With the interest rate hike, the government once again proves it has no regard for the plight of students
The government is not meeting its responsibilities when it comes to students, Asva President Izabella Voortman and Vice President Ilona Polle write in an opinion article. “The term unlucky generation is an understatement: this group of students has become victims of a financial experiment.”
The government has announced that the interest rate on student loans will go from 0.46 percent to 2.56 percent. This will be five times higher. For students, this is a difficult new strain on the difficult financial situation they are already in.
The average student debt in 2015 was around €12,000. This was before the introduction of the basic scholarship. By 2022, the average debt has risen to around €16,400, with the group of former students who started repaying between the ages of 25 and 30 even reaching an average of €22,900.
Due to the loan system introduced in 2015, student debts are now higher. This also has the direct consequence that the high increase in interest rates hits the group that now has to borrow more heavily. After all, by abolishing the basic scholarship, students were forced to borrow more to make ends meet.
By doing some simple arithmetic, let's see what this increase in interest rates means in concrete terms for students. We take the average student debt of a student in 2015 who has not yet repaid anything: €12,000. With the former interest rate, the student would have to pay an average of €55.20 per year. With the new interest rate, this would come out to €307.20 per year.
But taking the average debt of €16,400 in 2022, a more current and therefore more relevant example, with the current rate a student would have to pay €75.44 in interest each year. With an interest rate of 2.56 percent, this would be €419.84 a year. Quite a difference.
When the loan system was introduced in 2015, the interest rate was still zero percent. The risks of borrowing are named in every other situation. Who does not know the slogan: Borrowing money costs money! Anyone who takes out a loan from a bank will have to deal with many conditions. But when it comes to a student loan, things are suddenly different. This slogan is not mentioned anywhere on the DUO site. Politicians are trying to shirk their responsibility in this. We heard ministers say “students know that borrowing money costs money. They are adults, then you should be able to make your own responsible choices.”
This is too easy to say. The average age of a student is in their early twenties, not an age when you can fully oversee major financial choices. Also, the government has encouraged students to borrow. For example, Jet Bussemaker, Minister of Education at the time and under whose reign the loan system was introduced, said in 2014, “With the new repayment condition, loan anxiety is absolutely unnecessary.”
Clearly, this increase in interest rates is a hard blow to students. Another argument for keeping interest rates low is to counteract the social inequality that has been so prominent in education in recent years. After all, students whose parents could not assist financially logically had to borrow heavily. They had no other choice if they wanted to study. This means that these students are now also hit extra hard by the rise in interest rates: the more you borrow, the more interest you have to pay. Students with parents who have been able to pay for their studies are thus, in total, spending less money studying than students who come from a poor background.
This inequality also continues after studying, such as when buying a house. Indeed, during the introduction of the loan system, it was claimed that study debt would not be taken into account when applying for a mortgage. This is however now the case, unless you lie about your debts, but if this comes out, there are hefty financial consequences.
People often say that the unlucky generation whines. It seems this is an argument for not having to listen to students. The interest rate hike is the latest slap to students in a series of financial setbacks sent their way by the government. This generation no longer gets a basic scholarship, but a paltry compensation of €1,400 which is not even enough to pay for one year of tuition, let alone the average debt of around €15,000. And that is only the average debt. In this situation, the compensation is probably just enough to cover the interest. In addition, apart from the mortgage issue, with the current housing market it is almost impossible to find an affordable house. The national room shortage is already 23,700 and that number threatens to rise to 56,800 by the 2030-2031 college year. We would argue that “unlucky generation is an understatement.
All in all, it is no wonder that confidence in politics is absent among many students. Last week, ASVA, the Amsterdam student union, entered into talks with a dozen officials from the Ministry of Education. In these talks, it became clear that many of the officials have no insight into the situation students find themselves in.
For example, things were said like, “But I paid even more interest in my student days.” Or, “We are just an implementing agency.” And, “Technically, the loan system has not made access to education worse.” The inability to look beyond this one implementation that is linked to so many more factors that are making students financially unable to make ends meet is troubling.
The interest rate hike is a clear example of how the government, instead of coming up with solutions, exacerbates the problems. We can all argue that the loan system has failed. The unlucky generation has fallen victim to a financial experiment, for which the government is now unwilling to provide adequate compensation. The government should see students not as cash cows, but as a financially vulnerable group.
On Wednesday, October 25th, there will be a protest starting at 2:00 p.m. at the Lower House in The Hague.
