While it’s true that Iceland’s universities are indeed very affordable, with yearly fees for most schools (minus textbooks) amounting to a week’s salary per semester, maybe you don’t want to live with your parents while going to school. Maybe you even already live on your own. Maybe you’ve started a family? Or perhaps you’re from overseas, and want to study in Iceland. In that case, you need to take a little trip to the offices of Lánasjóður Íslenskra Námsmanna (“The Icelandic Student Loan Fund,” LÍN for short).
What if you’re a foreigner?
First things first: if you’re a foreigner, you might not even qualify for a loan. Article 13 of the Icelandic Student Loan Fund Act specifically states: “Students shall not be entitled to student loans under this Act if they are entitled to comparable loans from another state.” This is an important point: if your country has a student loan system that will pay any amount of money to study abroad, LÍN will most likely show you the door and advise you to contact loan officers in your home country.
But that’s not to say all is lost. If you’re from a Nordic country, or one of the countries in the European Economic Area (EEA), you have the same rights as Icelandic students. If you’re from the EEA but don’t have a job, you can earn those rights when you have lived in Iceland for at least five years; then you might be able to get a student loan. So how does that work?
Well, first you need to get accepted to an Icelandic university and register for classes. Once you have that done, you need to bring your financial statements regarding what you’ve earned in the past year, proof of identity, and bank account information to the LÍN’s offices. This last bit of information is important, as LÍN works very closely with Iceland’s banks; some would say too closely.
How the banks are involved
It used to be that taking out a student loan was a matter between you and LÍN. But in 2004, LÍN and Landsbanki signed a deal wherein a new system was created. Whether the bank pressured LÍN for a slice of the pie or not, the fact remains that the system today works like this:
You get a loan from LÍN for one semester, based on your school, your classes, and your past income (and you need to have been steadily employed for twelve months prior to applying for a loan). Other circumstances, such as what you pay in rent and how many children you have, also come into play. Once your loan amount is determined, LÍN contacts your bank, and this is where it gets tricky.
The bank doles out parcels of the loan to you, on a monthly basis, in the form of an overdraft. They do this based on an agreement with LÍN that the bank will get this money at the end of the semester. In order for you to get your loan, you need to sign a contract with your bank agreeing to take out said overdraft. Once the semester is over, LÍN pays your bank the full amount, and that should be that.
But there’s a catch: if you fail one of your classes, LÍN will not pay. Now you owe this money not to LÍN, but to your bank. And interest rates on overdrafts can be pretty steep. This can put students in a potentially tricky situation: on top of failing, you now have a six-figure debt, or higher, to attend to, and chances are you’re going to have a hard time paying that down while going to school. Back to the workforce with you!
Smooth sailing on borrowed money
The involvement of the banks remains controversial to this day, but assuming everything goes well in school, it should be smooth sailing until you graduate. The interest rate on a student loan is only 1.2%, remarkably low when compared to other countries, with repayments beginning two years after graduation and continuing from anywhere for 10 to 40 years.
Iceland’s student loan system, while perhaps unnecessarily complicated by the involvement of private banks, can work well for the average student who passes all their classes and becomes gainfully employed within a couple years of graduating. So long as you’re from the right country, study hard, and get a job quickly after you finish school, you should have absolutely no problems with getting an Icelandic student loan.