From Grants to Loans: Mental Health and Adaptive Responses to the 2015 Dutch Student Finance Reform

This paper examines the causal relationship between student debt and mental health using the 2015 Dutch student finance reform as a natural experiment. The reform replaced a universal grant with income-contingent loans for higher-education students, leaving vocational students unaffected and serving as a natural comparison group. Low-income students were partly compensated through expanded targeted support. Using nationwide administrative data from Statistics Netherlands, we implement a difference-in-differences design comparing clinically diagnosed depression, anxiety, and broader mental health outcomes between higher education and vocational education students before and after the reform. We find no evidence of adverse mental health effects from the transition to debt-based financing. At the same time, students adjusted their behaviour by marginally increasing labour earnings and remaining longer in co-residence with their parents. These findings suggest that behavioural responses to the reform may have mitigated financial strain, although lenient repayment terms likely also cushioned the impact of the reform. Overall, the results indicate that the mental health impact of student debt may depend not only on financial exposure but also on institutional context and individuals’ ability to adjust.