In the budget bill presented at the end of last year, it was announced that the interest rate on student loans should be reformed. The then government intended to return in the budget bill for 2023, which has now been done. The government proposes a reformed model for calculating the interest on student loans, here is what it means.
The proposed interest model goes against central parts of the student aid system's basic purposes. The new interest model means that the state pays for the expected loss on the student loans with increased income from the interest. This differs from today's model where student loan credit losses are financed by appropriations in the state budget. With the proposal, the student loan develops in a direction where a greater payment burden is placed on the borrower.
Assignment to CSN
The government commissioned the Central Student Support Board, CSN, to produce a new model for calculating the interest on student loans. SFS were critical in the consultation response and the criticisms from SFS, unions, authorities and others have not been taken into account and the interest rate model will be changed. The change comes into effect at the turn of the year.
Higher interest rates on student loans make the student loan more sensitive to the economic development of society
According to the current interest rate model, the interest rate on student loans is determined annually by the government based on an average of the government loan interest rate over the past three years. The purpose of this interest rate model has been that the interest rate on student loans should be affected to a lesser extent by the economic situation in general.
Sources: Central study support board, Interest for student loans granted after 1988. Government loan interest: historical values, National Debt Office.
In the graph above, SFS can show how the interest rate on the student loans has been regulated against the government loan interest rate over a twenty-year period. Here, the equalizing effect on the student loan interest rate in the current model becomes clear, where sharp changes in government loan interest levels are smoothed out for the interest on the student loan. This equalizing effect has made the interest rate on student loans less sensitive to socioeconomic developments.
The proposal for a new interest rate model that the government is now moving forward with is based on CSN's calculations, where it is calculated on an interest rate increase of 0,5 percentage points. This is therefore a mark-up on the interest rate, while the interest rate model will also in the future be regulated against the government loan interest rate. In the diagram below, SFS has introduced an interest rate increase of 0,5 percentage points on the historical interest rate on the student loans.
Sources: Central study support board, Interest for student loans granted after 1988. Swedish student aid, Assignment to develop a new model for calculating interest on student loans, ADM/2021:489. Government loan interest: historical values, National Debt Office.
The government loan interest rate, in turn, is primarily affected by the state of the economy. In its report on the state of the economy in June 2022, the Norwegian Institute of Economic Research states that the Swedish economy is heading into a recession. We can then expect that the government loan interest rate will increase. The interest on student loans would therefore likely increase in the next few years - even with the current interest rate model. With the new interest rate model, the increase risks being even greater.
The student loan – not an ordinary loan
Everyone with a student loan is affected by a new interest model, but what the exact interest cost will be for the individual after the increase ultimately depends on the size of the loan. A student who takes out a student loan to finance his studies cannot choose between different interest models. The interest on the student loan is basically a different type of loan. It is therefore of great importance that the student loan interest rate is as predictable as possible.
Read more about the new interest rate model in SFS consultation response.