Installments on student debt: what should you take into account? – Radar

Your study days are the best time of your life, people say, but they are also valuable. Uncle DUO is not a sugar daddy: As soon as you stop studying, you could be left with tens of thousands of euros in student debt. You face all kinds of choices: is it better to use your money to pay off faster or to invest? Do you have to pay off your loan so you can get more mortgages or do you have to save up for your relocation costs? Radar knocks on the door of a financial advisor.

The collective student debt in the Netherlands is greater than ever. The counter stands at no less than 24.4 billion euros, a figure that has been rising for years. All that debt is distributed among 1.6 million Dutch people, who have an average loan of 15,200 euros in their name. It’s a considerable amount and you have quite a few years to pay it back: 35 years if you started studying from 2018, 15 years if you started between 2012 and 2018. If you have not yet started repaying and meet certain conditions, you can ask DUO if you can switch to another repayment plan.

That long time means you can make a multi-year plan to repay your debt. Which strategy should you choose? What should you take into account?

Is it best to pay off your student debt as soon as possible? Or use the whole term?

It depends on what your plans for the future are, answers financial advisor Jeroen Drent van Zicht, risk and insurance advisors. He emphasizes: ‘There is no single answer, there are too many variables that are crucial.’ Think, for example, of 0 percent in interest that you now pay on your student debt. After graduating, the interest rate is always fixed for five years, so it can rise, warns Drent.

And what about inflation? Money has become a little less valuable in recent decades, so your 15,000 euros in debt may be worth less in fifteen years. Doesn’t that mean a slow payback? ‘Probably not,’ says Drent, because higher inflation is usually accompanied by higher interest rates. The benefit of inflation is then offset by a higher interest rate. Drent also points out that money can also become worth more, so-called deflation. It’s a risk. “It’s not a strong argument to leave a debt based on inflation that is uncertain,” he says. He recommends discussing options with an advisor.

Whether you have to pay faster also depends on whether you have other loans, says Arjan Vliegenthart, director of Nibud. In a conversation with RTL, he recommends that you always first pay off the loan you pay the most for.

Extra repayment or investment?

You can not invest every euro you spend to pay off faster. Can’t you try to grow your money with investments so that in ten years you have more money and can pay off your debt more easily?

‘Is investing the right thing for you?’ says Drenthe. According to him, one should ask oneself whether one knows the risks of investing well. And if you have enough discipline to actually use the money you put aside to pay off debt. “Shouldn’t you use it for other things when it suits you?”

How Your Student Loan Makes A Mortgage Loan Harder

Your loan with DUO means that you can get a smaller mortgage loan. Drent says that in the old system you get about twice as much debt in mortgages – a debt of 15,000 euros means 30,000 less in mortgages. In the new system, the reduction in the mortgage is approximately equal to the size of your debt.

It is good to know that banks do not take into account your regular repayments; they calculate with the starting amount of your debt. However, Drent states that you can change your repayment plan by making an additional repayment on your loan. Some lenders therefore give you more borrowing capacity. If you want to take out a mortgage shortly after your studies, you can therefore consider paying it off quickly.

At the same time, you can not use the money you repay with the costs associated with the house you are moving into. Think about the transfer fee, registration costs, moving costs and furnishing.

Use your DUO loan to save

Is it smart to borrow extra so you can create a financial buffer? It seems sensible to have a few thousand euros in the bank, just in case. But, says Drent: ‘I am against the principle of borrowing money and then not using it for something one needs. Ultimately, a student loan is also meant to pay for your studies. ‘

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