Péter Magyar: The Hungarian student loan model is the only one of its kind
The Diákhitel Plusz (Student Loan Plus) loan, introduced last year in response to the pandemic crisis, is available again this year since October 1st; it has proven itself the most popular type of loan. Magyar Nemzet spoke to Péter Magyar, the director of the Diákhitel Központ (Student Loan Center) and discussed the recently introduced loans for adults and vocational training, the Hungarian youth, and the domestic and international student loan systems.
What has the past year been like; how many people requested emergency support?
The Diákhitel Plusz (Student Loan Plus) was introduced in May of last year by the Hungarian government in response to the labor market and financial challenges caused by the pandemic. Many students ended up in tough financial situations as the first thing to go at the big companies was student jobs and internships. It soon became clear that this type of loan was an effective measure by the government when in the first weeks of its introduction thousands of people applied; last year, 30,000 people applied for this loan. Originally the deadline was December 31, but following the suggestion of the Diákhitel Központ, the government extended this to June 30, 2021. This was another smart decision as in this six months, more than 10,000 students applied for the loans. The Diákhitel Plusz loan has been the most successful student loan. Based on the positive feedback and the recommendation of student organizations and the Diákhitel Központ, the government decided to make this loan available again from October 1.
What makes the Diákhitel Plusz loan different from other student loans?
The best part is that it includes all the most favorable features of the other student loan models. The Diákhitel Plusz loan is an interest-free loan that can be spent on anything, worth up to half a million HUF. It is important to note that the Diákhitel Plusz loan is a so-called annuity loan which means that the student can decide what repayment period to choose: between one and five years, all after a one-year grace period. Even though only a month has passed since October, we have received over 5,000 applications. The Diákhitel Plusz loan will be available until September 30, 2022. Of course, the standard student loans will also be available. Based on the representative surveys, in the 20 years of our Diákhitel Központ’s existence, half of all students say that either they would not have been able to complete their studies without a loan, or it would have caused enormous difficulties; thus, these two loans are very useful as well on their own. For many, student loans are not just temporary support, but a resource for starting a business or for creating the proper working conditions.
It seems that this can help lay the foundations for the future.
About 50 percent of applicants spend the loan on housing, 25 percent on textbooks, IT equipment or language learning, and the last 25 percent on other various living expenses. Some have their future in mind and invest it in a startup business like buying a bike and starting a courier company. Using loans for these purposes in my view, is perfectly acceptable and serves the aims of the government too.
It is commonly asked: can one apply for the Diákhitel Plusz loan as well as other family support benefits?
Just as you can have multiple student loans (many students use all three of our student loan models: Diákhitel1, Diákhitel2, Diákhitel Plusz), you can also have family support benefits along with student loans. It was the government’s goal for the student loan plans to fit into the family financial support system and to promote having children. This is also why the student loan forgiveness was introduced for mothers in 2018. We have observed that the Hungarian model is effective in this field as more and more people take on student loans while the fertility of young graduates increases. This naturally is not solely due to student loan forgiveness, but it helps.
What does this mean in numbers?
Almost 7,000 mothers have had 50 to 100 percent of their student loans forgiven after the birth of their second or third child – worth about six billion forints in all. And the Diákhitel Központ is not merely forgiving about one to two million forints on average. Picture a medical student who finances their studies from a Diákhitel2 type of loan because they are paying for their education – that can be a value of even 14 million forints. If we forgive 50 percent of this after the second child, that is seven million saved, and after the third child, that is 14 million forints forgiven.
Although the Diákhitel1 and 2 student loan models are quite well known, as well as the Diákhitel Plusz loan, new types of loans will be available this year from the Diákhitel Központ.
It has been a long time coming for Hungarian education politics to support those choosing to pursue vocational training; the possibilities that have been available for those studying in higher education for a while will be made available to both trade students and adult students. With the Képzési Hitel1 and 2 (Training Loan), the Diákhitel Központ has stepped into the vocational training and adult studies sphere which is completely different from higher education. A comprehensive education financing model has been implemented in Hungary which is quite unique compared to the rest of Europe. Of course, the family tax credits also apply to the Képzési Hitel1 and 2 loans. The Képzési Hitel1 loan can be used freely; for a single semester it can be worth up to 900,000 forints and – similarly to the Diákhitel1 loan – it has an interest rate of 1.99 percent. The Képzési Hitel2 loan is also interest free like the Diákhitel2 loan and can be maximum 500,000 forints to finance the cost of trainings.
