A couple of weeks ago, Dutch students were hit with an extremely unpleasant surprise: not only did the current generation of students miss out on the “basisbeurs”, but they will also have to pay interest on their student loans! Luckily, there is a little loophole students can exploit to keep the damage to a minimum!
“In recent years, the interest rate has remained at 0%. With effect from 1 January 2023, the interest rate charged to all students will increase. For HBO and university students covered by the loan system, the interest rate for 2023 will be 0.46%.” DUO (2022). When you stop your loan in 2022, the interest rate will be determined based on the interest rate of the following year (2023). This means that, for a student loan terminated in 2022, you will pay 0,46% compound interest (that is, interest on interest) on the debt you had on 31 December 2022.
Every year in February, DUO checks which students received full study funding in January, that is, a student loan, the student public transportation subscription, and optionally an additional grant. DUO sees the study funding of students who did not receive any in January as a completed unit. In other words: students can split their loans in two by not lending in January, even if they are still studying. From February onwards, the loans can continue.
How does Student Loan Repayment Work?
It is not necessary to start repayment directly after finishing your studies. If you terminate your student loan, a “start-up phase” (in Dutch: aanloopfase) begins. This is a period of two years during which you do not have to start repayments. The interest rate will be determined for five years, starting from the start-up phase. This is called a “fixed-interest” period.
Are you going to start studying again during the start-up phase? Then the start-up phase will be temporarily paused, even if you do not receive any study funding anymore. After the start-up phase of two years, the repayment phase will begin. From then on, it is mandatory to make monthly payments.
Consequences for the Start-Up Phase
If you terminate your study funding as of January 1st 2023, this means that your start-up phase starts in January 2023. Since the interest rate for the next five years is determined at the start of the start-up phase, it will be 0,46%.
Be aware that, if you continue your study funding as of February 2023, this will be seen as a new loan, which means that it will also know its own start-up phase. This does not affect the determined interest rate of 0,46% of the first part of your loan.
How to Temporarily Terminate Your Loan
Most importantly, you have to make sure that you do not receive any study funding or additional grants in January 2023, i.e. that you terminate your loan as of January 1st 2023. Furthermore, you have to terminate your student public transportation subscription no later than December 31st 2022 at one of the NS machines. This is because you cannot travel with it anymore from January 1st 2023 onwards.
Halfway through January, you have to reapply for a continuation of your student loans for February (in Dutch: hervatten). This way, you will receive study funding again as of February. DUO sees this as a second loan, with its own interest rate. The interest rate of this second loan is determined by the interest rate of the year you stop this second part of your loan, which means it is presently unknown.
This all might sound very abstract, so I’ll give you a little example about this trick. Suppose you currently have a debt of €26.250, and you plan to graduate in 2024 with a debt of €30.000. Then, if you do not use this trick, you will have to pay the interest rate of 2024 over your entire debt until 2029, when the interest rate will be determined again. Note that it is expected that in 2024, the interest rate will be higher than 0,46%.
However, if you use this little splitting trick, you will only have to pay 0,46% interest over the debt you currently have, €26.250. As for the remaining €3.750, you will have to pay the interest rate of 2024, which is yet to be determined. However, suppose that it will be 2%, then you would have to pay €600 in interest if you do not split your loan in two, and only €195,75 if you do. In other words, a benefit of €404,25!
It is important to note that this is beneficial if you already have a large debt now and the interest rate in 2024 is higher than 0,46%. Experts expect that the latter will be the case, as the interest rate of your student loans is based on the interest rate the Dutch government has to pay on her national debt. However, we cannot say if this will be beneficial in, for example, 2028; it could very well be the case that the interest rate in 2028 is higher than that in 2029 or that the interest rate in 2033 is higher than in 2034. Therefore, this trick might work against you in the long run, but it could just as well be beneficial; you could see this as gambling on interest rates. In the short run, though, it is highly probable that this trick is beneficial, given the expected increase in nominal interest rates.
It is also important not to forget that not receiving study funding means having to pay a whole month of living expenses by yourself. Thus, it really depends on your personal situation whether this is feasible, let alone beneficial for you!