Transaction Trends - Less borrowing and more freedom for students

The reintroduction of the basic study grant

Since the abolition of the basic study grant (in Dutch: “basisbeurs”) in 2015, it has frequently been a topic of debate, especially for the so-called 'unlucky generation' who missed out on the grant. In the academic year 2023-2024, the basic study grant was reintroduced within the student financing system, primarily to alleviate the financial stress of Dutch students. As a result, in this academic year, students living on their own received nearly €440 per month, and students living at their parents received over €110 per month as a basic study grant. Using anonymized and aggregated transaction data, we examine the income of different cohorts of first-year students. This allows us to compare the income of first-year students receiving the basic study grant with that of first-year students from previous academic years without the basic study grant.

Different types of income under scrutiny

Our analysis is based on anonymized and aggregated transaction data. This allows us to scrutinize the different types of income of first-year students who started their studies in various academic years. In our analysis, we include approximately 15,000 first-year students per academic year. These students are selected based on tuition payments that are around the statutory tuition fee for first-year students. Additionally, they must be under 30 years old and have an annual income of less than €30,000.

By comparing these different cohorts of students, we gain insight into the contribution of student financing (including the basic study grant in the latest year) and salary to the total income of first-year students over time. Additionally, we also observe healthcare allowance and other income from various allowances and money deposits. This provides us with a clear picture of the financial position of students.

Total income has increased as much as inflation

The figure on the left below shows that first-year students in recent years, and particularly in the two most recent academic years, have seen a steady increase in their total income. This growth in income is in line with inflation during the academic years. However, underlying the total income, a clear trend is visible.

… but students are less reliable on study grants

The figure on the right above shows the average percentage of total monthly income that comes from salary, student financing, healthcare allowance, and other sources. The data indicate that the share from salary income has increased significantly, while the share from student loans has decreased.

For the average student in the academic year 2018-2019, student loans accounted for about 45% of total income, but this percentage gradually declined to below 30% in subsequent years. In the most recent academic year, there was a slight increase in income from student financing. However, this is due to the reintroduction of the basic study grant, which amounted to a minimum of €110 per student. This suggests that dependency on student loans has further decreased in the most recent academic year.

Not only has the relative share of income from student loans decreased, but the average absolute amount of student loans has also declined. This leads to lower average student debts for this cohort compared to previous cohorts. Lower student debts reduce the pressure students feel when taking on debt during their studies and decrease the amount that eventually needs to be repaid.

Strong increase in salary earnings

The decrease in the amount of student financing is accompanied by an increase in income from salaries. In the figure on the left below, we show the year-on-year development of salary income. The year-on-year growth of average salary income is above 5% each year. We observe a notable peak of nearly 25% during the "pandemic academic year" 2021-2022.

To further investigate these developments, we break down the year-on-year salary growth into different factors that contribute to the increase in average salary. The average income from salary can increase due to a rise in hourly wages or because students work more. Students can work more on average if a larger percentage of them have a job (increase in labor participation) or if working students work more hours. We analyze the impact of hourly wage levels, labor participation, and the number of hours worked by these students.

We use the minimum wage as a proxy for the earned hourly wage*. To determine the contribution of labor participation, we look at the year-on-year growth of the percentage of working first-year students. The remaining portion of salary increase that is not explained by wage growth and labor participation is estimated as the contribution of the additional number of hours worked**.

* This assumption is plausible because many first-year students earn a salary close to the minimum hourly wage, so their wage growth is likely to differ little from the percentage increase in the minimum wage. However, it is possible that we overestimate or underestimate wage growth for some years, depending on overall labor market trends that lead students to more frequently work in better or worse-paying jobs.

** We also adjust for interaction effects between the three factors. For more information, refer to the appendix.

First-year students work more during COVID

In the figure on the right above, you can see how the hourly wage, labor participation, and the number of hours worked by working students contribute to the annual increase in salary income. This breakdown reveals a clear pattern. Hourly wage growth plays only a limited role during the academic years 19/20, 20/21, and 21/22. During the "pandemic academic year" 21/22, salary growth was mainly driven by students working more: there were more first-year students who started working, and they worked more hours. This aligns with labor market figures from the Statistics Office Netherlands for the relevant group. The higher labor participation and growth in the number of hours worked are likely explained by the increased availability of students and the gradual reopening of the economy after the lockdowns. Lectures were mostly online during this academic year and there were fewer social activities, leaving more time to work. Moreover, the increase in the interest rate on student loans from 0% to 0.46%, and then to 2.56% in the following years, may have contributed to a structurally higher number of working individuals and hours worked, as borrowing was no longer "free."

We note that the risk of overestimating the number of hours worked and underestimating wage growth for the academic year 2021-2022 is particularly high, as many students worked at the Municipal Health Services for vaccination and testing. The hourly wages for these jobs were generally higher than the minimum wage, which can distort wage growth. In the subsequent academic year, when these jobs disappeared, there is likely an opposite effect: an underestimation of the number of hours worked and an overestimation of wage growth, as students returned to jobs that were typically lower paid on average.

During the academic year 22/23, students choose to work fewer hours.

The data shows that hourly wage growth has played a particularly important role in the past two years. The increase in salary income during these years can be fully attributed to this component. In the last year of our analysis, we observe a significant decrease in the number of hours worked by working first-year students. During this academic year, the basic study grant was reintroduced, and there was a significant increase in the minimum wage. The combination of these factors likely reduced the need for first-year students to work more hours. This resulted in a significant decrease in the number of hours worked, but had minimal effect on the number of working students.

Despite observing a decrease in the number of hours worked in the last year, Dutch students have historically had the highest labor participation compared to other countries in the eurozone.

Conclusion

We conclude that first-year students in the academic year 23/24 have borrowed less and worked fewer hours compared to first-year students in previous years. This occurred in a year characterized by the introduction of the basic study grant and high salary growth. In short, students from this academic year incur lower student debts and experience the financial freedom to work fewer hours. Both aspects are important for reducing financial stress among students, which was perceived as high. This was the primary reason for the reintroduction of the basic study grant. Although these two factors play a significant role in the financial well-being of students, it is important to recognize that financial stress among students also involves other components, such as rising living costs, increasing student loan interest rates, and developments in the housing market.