The student loan stock has continued to grow rapidly. In January 2024 it had already reached €6.2 billion, more than double the amount after the 2017 student financial aid cuts. As a result of rising interest rates and an increase in the loan stock, the interest rate risks on student loans have become high, affecting students’ income security and their ability to study full-time. In August 2024, the amount of the state guarantee for student loans will increase from €650 to €850, meaning that loans will have increasing weight.

Interest rate risk has a considerable impact on students’ income security and study opportunities. Students have no financial control over their own debt burden, as student loans currently cover 75% of student financial aid. As a consequence, many students have to take out loans to buy food and pay their rent.

The National Union of University Students in Finland (SYL) favours two complementary measures to improve the security of student loans:

1. Interest subsidies for student loans provided by the state

Interest rates on student financial aid have already risen to 4.5%, meaning that students end up paying thousands of euros in interest. In addition, the interest accrued on the student loan during studies is capitalised as part of the loan, which further increases the student’s debt. Students have no control over the accrual of interest on the student loan during their studies, which is why it would be reasonable for the state to bear part of the interest rate risk.

SYL proposes an interest subsidy model for interest rate protection whereby the state would reimburse 70% of the interest rate above the 3% or 4% threshold directly to the bank. The interest subsidy would apply under the same time-based constraints as the capitalisation of student loan interest under the Act on Financial Aid for Students, i.e. during the terms in which the student is drawing student financial aid and in the term immediately following such a term.

2. Conditions for interest allowance are being developed

SYL sees a need to improve the terms of interest allowance to provide better protection for low-income student borrowers who are having difficulty in repaying their loans. For example, the current earnings limit for interest allowance is €1,589 per month for a student without children, and €1,902 per month for a student with two children. If the earnings limit is exceeded by even one euro, the person is not entitled to interest allowance. Loan servicing costs can run into hundreds of euros, taking a large part of a student’s income.

The interest allowance is currently available for five six-month interest periods. For some students, the loan repayments start while they are still studying, and it can take time for new graduates to find work in their field. For this reason, the interest allowance should be available for a longer period.

SYL proposes that the interest allowance earnings limit be raised from the current level by 30–50%. In addition, the duration of the allowance should be extended from five to ten academic terms. The application and payment procedures should be changed so that the total allowance could be paid at the same time as the interest is due, instead of retroactively every six months as is currently the case.

Taken together, SYL’s proposals would significantly improve student loan security and prevent a spiral of student debt.

Further information:

Aino Halinen
Board member
044 906 5007
aino.halinen@syl.fi

Sonja Naalisvaara
Social Policy Adviser
sonja.naalisvaara@syl.fi