Based on data from Estonian commercial banks, young people are becoming more cautious about taking out student loans, and the overall number of borrowers is declining. Banks see free higher education and improved financial literacy as being behind the decline, but borrowing may also lag due to the lack of guarantors.
Students studying at Estonian universities or who are Estonian citizens can take a student loan every year, last academic year the maximum amount was €2,500. Young people use a loan with a 5 percent interest rate mainly to pay for their tuition fees, buy tools to use in their practical courses, and cover living expenses.
Evelin Tammearu, Sales Manager of Scandinavian-owned SEB's private customer segment, said that young people are cautious about making financial commitments and try to cover the costs related to their studies with salaries, parental benefits, study grants, scholarships or other financial aid. Students take student loans only when urgently needed.
Tammearu added that in recent years, due to the increase in the general standard of living and improved financial literacy, the number of young people who finance their study-related expenses at the expense of student loans has decreased.
"One of the reasons for the decline in the popularity of student loans is the possibility of acquiring free higher education," she noted.
Tammearu told ERR that student loans for certain target groups, such as young people from poor families, continue to be important and almost essential for acquiring higher education.
Gätlyn Mägi, Scandinavian-owned Swedbank's Head of Retail Financing and Leasing, noted that the average student loan amount in the last application period was € 2,200. At Estonian bank LHV (LHV pank), the loan is usually taken out in the maximum amount, ie € 2,500 per year.
"According to our data, students have become more responsible, and before taking a loan, they consider alternatives whether and why to take a loan at all," said Mägi.
Mägi also commented that applying for a student loan is certainly influenced by the fact that free seats in the desired course have been created and many students also work outside the lecture time, which allows them to finance their own education.
LHV Bank started offering student loans in the autumn of 2018, and according to the bank, the issuance of student loans is on a growth trend.
Catlin Vatsel, LHV's Head of Retail Finance, said that this shows that awareness of LHV as a financier is rising and that the growth in the popularity of LHV's youth bank has contributed to this.
Vatsel pointed out that the main obstacle to taking a student loan is the requirement for collateral. "To the extent that real estate located in Estonia or a guarantee of two people is suitable as collateral, situations may arise where two guarantors cannot be found in the absence of real estate."
Editor: Katriin Eikin Sein