Student union furious as minister says interest cap unaffordable

Despite a coalition promise to cap student loan interest rates at 2.5%, education minister Rianne Letschert has told parliament that the government can no longer afford to stick to its pledge.

The minister said that capping the interest rate at 2.5% is risky and expensive, and that the €40 million annual budget the coalition had set aside to cover the cap is only a quarter of what it would actually cost – €160 million – and could lead to other cuts in the education budget.

“I understand the concerns of current and former students regarding the rise in interest rates on student debt, driven by global instability and an increase in long-term interest rates,” Letschert said in a statement on Thursday.

“Unfortunately, I must conclude that it is not possible to implement a 2.5% interest rate cap with the €40 million per year that has been set aside. I find this very disappointing.”

Geopolitical costs

Since the coalition agreement was first presented at the end of January, the global landscape has significantly shifted due to geopolitical tensions and financial uncertainty. Long-term interest rates – to which student loan rates are linked – have risen from 2.7% to 3.3% and could climb higher.

“Recent shocks in the financial markets highlight just how unpredictable – and potentially financially risky – this interest rate policy is,” the ministry said.

But students aren’t buying it. “This effectively sends students out into the world burdened by an incredibly heavy backpack of debt,” LSVB, the national student union, told news service ANP. “The only certainty this cabinet offers students is the assurance that interest rates will rise even further in the coming years.”

Student union ISO added that once again, “students are the victims of empty promises.”

Letschert will discuss the issue with parliament later this month.