The government is taking measures to relieve financial pressure on people repaying student loans. The new measures, effective immediately, will decrease interest on all current student loans, increase borrowers’ disposable income, and eliminate guarantor liability for as many as 30,000 defaulted student loans.
Per the terms of the bill, student loan interest rates are reduced from 1% to .4%. A discount of up to 15% will be applied to the borrowers’ loan principal upon repayment. And lastly, guarantor liability on loans that are in default will be cancelled; about 30,000 loans would qualify.
‘This has been a heavy burden’
The measures were announced in a video conference with Prime Minister Katrín Jakobsdóttir, Minister of Education Lilja Alfreðsdóttir, and Minister of Finance Bjarni Benediktsson.
“Graduated students make student loan payments amounting to three to four weeks of their yearly disposable income,” remarked Katrín. “This has been a heavy burden on those who are taking their first steps into the labour market, having children, and getting a roof over their head after the end of their studies.”
The measures also ensure that “the same conditions apply for all people who take loans with LÍN [the Icelandic Student Loan Fund],” noted Bjarni. This is to say that guarantors will not be held responsible for student loans in default. The guarantor system was eliminated for all new student loans in 2009, but guarantors on loans that were taken out prior to that were still being held accountable. This will no longer be the case.
Borrowers’ September income-based loan payments will be lower, continued Bjarni. Childless individuals earning up to ISK 700,000 a month will pay ISK 25,000 less on their income-based loan instalment. Families earning up to a combined ISK 1.4 million where both adults have student loans will pay ISK 50,000 less on their income-based instalment in September. This will impact 45,000 payers.
Measures ‘will benefit all borrowers’
Per a press release published on the government’s website on Wednesday, the measures “will benefit all borrowers, both those who work in the public and the private sectors” and “represent a fundamental change for the better to the student loan system.” They were the combined effort of a working group comprised of representatives from three government ministries, the Icelandic Confederation of University Graduates (BHM), and trade unions and are intended to facilitate wage negotiations within the labour market, as well as meet BHM halfway on their demands. “[The measures] ensure that borrowers benefit from the strong position of Icelandic Student Loan Fund, which has, in recent years, substantially increased its equity due to good [loan] recovery and reduced demand for student loans,” Lilja Alfreðsdóttir remarked.
The measures are being taken alongside those that have been proposed in a bill introduced to parliament in November—the third parliamentary bill introduced in the last seven years which attempts to revamp the terms of the nearly 30-year-old law governing LÍN. Neither of the prior bills were approved by parliament. Among the proposals in the current bill is that the name of the student loan fund be changed from LÍN to SÍN (the Icelandic Student Support Fund). Moreover, it would reward students who complete their degrees within a specified period of time with a 30% reduction of their loan principal.