What do you expect from the from the loans for vocational trainings?
We expect a lot from these two types of loans. Now we are truly supporting life-long learning. For instance, these loans are especially useful for those who may not have started their studies earlier for financial reasons or they could not leave their workplace at the time or there was no available education in their area – now those people have financial support. Now, they can leave their workplace for six months to even a year while supporting their family; people can enter a completely new career and become a programmer, accountant, masseuse, or whatever they would like among the adult education programs. Both loans will be available from May 31st and we see that this will be very popular as 100 to 200 people are requesting it daily.
Is it possible that young people are afraid of getting trapped in debt after their university years?
As the interest rates on these loans are either far below the market rates or nonexistent, and they can be paid back at any time free of charge, it is not possible for someone to get stuck in student loan debt. Students are also aware that taking into account the record low unemployment and the dynamic rise of wages over the past years, talking about student loans as a debt is not a reflection of reality. Moreover, a young graduate earns twice as much on average as someone with only a secondary education. Earning a degree is an enormous investment on the part of the individual, the family and the state; during their studies, a student must focus on their education and it is worth investing this. Young people are able to repay their student loans more quickly and easily than before; a few years ago, this took about ten years, now only six. The number of young unemployed has never been this low, wages have never increased this dynamically. In the last five years, the average gross wage has increased by an average of ten percent per year – with these circumstances it is not difficult to repay student loans. So, in contrast to the narrative that the number of student loan applications is rising because young people are in difficult financial situations – instead the truth is that they see their future as secure and predictable and are therefore happy to invest in a marketable, competitive education.
The Diákhitel Központ is 20 years old this year – do you think these student loans have helped students in their education?
Since the establishment of the Diákhitel Központ, more than 500 thousand students have applied for our loans. I myself – one of the first clients of the Diákhitel Központ –was able to study law in Germany in 2001 thanks to my student loan. There was a boom in the early 2000s, when student loans were still a novelty and the majority of families were in need of additional financial support, namely from 2002 to 2010. This was when student loan interest rates were highest. Since 2010 however interest rates have been steadily declining, reaching a current low of 1.99 percent.
Is there a comparable example of our student loan model somewhere abroad, or can we state that Hungary is at the forefront of supporting the studies of young people?
We can proudly say that the Hungarian model is completely unique. The first Orbán government established the Hungarian student loans system in 2001; the creator of the British student loans was there as a contributing expert and recently said that there is no other student loan system in the world as effective as the Hungarian one. The United States is always cited as a horrific example as the higher education is incredibly expensive, students take out huge loans from for-profit institutions with varying conditions and high interest rates. If a student does not end up making as much as expected, then the whole family can go bankrupt by their debt. But there are several countries in Europe as well where for-profit institutions or public banks provide student loans with much less favorable terms. In Slovakia for example, students get loans in euros with much higher interest rates than Hungary’s forint loans. The V4 countries, along with Croatia and several other Member States are interested in the Hungarian system because we provide favorable terms for the entire spectrum of studies. A system like this, that is coincides with family benefits and works so well, cannot be found anywhere else.
As the head of the student loan center, what do you think of the prospects of young people? What are the most important aspects you keep in mind in your work?
The way I see it, it has never been better to be young in Hungary, if not the European Union, because these days you can study whatever you would like to. Never before has there been this many and such a volume of scholarships available for students in Hungary. Never before has such a broad and favorable student loan system supported the Hungarian youth’s further education. Never before have young people been able to access so many family and tax benefits to help them get a job, find a home, and start a family. Also, remember that the Diákhitel1 loan can be used towards studying abroad at schools within the European Economic Area. Similarly, Hungarians from outside our borders in the Carpathian Basin, and Hungarians with dual citizenship can also apply for these student loans and the Diákhitel1 loan. The goal is even if the youth goes abroad to study, work, that they return to start a family. Based on the statistics, the return home has begun; higher salaries, better conditions, and family support motivate young people to come back. I lived abroad for nine years, I raised my children there, and learned useful things with my wife – but it was good to come home, work here and be close to friends and family. It is practical and useful for young people to gain experience abroad and then bring this home to launch their careers. I will be pleased if the Diákhitel Központ can contribute to this trend, and I hope that this can continue into 2022.
Photo: Péter Magyar, CEO of the Student Loan Center (Világgazdaság / Móricz-Sabján Simon)