Tips for Avoiding Problems with Student Loans from KfW

With more care, students could have avoided the problems.

Firstly, student loans from KfW have always been expensive. Between 2012 and 2020, the interest rate fluctuated between 3.1 and 4.3 percent, although the key ECB interest rate was 0. The high level of interest can be explained by the fact that KfW grants loans to all students. Collateral is not required, so the default risk for the bank is correspondingly high. And that, in turn, is secured by high interest rates.

Secondly, it is also known that the student loan interest rate is related to the so-called Euribor interest rate. This is the reference interest rate that banks use to do business with each other in the euro zone. The Euriborr in turn depends on the key interest rate of the ECB. With the increases in the key interest rate, the Euribor and thus the interest rate of the KfW also rose. While the Euribor was still 2.168 percent in November 2022, it is currently almost twice as much at 3.948 percent. Accordingly, the KfW interest rate for student loans jumped from 3.9 percent in April 2022 to 7.55 percent now

Tip: have interest fixed in the repayment phase

Affected students can have the interest fixed in the repayment phase after their studies. In this way they avoid the risk of rising costs. The rates for this are somewhat higher than the normal KfW interest rate. It is currently between 7.59 percent for one year and 7.86 percent for ten years. But the next increase has already been announced: from October 2023, a range of 8.34 to 8.79 percent will apply. From that point on, longer fixed interest rates are cheaper than shorter ones. This shows that KfW expects interest rates to fall in the future.

KfW itself points out that its student loans are not intended for students to use them to finance their entire livelihood.

Affected students can probably not expect any help from the traffic light federal government. The student loan is a KfW product that is not subsidized by the state. Federal Education Minister Bettina Stark-Watzinger (FDP) could, however, try to negotiate lower interest rates in negotiations with KfW. Many sufferers hope so.