Students at the Myllypuro campus of Metropolia University of Applied Sciences in Helsinki on May 15, 2024. LEHTIKUVA

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The beginning of 2024 brought a significant policy change for student loan borrowers in Finland, with raised income limits for interest assistance. This adjustment has allowed a growing number of individuals to receive financial aid from Kela for their student loan interest payments. The increase in interest rates and larger loan amounts has led to a notable rise in the number of recipients.

In February, the income threshold for receiving interest assistance on student loans was increased to EUR 1,589 per month.

This threshold is even higher for borrowers with dependent children, reflecting a tiered system that considers the number of children under 18 in the household. For instance, the income limit for one child is EUR 1,835 per month, and it rises progressively to EUR 2,015 per month for families with three or more children. This policy change has expanded the pool of eligible recipients, providing more substantial support to student loan borrowers.

Borrowers can receive interest assistance if their income falls below the specified limits. This assistance is available when the bank begins charging interest, typically about a year after the cessation of student financial aid. Once granted, Kela pays the full interest on state-guaranteed student loans and any related bank fees, without requiring repayment from the borrower. Applications for interest assistance payable directly to the bank must be submitted by June 5, while those payable to the borrower must be filed by August 31. Detailed application instructions are available on Kela's website.

The impact of the raised income limits and higher interest rates has been dramatic. In 2023, nearly 8,000 individuals received interest assistance, an eightfold increase from the previous year’s 1,000 recipients. This surge underscores the growing financial pressures on student loan borrowers amid rising interest rates and loan amounts.

"During periods of zero interest rates, there was little need for interest assistance. However, the recent increase in interest rates has quickly shifted the landscape, demonstrating the vital role of this assistance," said Ilpo Lahtinen, Senior Coordinator in Kela’s Student Financial Aid Section.

Typical student loan debt for master’s degree holders now exceeds EUR 20,000, with current interest rates between 4% and 4.5%. This translates to annual interest payments of EUR 800-1,000 for these borrowers. Interest assistance provides crucial financial relief, preventing situations where unpaid interest could lead to further debt accumulation.

Interest assistance not only supports low-income borrowers but also mitigates potential costs to public funds. Without this assistance, unpaid student loans could force Kela to cover the debts owed to banks, which would then be reclaimed from the borrowers. In 2023 alone, Kela paid EUR 85 million in unpaid student loans to banks and is currently collecting loans from 26,600 individuals.

"Interest assistance is crucial in preventing defaults and managing public expenditure efficiently," Lahtinen added. "It ensures that borrowers can manage their repayments without the burden falling on public finances."

With over half a million customers holding student loans and a total loan volume of EUR 6 billion, the importance of interest assistance is clear. This financial support mechanism plays a pivotal role in maintaining the stability of student loan repayment systems and supporting the financial well-being of borrowers across Finland.

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