In one fell swoop, the five-fold increase in interest on student debt came as a shock to many (former) students. Instead of an interest rate of 0.46, a ratio of 2.56 will apply to higher education from 1 January 2024. This saves around €350 per year for each person with an average student debt of more than €17,000.

Student organizations and educational institutions scream bloody murder. They “promised” that borrowing would be free, but the government is said to have “betrayed” them. There are calls for an interest rate cap to prevent “higher interest rates” in the future.

These are big words that say a lot about the state of panic among students, but they are not necessarily true. First of all: It’s no surprise that interest on student debt is increasing. Since the introduction of the loan system in 2015, it has become clear that the interest paid on student debt is linked to the interest on five-year government bonds of the Dutch government. Education Executive Agency (DUO, or “Uncle” DUO for students). In his communication with students It always emphasizes that interest must be paid on the debt and that the interest rate can vary annually.

Interest rates have been very low in recent years. This was a result of central banks’ policy of increasing inflation. This long period of almost free money didn’t just lull students to sleep.

Because over the past year and a half, central bank interest rates have risen at a record pace in response to inflation, and now to suppress inflation. The result is that many market interest rates (except savings rates) also rose at the same pace.

And now – just like last year – also on student loans. Incidentally, the so-called real interest rate on a student loan is still negative: if the interest rate is corrected for money consumption (inflation), it becomes negative again and the student loan remains very cheap.

So why the injustice? Because the increase in interest rates really hurts: after all, those few tens of euros a month have to be paid in additional interest. In addition, the generation of students who have been under the loan system since 2015 – and therefore did not receive a basic scholarship – feel cheated, because the scholarship has now returned. They accuse the government of being unreliable, and there is something in that. Moreover, they feel trapped because they can barely find affordable housing. They also suffer from high energy bills and expensive groceries.

This may be the case, but it does not detract from the fact that student loan interest follows the market interest rate. Student loan terms and conditions remain generous. It can take at least 35 years to repay, and you never have to use more than 4 percent of your income above minimum wage to repay, and everything that’s left after those 35 years is exempt.

Students are expected to know what they are signing up for when taking out a loan. Borrowing money simply costs money. Financial illiteracy is not an excuse to deviate from the terms of loans.

What remains is that investing in your future earning capacity (i.e. studying) is still the best investment you can make. For the lucky ones, this is possible with the help of parents, through part-time jobs, through scholarships and yes, also through a student loan if necessary. Even with rising interest rates, this is never a stupid choice.