rate of 2.33 per cent, a debt of ten thousand euros will have grown by 233 euros after a year.

Next calendar year, the rate is likely to rise to 2.68 per cent – the highest DUO rate in the past seventeen years.

For years, the rate stood at zero per cent. Borrowing cost nothing extra. In 2023, it rose to 0.46 per cent, and a year later the rate jumped to 2.56 per cent. This caused dismay among students who thought borrowing was free.

This month

DUO will officially announce the new rate this month, but you can also work it out yourself. The rate is based on the average interest rate on five-year government bonds from October to October.

Over the past year, it was 2.68 per cent. The figure may differ by a few hundredths of a percentage point if DUO calculates it slightly differently. The rate has not been this high since 2009. In the 1990s, however, rates were considerably higher.

The minority government wants to protect students from rising interest rates. “We will cap the interest rate for students at 2.5 per cent”, D66, CDA and VVD wrote in their coalition agreement.

But this is unlikely to happen until 2029. In the meantime, politicians are urgently looking for billions in spending cuts. The plan could yet be scrapped if the parties have to negotiate again.

Grace period

After completing their studies, students get a two-year repayment-free ‘grace period’. They can take up to 35 years to repay their debt, plus five optional repayment-free years. Those who earn too little pay a lower monthly amount. Any balance left at the end of the 35 years is written off.

All told, the interest can add up considerably. Suppose you repay a debt of ten thousand euros over 35 years at an interest rate of 2.68 per cent. You would pay more than 5,300 euros in interest in total.

For borrowers who are repaying their loans, the interest rate is fixed for five years at a time. Anyone who started repaying in 2023 is therefore still paying interest at 0.46 per cent, and that will remain the case until January 2028. DUO offers a calculator and is working to improve its information about interest.