Student loans place a huge burden on American students, and many graduates make the tough choice to delay marriage or home ownership while they pay off debt.
A recent New York Times article points out that elsewhere in the world, student loans aren’t unusual. But in most cases, borrowers of international student loans don’t face the same overwhelming burden that some American borrowers do.
One factor cited in the NYT article is longer repayment terms in countries like Sweden, Germany, and England. In Sweden, for instance, borrowers pay back student loans over 25 years, while the typical student loan terms for American borrowers is 10 years.
We all know that those first few years after graduation aren’t the most lucrative, and unless you’re enrolled in an income-based repayment program your monthly payments will be the same for the duration of your loan, even as your income fluctuates. It’s essentially a mortgage-type payment.
Not so in countries like Australia.
International student loans: Australia, Latvia, and the Netherlands
The government-administered Higher Education Loan Programme (HELP) provides interest-free loans to Australian university students. (Instead of charging student loan interest rates, the loan balance is indexed based on cost of living increases.)
Under HELP, borrowers do not have to make any loan payments until their income reaches a certain threshold ($54,869 for the 2016-2017 income year). Once your income hits that threshold, your repayment rate scales up based on that income.
For instance, if you earned between $54,869 and $61,119, you’d repay 4 percent of your loan. As your income increases, your student loan repayment rate also increases. If your income drops, so do your loan payments.
That means Australians who land high-paying jobs right out of school extinguish their debt quickly, and those whose income remains low enjoy a low student loan repayment obligation.
The Australian government is ending discounts for upfront payment next year, but it currently offers a 10 percent discount for voluntary upfront payments, which incentivizes borrowers to pay off their debt sooner.
“The cool thing that I took advantage of when I was at uni was the incentive to pay off the debt while I was studying and after I was studying,” says Michelle Hutchinson, money expert at personal finance website Finder and a graduate of Macquarie University in Sydney, Australia.
“If you pay some of the debt over $500, you receive 10 percent off. If you wanted to pay your whole debt upfront you’d only need to pay 90 percent,” she adds.
Meanwhile, Arthur Gopak, now CEO and editor-in-chief of Millennial business portal AlphaGamma, earned an undergraduate business degree in Latvia and a Master of Science degree in the Netherlands.
Gopak took out loans to pay for his undergraduate degree and says in Latvia, banks provide loans to students but the government subsidizes the interest so that payments are affordable even in an entry-level job. Compare that to the US’s subsidized loans, which only pay your student loan interest rates for a limited time period.
Gopak says it’s common in Latvia to use the student’s parents’ income as collateral (similar to how some American parents cosign on a student’s loan). “I’m the one paying the loan, but the reason the government does this is, if I cannot pay the loan, then this monthly annuity would be paid from my dad’s income or my mother’s income,” he explains.
For his graduate degree, Gopak was able to study for free after winning a tuition scholarship in an online business challenge arranged by the private university. In addition, he took advantage of a program allowing working students to collect an allowance from the Dutch government.
Can we emulate international student loans in the US?
There’s one important thing to note about the United States’ student loan system. When President Johnson signed the Higher Education Act of 1965 (which provided financial assistance to students and has since been reauthorized and amended numerous times), fewer people pursued college degrees and tuition was much cheaper than it is today.
President Johnson had good intentions in creating these educational programs, but he probably couldn’t have predicted just how expensive college would get within a few generations.
In Australia, the Netherlands, and other international student loans programs for college students, taxes are a larger share of the country’s gross domestic product. Australia, Latvia, and the Netherlands also have much smaller populations than the United States.
“To roll out [a program like Australia’s HELP] across America would be a massive economic impact because of the size of the population and the vast number of educational institutions,” Hutchinson says.
Mimicking international student loans in US programs could lighten the burden on borrowers, possibly leading to more home purchases and other economic benefits — but it would take a large infusion of money first to emulate programs like HELP.
Adds Hutchinson, “The economy will benefit but it would be a medium- to long-term gain if it did that.”
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|