By not calling a mortgage a mortgage young entrepreneurs and students can be helped up the first step of the housing ladder, writes Annemarie van Gaal
Recently a spokesperson for a student organisation gave unbridled criticism of our social student loan system. He stated that a student’s future earning power goes up by 5% for every year he spends in the halls of learning. Ergo, a university career will ensure hefty tax payments and therefore the government should not be burdening the student with the costs of studying.
It’s not a conclusion I would come to. Students should be happy with the generous Dutch system. Fees are quite low and the conditions for paying back the loan, including the interest rate, are more than reasonable.
Compare this to the United States. Universities are so expensive only the children of the super rich can study there without getting into financial trouble. Contrary to Dutch students, American students whose parents are not rich face the most enormous hurdle when it comes to getting a loan and an even bigger hurdle when it comes to paying it back. Often they end up paying for the rest of their working lives.
Recently, the United States has seen some interesting initiatives. It is now possible for a poor but ambitious student to get an interest free loan in exchange for a slice of his future success. He or she receives an interest free loan of, say, €30,000 in exchange for 10% of his/her net income for ten years after finishing his/her studies.
The private parties who put up the money choose whom they want to invest in according to a profile. Some invest in a musician because they love music, and others choose a maths student because maths is what they would have liked to study.
So supposing you have €30,000 to invest in the future of youngsters who want to go to university, you could finance one student’s education, or part of the education of a number of students, and receive a percentage of their future income in return.
If the student fails to find a job or his income is 150% below the poverty line, the earnings do not have to be shared.
In the Netherlands we have relatively few problems with regards to student loans. We do have a very big problem with housing students. The same goes for students who have just graduated and want to start a business. It is almost impossible for students or young entrepreneurs to get a mortgage. Banks are bound by rules and only look at a person’s present earning capacity. Future earnings are left out of the equation.
Let’s take a leaf out of America’s book. If we can’t give a mortgage to a young entrepreneur then we should scrap the word ‘mortgage’ and start up a fund which will facilitate the purchase of a starter house in exchange for a percentage of future earnings.
Private parties could give out interest free loans for the purchase of a house by students or young entrepreneurs in exchange for 20% of their gross income during the first fifteen years of their working lives.
Housing market boost
This would be a great thing for students and young entrepreneurs. We pass the banks by. All we need is government approval to make the loans interest free. The private parties who supply the money should also get a net return. But on the other hand, the government would not have to pay mortgage tax relief because there is no mortgage. Revolutionary? Maybe. But it would mean a big boost to the housing market.
Annemarie van Gaal is an entrepreneur and head of publishing company AM Media. She is also a writer and television personality.