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Many students graduate this summer and start working. But when paying off their student debt, NU.nl readers sometimes get lost in the details. When is the best time to pay off, considering interest and inflation? Experts advise.
A student debt is a bit more annoying than a few years ago. Until recently, the student debt interest rate was 0 percent. But the interest rate is reset every five years and has been rising since 2023. The exact percentage depends on the year you graduated. See an overview in the frame below.
This is how high the interest on your debt is
“When the interest rate was zero, borrowing was indeed more advantageous,” says Karin Radstaak on behalf of budget institute Nibud to NU.nl. When you take out the loan, you don’t know how the interest will turn out later. It gives some former students stress: who says that interest won’t be even higher in five years? And what if you have less to spend later, but still have to pay off your debt?
That is immediately the main answer to the repayment issue: when it is best to start paying off is very dependent on the moment and your own situation. Radstaak: “It mainly has to do with what you feel comfortable with. If you don’t like having a debt, pay it off as soon as possible.”
Whether that is also financially advantageous depends on several factors. For example, it may be smart to immediately pay off (part) if you have just finished studying. “If you start working immediately, you often still have the same spending pattern,” says Radstaak. On the other hand, you earn more money, but you don’t have a house and children yet. You can relatively easily pay off some money than when you are in a later phase of life and possibly have to deal with a mortgage.
Student loan is the most advantageous
Of all loans, the student loan is still the most advantageous. “You have ample opportunities to pay or not and can choose when to start,” Radstaak explains. Your student debt does have interest, but it is relatively low compared to other loans such as a mortgage.
In addition, the repayment obligation is income-dependent. The less you earn, the less you have to pay. And if you don’t have a job, you don’t have to pay off at all. Furthermore, you can pause the loan if you are temporarily a bit tighter. In short: your student debt is the least important debt to pay off quickly.
“It is also smart to build up a buffer,” Radstaak continues. That offers flexibility: if you save in addition to your repayment, you can always decide what to do with it later. For example, you can use that money for your mortgage or to pay off your debt. “You don’t know how things will go later. Then it’s always useful to have something to fall back on.”
Paying off debt now is not economically wise
And then there is perhaps the most difficult factor: the value of money. You have no influence on that at all. However, you can rationally look at what is economically the most sensible. Many people feel rushed with a large debt and want to pay off as soon as possible.
But economically, that is not necessarily smart, says Aart Gerritsen, associate professor of economics at Erasmus University Rotterdam. “Then you can actually fall behind financially.” Due to inflation, your debt becomes less valuable. Every euro you pay off now is more expensive than the euro you pay off in a few years.
“The interest rate keeps pace with expected inflation,” Gerritsen explains. “If inflation rises, the central bank ECB pulls the brakes by raising the policy rate. Ultimately, that also causes the student debt interest rate to rise.”
But higher inflation generally also means higher wages. Employees want to be compensated for the higher prices. And the higher your salary, the easier it becomes to pay back your student debt.
In short: a rising interest rate seems like bad news for people with student debt. “But it’s not really at all,” says Gerritsen. Ultimately, inflation makes it easier to pay your debt.