What the cabinet decided

The Dutch cabinet has dropped its plan to cap interest on student loans at 2.5 percent. Education minister Rianne Letschert (D66) set out the decision in a letter to the House of Representatives on Thursday, 22 October. D66, VVD and CDA had agreed the cap in the coalition agreement and reserved 40 million euros a year to fund it. The minister now says that sum is not enough, because keeping the rate at 2.5 percent would cost far more than the reserve. Reported annual costs differ: some reports put the figure at 160 million euros and others at 120 million, while NOS describes the cost as at least four times the reserved budget.

Why the rate is rising

Interest on student loans is set by the government and fixed for five years at a time. Global interest rates have risen, partly because of the war in Iran, and the long-term rate on student loans is expected to climb from 2.7 to 3.3 percent. In early October the Dienst Uitvoering Onderwijs (DUO) raised the rate to 3.28 percent for loans to be repaid within 15 years, while loans repaid over 35 years rose by 0.37 percentage points to 2.7 percent. The rate was set above zero for the first time in years in January 2023, at 0.46 percent, and reached 2.56 percent a year later. That increase led D66, VVD and CDA to agree on a maximum.

The coalition intended the cap only for the current generation of students, so former students of the so-called pechgeneratie, who received no student grant for years, would have been excluded. NOS also reports that a former education minister warned in 2023 that a cap could empty the ministry's budget. If the government's own borrowing costs rise, the ministry has to cover the difference, which can quickly reach tens of millions of euros a year.

Alternatives and reactions

Letschert floats a fixed rate reduction of about 0.2 percentage points, applied whatever the interest rate. At high rates that option could cost more than the 40 million euro budget, because students would repay their loans more slowly. A moving cap is another possibility, which the minister describes as very complex and hard for the target group to understand. She acknowledges that the available budget is too small for a substantial measure that (former) students would actually benefit from.

The Landelijke Studentenvakbond (LSVb) says it is furious and argues that the cabinet is leaving students with a heavy load.

“The only certainty this cabinet grants students is the certainty that interest rates will keep rising in the coming years.”

The Interstedelijk Studenten Overleg (ISO) is also disappointed that the promise will not be kept.

“The coalition made a promise it now cannot keep. Students are once again the victims of empty promises.”

What comes next

Letschert debates the education budget with the House of Representatives next week. Her letter says she wants to discuss the problem with the House quickly. An opinion piece in de Volkskrant argues that the loan rate has stayed below inflation since the loan system was introduced, citing a Central Planning Bureau (CPB) forecast of 3.3 percent inflation this year. The same opinion piece notes that the rate on the pechgeneratie's loans is tied to what the government pays to borrow.