Berlin The market for student loans collapses: in 2022 the number of new contracts fell to a low of 24,000, in 2014 it was almost 60,000. This is shown by a current evaluation by the Center for Higher Education Development (CHE), which is available to the Handelsblatt. The CHE deals with the development of the German higher education system and is mainly financed by the Bertelsmann Foundation and other cooperation partners.
“We can watch a market collapsing here in slow motion,” says Ulrich Müller, member of the CHE management board. The main reason is the lack of attractiveness of the offer of the federal development bank KfW. It has dominated the market for years.
The number of new KfW student loans had already fallen by more than a third to a good 15,000 in 2022. Interested parties can currently apply for a student loan with an effective annual interest rate of almost eight percent. “The pain threshold has now been clearly exceeded,” says Müller.
Criticism also comes from the student body. “The interest rate on the KfW student loan is now twice as expensive as real estate loans. This is a tangible socio-political scandal and a fatal signal to the students,” said the chairman of the board of the German student union, Matthias Anbuhl, in the Bundestag.
The Studierendenwerk Frankfurt therefore no longer brokers the KfW loan at all, because at eight percent it is “no longer an instrument for adequate financing without the risk of high levels of debt”.
Discontinued model KfW loan?
This raises the question of how long the KfW student loan is sustainable, says CHE expert Müller. For many students, the loan was the last resort, and now it could be the result of dropping out. According to the most recent social survey by the Deutsches Studierendenwerk, 37 percent of students had to make do with less than 800 euros a month.
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When asked, KfW pointed out that it was financing the loan from its own resources and had to work to cover costs. The interest rate is based on the general interest rate level, which has risen significantly since the beginning of the Ukraine war. In addition, the loan is only a financing component and should cover costs that remain after student loans, family and a part-time job.
The introduction of the KfW student loan in 2006 was considered a great leap forward: in addition to student loans, the state-subsidized loan was intended to make studying possible for anyone interested.
According to government information, the KfW loan, which can be applied for regardless of the income of the parents and other collateral, is used more often than average by “non-traditional” students. These include older people, people with children, previous professional training or from non-academic families. They then succeed in making the leap into the labor market particularly well: they have an above-average employment rate and earn higher incomes than the average graduate.
85 percent of the students receive no financial support
According to CHE, only a small proportion of students benefit from financial aid. According to this, 2.2 percent use a loan, two percent a scholarship and eleven percent receive student loans. “Around 85 percent are completely dependent on their parents, their partner or a part-time job,” says Müller.
The traffic light coalition actually wanted to change that and promised in the coalition agreement the “opening of the interest-free Bafög full loan for all students”. Above all, the FDP had pushed for the Bafög to finally be made independent of parental income. Education Minister Bettina Stark-Watzinger (FDP) is officially sticking to the project, but nothing concrete is in sight.
As an alternative to the medium-term opening of student loans, however, the minister would have to press for an interest rate reduction by KfW, the CHE demands. Most recently, in 2008, after strong public criticism, CDU Minister Anette Schavan ensured that the interest rate at the time was reduced from seven percent.
At the same time, the KfW offer must become more attractive, says the CHE: fixed instead of variable interest rates, use abroad and, above all, increasing the maximum monthly payment from 650 to 1000 euros. Because “try living in Hamburg or Munich with 650 euros,” says Müller.
Anyone who took out a loan during the pandemic is now paying a lot more
The CHE criticizes the currently high interest rate for students, who were lured by the short-term zero percent offer in a KfW loan during the corona pandemic. In the years 2020 to 2022, the state assumed the interest costs in the disbursement phase. As a result, demand increased by 120 percent.
The federal development bank is a leader in granting student loans.
(Photo: dpa)
“Anyone who accepted the decoy offer will rub their eyes now,” says Müller, because the new interest rate also applies to all almost 178,000 customers who are already in the repayment phase, provided they have not agreed on a fixed interest rate. At the same time, there are fewer and fewer alternative offers to KfW because several providers have discontinued their offers in recent years.
At least one provider seems to be establishing itself: the start-up Lendorse focuses on students from developing and emerging countries. According to Müller, the target group was excluded from the start by many other providers because they feared not being able to collect debts abroad.
This is also politically interesting, because the approximately 350,000 foreign students in Germany are considered potential specialists for the German job market. For this reason, the employer-related Institute of German Economics (IW) is pushing for the federal government to pave the way for non-EU foreigners to study in Germany and then make it easier for them to jump into the job market. However, they drop out of their studies more often than natives. According to surveys by the German Academic Exchange Service (DAAD), one reason for this is financial problems.
More: Foreign students often choose technical subjects and could thus reduce the gap in skilled workers