Student loans rise to record levels

In , although tuition is free and study scholarships are granted by the , many students still opt for student loans to cover extra living expenses.

The total value of state-guaranteed student loans rose to about 5.5 billion euros in April, according to the ’s own statistics. Markus Aaltonenan Economist from the Bank of Finland, said that this level breaks records.

"A record number of student loans have been taken out. For example, January of 2022 saw the most loans taken out in the history of student loans," Aaltonen told .

The average student debt per student has also increased in recent years. Aaltonen estimated that the primary reason for more students taking out loans is due to its record low . In January, the average interest rate on new loans was 0.09 percent.

"One of the reasons is partly due to the 2017 reform in student Grants that allowed students to take out higher loans afterwards," Aaltonen explained.

Inflation eats away at student buying power

Ilpo Lahtinen, special planner at Finland’s Social Insurance Institution’s () student aid group, clarified that inflation has weakened the Purchasing power of students with study benefits. According to Lahtinen, the early indexation of social benefits presented by the government in May will not save the student situation, given that 70 percent of student benefits come in the form of loans.

Lahtinen added that regular index adjustments would not affect the amount of student loans.

"The last increase in the monthly amounts of student loans was 5 years ago. During this last year prices have risen by more than 10 percent," Lahtinen told Yle.

Lahtinen guessed that in the past five years prices have eaten away 65 euros worth of students’ monthy Purchasing power.

"It may soon become a normal situation in which a student cannot live on study benefits alone, and needs to resort to supplementary income support. This would be unsustainable for everyone involved," Lahtinen said.

Raising rates can raise costs

There may be more issues with rising inflation and interest rates in student debt.

"We currently have more than 10,000 people with a student loan of more than 30,000 euros. The current rise in interest rates is not plaguing anyone, but if there is a four percent increase in interest rates on student loans, this will lead to an additional cost of 100 euros a month in student loan repayments. For someone with a low-income, this is a lot of money," Lahtinen said.

According to Aaltonen student loans, 95 percent of new student loan disbursements are linked to the 12-month Euribor.

"Currently, by the end of 2023, the market will be pricing Euribor at around two percent. In other words, there is an increase in interest rates on student loans," Aaltonen told Yle.

The 12-month Euribor has risen by roughly 0.5 percentage points since the end of April.

However, inflation can make repayment easier

Rising prices are also expected to increase overall wages. If someone that took out student loans becomes employed in line with wage developments, and interest rates do not rise significantly, inflation may lower the real value of student debt.

However, this is not the case if interest rates rise significantly. Lahtinen did not consider the interest rates on loans worth upwards of 30,000 euros to be problematic if the person is employed after graduation. However, future employment trends are difficult to predict.

"Now the war is threatening employment development, but there is not yet a Panic. However, it would be wise for Legislators to consider whether any measures could be taken to increase student loan security. So that even the most disadvantaged graduates do not run into unreasonable problems," Lahtinen explained.

Kela supports low-income student debtors with interest support and in addition students that Graduate on receive a student loan credit from Kela.

Source: The Nordic Page

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