We answer the most common questions about student loans

A student loan is intended for expenses related to studies: for example, to cover living expenses, or to purchase a laptop. It is a loan product regulated by Estonian law – which means its terms are more favourable than average terms. The six most frequently asked questions were answered by the Credit Card and Student Loan Specialist at LHV, Liisa Lekko.

Are student loans intended only for students studying at university?

No – not only are student loans available to people doing their bachelor’s, master’s or doctoral studies, but they can also be applied to by students studying at a university of applied sciences or vocational school. Vocational training, however, must be based on secondary education. Students who are Estonian citizens but are studying outside Estonia can also apply for a student loan: it is important that the nominal length of the studies is at least six months, and that the student is not on academic leave or engaged in external studies at the time of applying for the loan.

Can you take out a student loan completely on your own?

Unfortunately not – to apply for a student loan, you must have a suitable guarantor even if you have your own salary. A guarantor is a person who promises to honour your loan obligation on your behalf, if necessary: this means that if you default on the loan, the bank can submit a claim to the guarantor to pay the debt. A member of your family, a good friend, or a spouse/partner can act as a guarantor. It is important that the guarantor has a regular income and that their financial commitments do not exceed 50% of this income.

However, if you are unable to find a suitable guarantor, or if you do not want to tie someone to your loan, you can also use a guarantee on a property that you or a family member owns: this means that if you have problems repaying the loan, the bank has the right to sell the property and use the proceeds from it to repay the loan. However, the property cannot simultaneously be used as collateral for a loan from another bank, it must be appraised, and a mortgage must be set on it – so using the help of a guarantor is generally a cheaper option.

What is the interest rate on a student loan?

The interest rate on a student loan consists of a bank margin of 1.95% and the Euribor. Linking the interest rate to the Euribor means that today, the interest rate would be 1.95% + 3.4%, or a total of 5.35%. However, if, due to the Euribor rate, the total interest rate on a student loan exceeds 5%, as is currently the case, the rest is paid by the state, i.e., the maximum interest rate for the client is 5%. The Bank reviews the Euribor every six months and the change is reflected in the loan repayments. During the period of study, the student only pays the interest payment, which is automatically deducted from the account by the Bank once a year in November.

Do you have to start repaying the loan during your studies?

You do not have to start repaying your student loan immediately: only interest is paid at the beginning. During the period of study, the interest calculated on the outstanding balance of the loan must be paid once a year, on 1 November. Monthly repayments of the student loan begin 12 months after graduation. The repayment period depends on the nominal period of your curriculum: we will prepare the payment schedule for a period that is equivalent to twice the nominal period of study. For example, if you take out a loan for bachelor’s studies with a 3-year nominal period and do not continue your studies after that, your loan repayment period will be 6 years.

Can the student loan contract be amended later?

Yes, the contract can be amended and it is free of charge. In most cases, the amendments concern the payment schedule or a change of guarantor. For example, it is always possible to shorten the payment schedule, start monthly repayments earlier, or repay the loan early – a good option if, for example, the student is already starting a job while still at school. A grace period can be taken for a period when you are on parental leave, in compulsory military service, or in residency. During this period, the state will pay the interest to the bank on your behalf. If you cancel your studies, the student loan is to be repaid a bit faster, i.e., over a period that is one and a half times the duration of the period actually studied (minimum payment period 6 months). The condition that repayment of the student loan starts 12 months after the cancellation of studies applies in this case, too.

If I already have a student loan with another bank, what happens to it?

You can only have a valid student loan contract with one bank. You can also transfer a loan if you do not want to take out a new loan – the new, current student loan conditions will apply to the transferred loan. To do this, you need to fill in a student loan application form and, if the loan decision is positive, we will conclude a student loan and surety contract. After concluding a new loan contract with LHV, you will have to pay interest to the previous bank, which is calculated until the new student loan contract is concluded, and LHV will transfer the loan principal to the other bank. From the moment of concluding the new contract, the loan contract with the other bank will end, and going forward, you will make the student loan repayments to LHV.

To apply for a student loan, you need to fill in an application online or in the LHV mobile app: it is free of charge and does not obligate you to conclude a contract. The loan guarantor of your choice will then fill in their application. As the third step, we will notify you of the loan decision: we will do our best to do this within three (3) working days, at the latest. Then, we will digitally conclude a loan contract with you and a surety contract with the guarantor. When everything is ready, we will transfer the student loan amount to your account.