When Interest Rates Reach 0% and Tuition Becomes Free

Recently, I came across an interesting phenomenon. A phenomenon that has been most certainly overlooked due to the extreme media focus on recent cuts to Dutch student grants as of September 2015. The phenomenon I have in mind is the current annual interest rate on student loans in the Netherlands,which at the moment is 0.01%. But let us start from the beginning.

The Netherlands

As a student living on my own budget, I am forced to search for the best source of income; one that will allow me to have both the freedom as a student and one that will pay my bills. Recently this source of income has been through from my activities as an entrepreneur. The experience I acquired and expertise I learned was bundled to create a venture of my own, a venture that I named Study Financing Netherlands. Working as a student in the Netherlands allows me to fulfill the requirements for student finance offered by the Dutch Ministry of Education.

Over 10% of the student population in the Netherlands consists of international students. Many of these students that decide to pursue their university studies in the Netherlands are often backed by their parents. However, when it comes to Dutch students, the case is quite different.

Dutch students are eligible for financing from their Government. Unlike international students that have to meet very strict criteria, Dutch students are automatically eligible for this financing. This financing allows them to make a calculated decision on how much they would actually like to receive (or spend)from the total amount of available financing. As is often the case, students decide to take the entire package consisting of the following parts:

  • Tuition Fees Loan
  • Supplementary Grant
  • Student Loan
  • Travel Product

These four parts allow Dutch students to have quite some financial freedom in addition to free traveling around the Netherlands (travel product). Although the total amount of financing varies from student to student, the average is around €1.000 p/m. Not too bad right?

However, there used to be more; Before September 2015, Dutch students were also entitled to a Basic Grant that averaged around €250 p/m. This grant was recently abolished, following the upper house of parliament’s vote in favor of the move. The media covered this topic in detail, focusing on various events of protests and rising student debts. However, the Dutch media seemed to overlook a quite important number; The interest rate on the loans that is currently 0.01% per annum.

Yes, 0.01% p.a.

This implies that Dutch students can virtually borrow money for free. According to Z24, the low interest rates are likely linked to interest rates of government bonds.

Let’s compare that to the USA, where student loans are a widely discussed topic. From the 2013–2014 to 2014–2015 academic year, actions from the United States Treasury of selling bonds resulted in a 0.8% rise in student loan interest rates. The interest rate on the Stanford Loan reserved for undergraduate students thus increased to 4.66%. That’s 466x the interest rate on loans in comparison to the Netherlands.

What’s more interesting is comparing this loan to personal loans provided by banks. Both loans can be used for personal expenses— you do not have to declare what you purchase with the money. However, the personal loan has an interest starting at 8.9%.

Think Long-Term, Think ROI

A portion of the student loan will definitely be necessary to survive on a student budget. But what about instead of using that excess money to buy unnecessary accessories and overpriced coffees (yes, I’m talking about Starbucks), students would use it as an investment?

As a student of International Business Administration at the prominent Rotterdam School of Management, I try and analyze numbers from an economic and business perspective. A 0% interest rate indicates a lucrative investment opportunity for all Dutch and potentially non-Dutch students.

Deposit a portion of your student finance into an ING savings account with a 0.9% interest rate, and you’re making money without even lifting a finger.

Instead of thinking short-term, Dutch (an applicable international) students should think about their future, the long-term. The sooner you repay your tuition fee debts the better.

So what are you waiting for? Go grab that free money!