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Everything you need to know about student loans

By Athenkosi Sawutana

Higher education comes with a big price tag nowadays and many people have failed to reach their dreams because they cannot afford to pay for their studies.

According to data released by Old Mutual in 2018, parents can expect to pay up to an average of R265,000 towards their children’s tertiary education fees by 2035. This is only for their first year of study.

This will lead to an increase in the drop-out rate or a decrease in the number of higher education admissions.

Fees are not the only problem. A lack of knowledge about how to fund tertiary education can also lead to reduced admissions.  

Student loans are among the options available to fund your studies, and this guide will help you take the right steps towards an educated and bright future.

What is a student loan?

A student loan is a loan that is designed to help students finance their tertiary education. This can be used to pay for your tuition, accommodation, study equipment, and books while you’re studying.

Types of student loans

  1. Government subsidised loans

Different government departments sometimes offer loans to students in financial need to help them fund their studies. The Western Cape government has partnered with higher education and training colleges to provide loans for those who would like to pursue their studies at those colleges.

  1. Private loans

Banks, such as Standard Bank, FNB, Nedbank, and Absa, provide loans that are tailored to suit students. Institutions like Fundi, formerly known as EduLoan, also offer loans.

How do you apply for a student loan?

If you’re earning an income, you can present your payslip and other required documents to a credit provider of your choice. The credit provider will determine whether you qualify for the loan based on your income, credit record, and your affordability.

However, if you’re unemployed, you can ask anyone to act as a guarantor when you apply for a student loan. This does not have to be a parent. It could be a spouse, a friend, or anyone who will be responsible for the repayment of the loan if you fail to pay when you finish your studies.

You will need: 

  • Yours and your guarantor’s green, bar-coded ID book or smart card
  • Your guarantor’s latest payslip or proof of income
  • Proof of address of your guarantor
  • Proof of enrolment at a qualified tertiary institution
  • Your latest exam results
  • An invoice or statement for university fees, textbooks, and accommodation (for campus or university-accredited accommodation only)
  • Letter of necessity for any study-related equipment
  • Marital status declaration

For the second and subsequent years of study your credit provider will require proof of the previous year’s academic results to ensure you have been permitted to continue your studies.

Tip: Click here to get a free credit report. 

When you apply for a student loan, your credit provider will check your guarantor’s credit profile and assess the guarantor’s affordability. If his credit record is poor, your chances of getting the loan are slim. Click To Tweet

If your guarantor’s debt-to-income ratio is high, your application will be rejected, or you will receive a smaller amount than you initially applied for. Otherwise the guarantor will be charged higher interest rates.

Student loans tend to have lower interest rates compared to other loans. They usually start at 10.5%. However, this will depend on your guarantor’s credit profile and your credit provider.

Your guarantor needs to earn at least R3,000 a month. However, this varies according to different credit providers.

The type of qualification and the year of your study for will have an impact on your interest rates.

An initiation fee and a monthly service will also be charged to your student loan and this varies with every credit provider.

How does a student loan work?

The bank will pay tuition and accommodation fees directly to the institution you have been admitted to. Some banks open a transactional account where they can transfer money for books and other expenses, such as travelling.  

You will need to apply each year and the approval of your application will depend on your or your guarantor’s affordability. Loan amounts vary each year.

Depending on your credit provider, you can get up to R250,000 for a student loan. However, higher amounts are considered in some instances.

If you are planning to study at the following institutions, you will be eligible to apply for a student loan:

  • University
  • University of Technology
  • Technical Vocational Education and Training College (TVET)
  • Agricultural college
  • Any institution accredited by the South African Qualifications Authority (SAQA)
  • Online and any private institutions registered at a Sector Education and Training Authority (SETA)

Both undergraduate and postgraduate studies are covered.

How do you repay a student loan?

While you have obtained the loan with assistance of a guarantor, the loan is still under your name.  The guarantor will have to make monthly payments while you’re still studying. However, once you start working you will have to take over and pay the remaining interest and the loan amount.

If for some reason the guarantor defaults on the loan, you will lose eligibility for another loan for the following years. Click To Tweet

If you’re working or you’re a part-time student, you must pay both the monthly instalments and the full repayment amount.

After completing your studies, the credit provider will grant you up to 12 months of grace before you are required to start paying it off. When this period has passed, the credit provider will start making demands and possibly hand you over to debt collectors if you or your guarantor do not pay.

This does not only affect your credit record but the guarantor’s as well. Both of you may be listed at the credit bureaus, making it hard for you both to obtain credit again.

