Dangers of growing student debt
On September 1, 2015 the Dutch government set up a new system for study financing. The basic grant fell away and all students that did not receive a supplementary grant had to solely rely on borrowing money to finance their studies. This has not only led to less students applying for college and universities, but it has also led to immense financial difficulties for many young starters.
However, the changes in the financial system regarding study tuition are not the only reason for the increase in student debt. Ever since the early 2000’s there has been an ongoing global trend of students borrowing more and more money to pay for their tuition, housing and extra activities concerning their higher education.
One of the reasons student debt is increasing is due to the rise of college tuition over the last decade. It is legally obligated that every year the tuition in the Netherlands will increase according to the yearly inflation, with another 22 euros added onto it. While in 2006 the tuition was still €1,519.- this number has now increased to € 1,984.- which is an increase of more than 30% over the last 10 years.
Looking at the fluctuations in the average increases in salaries one may find that this does not go equally as fast as the increases in college tuition. Since 2010 the average CAO-salaries have only increased by 8,6%, creating an evident gap between the growing debts and the not as fastly growing salaries. This gap is one of the most striking reasons many students are not always able to financially provide for themselves and their families.
There are also social factors playing a part in the global rise of student debts. Research has shown that especially during a time of economic instability women more often choose to put their career aside and start a family instead. When these young professionals decide to start a family instead of a career, their living costs add up and get more difficult to earn back in the future. Since the economic conditions have been quite unstable for the last few decades, this may be a reason why student debts keep piling up.
An inevitable consequence of growing student debt can be seen when looking at the real estate market. When young starters are applying for a mortgage, a concerningly large amount decides not to mention their student debts. Research done by the BKR shows that 39% of the young adults applying for a mortgage decide not to share the details of their student debts.
Banks and other financial institutions do not have insight in debts acquired during the study, because these do not count as debts for consumptive purposes. Due to this omission of important financial details their debts keep packing on. These problems can be resolved when the former-student gets a well-paying job. However, when this does not happen this can lead to major financial difficulties, which is nowadays often happening.
If you decide not to address your study loans, your rights to get an allowance from the Nationale Hypotheek Garantie will fall due if the financial institution manages to find out you have omitted important details. This guarantee can be seen as a safety net, aiding those who have become unable to repay their debts due to unpleasant circumstances. In any way this is especially important for young professionals.
Not only our country is struck with this alarming rise in student debts, the consequences can also be seen in other nations around the world.
One of the biggest examples must be the United States. One of the leading countries in the global economy has just as much or even more problems with student debts than the Netherlands. In 2014 the average costs for one year of studying in the U.S. was estimated to be around $36,564.- (this includes an average of tuition fees and living expenses in all sorts of colleges and universities). Even with the possibility of financial aid that many universities have, this is not affordable for everyone, leading to the necessity to lend money from financial institutions.
The abnormally high costs of studying in a country like the United States led to nearly one in every five American households to have outstanding debts in 2010. In the 10 years between 2002 and 2012 the volume of student loans in the U.S. grew by 77 percent, which is evidently more than in the Netherlands.
On the other side of the world, in Japan, 1 out of 2.6 students was borrowing money to pay for their education in 2015. The situation will probably only get worse since tuitions are increasing and the salaries are not. Japan, among other Asian nations is in the top 3 of countries where most young adults have a college education. And quite simply: more students lead to more debt.
Study for free?
There are, however, also countries which offer English study programs for free or at a relatively low cost. One of the closest-by nations that offers tuition-free universities is Germany. Our east-neighbors even present international students with zero tuition, leading to them only having to pay for their accommodation, school supplies and daily necessities.
Other countries in Europe where students have to pay barely any tuition are the Scandinavian nations Finland, Norway and Sweden. Although the costs for studying are quite low, the student debt is increasing at approximately the same pace as in the United States. This is caused by the high costs for living in for example Sweden, which capital often ranks as the most expensive city worldwide. Due to very low population density, most students have to move out and live on their own, because staying at home and commuting to school is not an option.
In addition to the previously mentioned countries,, in France they normally charge only a small €200.- as yearly tuition at public universities, which is barely anything compared to the Netherlands, and especially when you compare this with the enormous sums students pay to study in the United States.
Are you already considering moving to our German neighbors? Or do you have some helpful money-saving tips? Let us know in the comments!