Minister scraps 2.5 percent cap on student loan interest

During coalition negotiations, D66, VVD, and CDA agreed that students would never again pay more than 2.5 percent interest on their loans from DUO, the student finance provider. At the time, they estimated that this “interest rate cap” would cost just €40 million per year starting in 2029.

However, the measure is now expected to cost four times as much: €160 million. On Thursday, Minister Letschert sent a letter to the House of Representatives outlining her concerns. On closer examination, she considers the interest rate measure too expensive and too risky, and therefore “unwise.”

Another factor is the growing pressure on her budget, partly because other ministries are reversing or postponing budget cuts. It was previously announced that the Ministry of Education, Culture and Science (OCW) could face a potential €1.2 billion cut. The ministry’s civil service workforce must also be significantly reduced.

A promise to students

Making it easier for students to make ends meet was a key promise of the government. Student organization ISO is therefore “disappointed,” it said in a press release. The National Student Union is “furious”: without a cap, students can never know how much they will ultimately have to repay.

But an interest rate cap carries significant risks. The government must also borrow the money it lends to students, doing so on the capital market. If market interest rates exceed the cap, the government loses money.

The coalition had assumed an interest rate cap of 2.5 percent and a government borrowing rate of 2.7 percent. This would have cost around €40 million. But the interest rate now appears to be rising to 3.3 percent, Letschert writes, which would make the measure four times as expensive.

Risk

Interest rates have also been higher in the past. In 2008, they reached 4.1 percent, and in 1992, they exceeded 11 percent. Rates like these would now cost the government between €320 million and €1.7 billion.

In addition, a maximum interest rate could encourage students to borrow more. If the interest rate charged by DUO is much lower than the rate on savings loans, students could even make a little money from their loans.

Questions and criticism

Still, it is understandable that students are disappointed. The coalition had also promised to increase the basic student grant for students living away from home by a few dozen euros starting in 2027. That increase has been postponed until 2028, Minister Letschert wrote to the House of Representatives a few months ago.

Scrapping the interest rate measure will undoubtedly prompt critical questions from politicians. Parliament is set to discuss the education budget next week. Going back on promises like these rarely goes down well.

Letschert appears to be anticipating that reaction. In her letter, she writes that, “unfortunately,” the €40 million set aside for the measure is not enough to establish a useful interest rate cap. However, she now has €40 million available. Perhaps the House of Representatives can come up with another use for the money, the minister suggests in her letter.

This article was translated using AI-assisted tools and reviewed by an editor.