The loans must be paid within five years, depending on your credit provider and the amount you borrowed.

Even if you do not complete your studies you will still be liable for the repayments of the loan. If for some reason you drop out of school, you will be required to pay the interest and the loan amount.

However, some banks make it the guarantor’s responsibility to repay the loan. You can negotiate with your guarantor to decide how you will pay them back. Your guarantor has a right to take legal action against you if you don’t stick to the agreement.

Credit life insurance

When you apply for credit, you are legally required to purchase credit life insurance to cover your debt when you are unable to. Credit life insurance will ensure that your student loan is paid should you or your guarantor be retrenched, die, or become permanently disabled.

You are not obliged to purchase credit life insurance from your credit provider, and you can purchase it from a service provider of your choice. There are many credit life insurers, so make sure you shop around for the best prices.

Difference between a student loan and a personal loan

Due to a lack of knowledge, people sometimes take out personal loans to finance their children’s education. They do not realise how costly this is.Click To Tweet

Personal loans tend to have higher interest rates compared to student loans because they are considered unsecured loans. This means that they are not tied to an asset.

Depending on your credit profile you can pay up to 28% interest on a personal loan, whereas you could only pay 12% on a student loan. In this example, the interest rate is over 20% above the repo rate for personal loans, while it is only 2% above for student loans. 

Another important factor is that you must make repayments for your personal loan as soon as it is activated. Whereas with a student loan, you only pay the interest until you start working.

Are student loans the best way to pay for your fees?

Student loans are not the desirable way to pay your fees. No one wants to graduate with a mountain of debt waiting for them. However, if you cannot afford to pay for your education and you are serious about pursuing your dreams, you may want to consider a student loan.

One of the advantages of such a loan is that it can help you build your credit score. One of the criteria used by lenders when they are doing a risk profile is checking your credit age. The longer you’ve had credit, the more chances you have of qualifying for credit. Paying your accounts on time will add another point to your credit score.

What if you do not qualify for a student loan?

The South African government offers funding to students in financial need. The fund used to be a loan until it was declared a bursary in 2017. The National Student Financial Aid Scheme (NSFAS) was established in terms of the National Student Financial Aid Scheme Act 56 of 1999.

It helps provide access to higher education and training to students who come from disadvantaged backgrounds, and can’t afford to pay for their studies. 

You need to be a South African citizen whose household income is not higher than R350,000 per annum. If you registered at an institution of higher learning prior to 2018, your combined household income needs to be less that R122,000 per annum.

Ensure that you meet all the requirements for higher education to be considered for the fund.

The bursary will cover your tuition fees, registration fees, accommodation, food, and travel expenses. However, it may not cover the full costs of some expenses such as food and travel.

Unlike student loans, you need to apply annually for NSFAS. Your financial situation is assessed once during your first application. To continue receiving the funding you need to pass at least 50% of your modules per annum.

If you already have one qualification, you cannot apply for the funding. However, there’s a selected few postgraduate qualifications you can apply to for funding.

How to apply for NSFAS?

To apply for NSFAS, you will need to be enrolled at university or college. You can send your applications to the NSFAS offices or submit your application online.

In order to apply you will need:

  • A South African identity document (ID), smart card, or birth certificate
  •  Parents’ and/or guardian’s ID or death certificate
  • IDs of every person who is living in your house
  • Pay slip/letter of employment/pension slip of your parents or guardian

What happens when you do not fit the NSFAS threshold?

The Ikusasa Student Financial Aid Programme (ISFAP) is designed for students studying towards careers in Occupations of High Demands such as Actuaries, Accountants, Engineers, and Doctors.

In addition to the funding, the programme will provide you with mentoring and medical support when required.

For you to qualify for this kind of funding, you must not earn more than R600,000 an annum.

This bursary is only available at selected universities. Before you apply you will need to check which universities the programme has partnered with.

Tips to pay off your student loan

Once you complete your studies, you will have to devise a strategy to pay off for your student loan. The following tips will ensure that you start off on a clean slate.

    1. While you’re still studying, find a part time job so that you have extra cash available.
    2. Save as much as you can so that you can have a lumpsum going towards your debt when you finish studying.
    3. Start paying as soon as you find a job and never skip any payments.
    4. Do not take out any more credit unless you can afford to do so.

Do not let money stand between you and your dreams. However, shop around before you take out a student loan as this could save you money. Credit providers do not offer the same interest rates.

Also read the terms and conditions of your loan as this will help you avoid any problems that could be encountered in future, especially around the issue of liability.

Let Justmoney help you achieve your dreams. Click here to apply for a personal loan.

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