A guide to paying your student loan

The cost of tertiary education has made headlines over the past year as students protest for cheaper (i.e. free) education. The #FeesMustFall campaign has highlighted the need for the funding of higher education. For those who cannot afford to pay for their studies, one alternative is to take out a study loan. However, by taking out such a loan, you start off your career with the burden of a loan looming over you.

Andrew Cross, certified financial planner at BDO South Africa, noted that debt can be both good and bad. However, it is vital that you manage your expenses according to your lifestyle, “as debt will always be a worrying thought.” As such, it is important that you educate yourself on how to manage your finances, reduce your debt, and repay your student loan timeously.

Damon Sivitilli, head of marketing at DebtBusters suggests that graduates start with the simple task of drawing up a budget and including their loan repayments into their monthly expenses. This allows them to finish their loan repayment in the quickest possible time rather than leaving it to the last minute when it’s often too late. Once the budget has been drawn up, it is important to track your actual spending against your forecasted budget to determine where you may be overspending.

Tips to be wary of

There are a few things you need to be cautious about when taking on a student loan, according to Cross:

• Don’t use a student loan to maintain a high standard of living.
• Rather spend wisely throughout your studies to help pay off some of your student loan before you have even graduated.
• If you manage a student debt properly and plan upfront, it will be possible to pay it off following a detailed financial plan.
• Interest on study loans is not zero-rated, which means student loans do bear interest – so you should work to pay them off as soon as possible.

In addition to these concerns, Sivitilli offered some pointers to keep in mind to help make the student loan repayment process easier:

• Be in constant communication with the credit provider to know how much you owe and make sure you understand the interest and fee structure.
• Make sure that you can afford to repay a loan before taking it out.
• Don’t be tempted to spend on luxuries, unnecessary items or holidays before settling their student loans.
• Avoid entering into many credit agreements (it’s easy to enter into debt but a lot harder to exit)
• Ask your current employer if they can help with your student loan repayments
• Graduates should seek financial advice if they are struggling with their debt repayments

The student loan

When it comes to selecting your student loan option, there are two types of loans to choose from. The first is the National Student Financial Aid Scheme manage by the government. However, this is only available to those students from poorer households who meet specific affordability criteria.

For those who do not fall into the above category, there are student loans on offer from various credit providers, including the big four banks, Absa, First National Bank (FNB), Nedbank and Standard Bank.

When choosing which option best suits you and your needs, it is important to investigate all available options, as well as the corresponding interest rates. “If you are a full-time student not living with your parents, it is advisable to use your student loan to pay for tuition fees, books, equipment and accommodation. This will take strict budgeting and discipline,” said Cross.

It is important to note that you will need to make a new application for a student loan for each year of your studies.

“Remember that a surety (something/someone that will take on your debt if needed) may have to apply on your behalf if you are a full-time student without a current income. That surety would need a disposable income and a clear credit history,” added Cross.

Things to keep in mind

Student loans are not granted to fund a high standard of living, but rather to support you while you study, through paying your tuition costs, as well as textbooks and accommodation costs is necessary. Once you graduate, you may not be able to afford the standard of living you may have become accustomed to if using your student loan to fund this.

According to Cross, it is a mistake to take out a student loan without considering all the possible implications. “To a large extent, your future career will influence the decision you make on the amount of the loan you should apply for.  When taking a loan, bear in mind that you will need to continuously monitor your loan and strive to minimise your debt, avoid incurring unnecessary debt. But if that means dropping out – or not enrolling for the next year of studies to complete in any courses, then taking out a loan, will be a good decision to make.”

Cross highlighted that confidence in repaying debt is key to learning how to be the master of your money. Take it upon yourself to find the means with which to repay your loan. “The value of acquiring tertiary education is well worth the commitment to invest in a student loan.”

Applying for a student loan

For those looking to apply for a student loan, Cross offered the below dos and don’ts to help make the process go smoother, and to help you avoid possible financial troubles.

The dos:

• Do your research. Interest rates and payment options will differ from lender to lender.
• Recognise which option is suited to your individual situation.
• Have a payment plan. Be aware of what you owe and your repayment plan. Have a specific timeline of your debt repayment as soon as possible.

The don’ts:

• Don’t pick the first institution willing to grant you a loan, rather find one that best suits your needs.
• Don’t forget about your loan and believe you will just settle it once you start working. Constantly monitor your loan.

Student loans typically need to be repaid over a five to ten year period. The main focus of taking out a student loan is to fund your tertiary education, which will hopefully enable you to find a job after completing your studies. It is important to budget for your student loan repayments from your first salary.

For more information on how to apply for a student loan, click here.

 Handy tip: Too much debt and you are not coping? You can apply for debt counselling through Justmoney.

Alternatively, you can apply for a student loan.