Under the current system, student loan applicants can secure their loan with either a private guarantor or real estate collateral.

A study conducted by the Ministry of Education found that additional requirements imposed by credit institutions have become a significant obstacle for borrowers seeking to appoint a guarantor. For example, one condition cited was that the guarantor must have a regular and verifiable income over the past three to six months, meeting at least the national minimum wage in Estonia.

In addition, guarantors must not have significant debts or financial difficulties, making it potentially challenging for students to find a suitable guarantor or provide sufficient collateral. According to the Ministry of Education, this issue particularly affects individuals from economically disadvantaged backgrounds, who often face greater difficulty securing a guarantor.

While the proposed change would make student loans more accessible, it could also increase the risk of the state guarantee being triggered.

As a justification for removing the private guarantor requirement, the ministry also pointed out that the overall number of student loan defaulters is very low and, according to the study, has been decreasing year by year. The Riigikogu's student loan coalition working group considers student loan recipients to be a highly reliable target group, making the removal of the guarantor requirement a reasonable step.

95% of student loan takers prefer to use a guarantor

In addition to eliminating the guarantor requirement, the proposal also calls for removing the requirement to use real estate as collateral. Estimates suggest that around 95 percent of student loan borrowers currently use a guarantor, while real estate collateral is less commonly chosen due to the higher associated costs, including notary fees, property appraisal fees and collateral insurance premiums.

Another limiting factor is that banks often do not allow the same property to be used as collateral for multiple loan obligations, such as a mortgage. For this reason, the Ministry of Education has proposed abolishing both the guarantor and real estate collateral requirements.

The change would simplify the application process for borrowers and reduce the administrative burden on banks handling loan applications.

Longer repayment period

The draft legislation also proposes extending the student loan repayment period to four times the nominal length of the academic program. This would reduce students' monthly loan payments after graduation by spreading them out more evenly over a longer period. Students would still have the option to repay the loan in a shorter time frame through an agreement with their bank.

If a student drops out, the loan must still be repaid within one and a half times the length of the period studied.

Interest begins to accrue as soon as the loan funds are disbursed to the student. Repayment of the principal must begin no later than 12 months after graduation or upon leaving school for any other reason. In exceptional cases, the start of the repayment period may be extended to up to 18 months.

The commercial interest rate on student loans is set to be lowered to 1.2 percent plus the six-month Euribor. The cap on the interest rate paid by students would also be reduced, from 5 percent to 4 percent.

The bill's explanatory memorandum also includes a proposal to increase the maximum student loan amount to €6,000 starting in the fall and to change how the maximum loan amount is set. Instead of being determined annually by government decree by July 1, the maximum would be established as part of state budget negotiations and enacted through the state budget law to allow for additional costs to be properly accounted for.

Minister: We will finally get this reform done

Minister of Education and Research Kristina Kallas (Eesti 200) said the student loan reform is necessary to make student loans more attractive and flexible for university students.

"The need to reform the student loan system has been discussed for years and now we're making it happen. Student loans must provide learners with sufficient support to cover essential living expenses and the loan amount should allow them to focus on their studies instead of having to work alongside their education," Kallas said.

The legislative amendment has been in development for some time, with the initial draft proposal completed at the end of 2024. Under the current plan, the reform is set to take effect on September 1, 2026.

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