Increasing interest rates a threat to those with student loans – a rate cap is urgently needed

The National Union of University Students in Finland (SYL) is concerned about the rapid debt incurrence rate of students and the increase in interest rates on student loans. Therefore, SYL proposes that a rate cap or similar interest rate protection is imposed on student loans to protect students from future interest rate risks.

The European Central Bank (ECB) has just announced a historic decision to increase its key interest rate by 0.75 percentage points. However, the most common reference rate for student loans, the 12-month Euro Interbank Offered Rate (Euribor), has already risen to over 1.9 percent. Only a few months ago, interest rates on loans were around 0.3 percent.

“It is a sign of indifference to the younger generation that there is no interest rate cap on student loans. The best time to have introduced them would have been in 2017, when student financial aid was adjusted so that loans play a larger role. Now interest rates have started to increase, and helping students and graduates is an urgent issue,” says Tiina Pajukari, SYL’s Board member specialising in student financing.

Since the 2017 reform of student financial aid, the student loan stock has doubled to €5.5 billion, with growth accelerating year by year.

Most current university students already expect their personal loan debt to be over €20,000 by the time they graduate. For such large student loans, an interest rate increase of two per cent means an annual cost of €360, an amount that exceeds the monthly amount of student financial aid. The interest on student loans is capitalised and added to the loan amount during studies.

“Students’ concerns about the interest on student loans need to be taken seriously. A debt that grows to tens of thousands of euros is a major burden for a young person who is graduating and who be hoping to buy a home or start a family. Many students in Finland are also weighed down by their parents’ experiences from the 1990s, when interest rates on student loans increased to as high as 12 per cent,” says Pajukari.

Further information:

Tiina Pajukari
Member of the board, National Union of University Students in Finland (SYL)
+358 40 906 5004

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