{"id":89384,"date":"2018-09-06T12:02:49","date_gmt":"2018-09-06T10:02:49","guid":{"rendered":"https:\/\/www.erasmusmagazine.nl\/en\/?p=89384"},"modified":"2025-12-19T11:23:05","modified_gmt":"2025-12-19T10:23:05","slug":"interest-rates-on-student-loans-will-go-up","status":"publish","type":"post","link":"https:\/\/www.erasmusmagazine.nl\/en\/2018\/09\/06\/interest-rates-on-student-loans-will-go-up\/","title":{"rendered":"Interest rates on student loans will go up"},"content":{"rendered":"

If the Cabinet\u2019s plan is greenlighted by the House of Representatives, the interest rates on student loans will be going up in the near future. On Tuesday, the Cabinet\u00a0submitted<\/a> a bill regarding the new interest rate to the House of Representatives. The proposal is likely to spark heated debate regarding student loans. We\u2019ve listed six key questions that can help you get a handle on the discussions.<\/p>\n

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Why will the interest rate be going up?<\/strong><\/p>\n

To fill the government coffers. Why sugar-coat it?<\/p>\n

How much will I be paying?<\/strong><\/p>\n

Rates won\u2019t be going up for current students \u2013 the interest hike kicks in for students who start studying in 2020. So the government\u2019s plans may have consequences for your baby brother or sister.<\/p>\n

OK \u2013 so what will they be paying?<\/strong><\/p>\n

On average, the total student debt for future students is estimated to be around EUR 21,000. The average monthly repayment for today\u2019s students is EUR 70. The next batch of students will be paying back EUR 82 per month. That amounts to an extra EUR 144 per year.<\/p>\n

You\u2019re only expected to repay your loan if you can afford it. People with a minimum wage-level income are exempted, for example. That\u2019s why the Cabinet has dubbed it a social <\/em>loan scheme: your monthly repayment never totals more than 4% of your income in excess of the minimum wage. In addition, you have a two-year breathing period before payments start and you are given 35 years to repay your debt. And you have five \u2018wild card\u2019 years in which you can suspend repayments. These arrangements aren\u2019t affected by a possible higher interest rate.<\/p>\n

What\u2019s in it for the coalition parties?<\/strong><\/p>\n

Not much, politically speaking. The opposition is provided with an easy target. And the current government won\u2019t be reaping the rewards of this higher interest rate. The government will be enjoying the first modest increase in revenue in seven years\u2019 time, and it will take until 2060 before extra income from the higher interest rate totals EUR 226 million per year.<\/p>\n

So why are they doing it then?<\/strong><\/p>\n

They say they want to do something about the \u2018interest grant\u2019. If you\u2019re really interested in knowing what that\u2019s about we don\u2019t mind explaining. Right now, the interest rate for student loans is at an all-time low: zero percent. That\u2019s because this interest rate is linked to the interest paid by the State on 5-year government bonds. The problem is that student loans have a far longer term than that: it can take up to 42 years before a debt has been completely settled. That\u2019s why the interest on student loans should be higher than it is.<\/p>\n

In the near future, the government intends to use the interest on 10-year loans as a point of reference. On average, this rate was 0.78 percentage points higher over the past decade than the five-year interest rate. In other words, the proposed increase will slightly reduce the interest rate advantage currently enjoyed by ex-students. According to the Cabinet this move will contribute to the \u2018sustainability\u2019 of government finances.<\/p>\n

What\u2019s the position of the opponents of this plan?<\/strong><\/p>\n

Critics say it\u2019s basically coming out of people\u2019s own pocket. The Cabinet has cut tuition for first-year students by 50% \u2013 which seems a nice gesture at first glance. But students no longer receive a basic grant, meaning that they are forced to take on more debts. Students who have to take out a large loan will ultimately be financing the tuition \u2018discount\u2019 via increased interest payments.<\/p>\n\n\t

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