Student loan draw-downs grow 7% in Aug-Sep

Draw-downs of student loans amounted to EUR 230 million in August-September 2018, which is seven per cent more than that in the corresponding period of 2017, said the Bank of Finland in a press release.

Student loans are typically drawn down at the beginning of the autumn semester, in August-September, and at the beginning of the spring semester, in January.

The growth in the stock of student loans has picked up markedly since 2013. The annual growth rate of the stock was well over 20 per cent in January 2018 and has remained almost unchanged throughout the year.

The upward trend in student loan draw-downs reflects low interest rates and the reform made to the student financial aid scheme. In September 2018, the interest rate on fresh student loan draw-down was exceptionally low (0.48 per cent). The student financial aid scheme has also been adjusted with incentives for students to take out a loan and graduate faster.

Namely, the maximum amount of government guarantee for student loan was raised in 2014 and 2017, and a student loan compensation system encouraging faster graduation was introduced in 2014.

Despite the brisk growth in the stock of student loans, the stock of claims on government guarantees has contracted slightly. Claims on government guarantees are amounts owed by students under the loan guarantee scheme, i.e. loan amounts which the Social Insurance Institution of Finland (Kela) has repaid to banks in its capacity as the guarantor of student loans and which it later collects from students.

The contraction in the stock of claims on government guarantees may also partly reflect the full capitalisation of the interest due on student loans during the financial aid term. Before the legislative amendment that took effect on 1 July 2014, a student loan could, due to unpaid interest payments, be recorded in Kela’s claims on government guarantees already made during the financial aid term. Repayment of student loans usually begins after completion of studies. The recent brisk growth in the student loan stock may therefore be reflected in claims on government guarantees after a time lag.