Should you take out a student loan?

Gaining a tertiary qualification costs a lot of money, but it can make a big difference to your future prosperity. Having to pay off a student loan, while trying to find a job in a market where demand outstrips supply, is difficult, however.

South African student debt amounts to around R16.5 billion, according to Linda Meyer, director for operations and sector support at Universities South Africa. Universities absorb this cost at the expense of investment in academic programmes.

This article considers loan-qualification criteria, and the terms and conditions attached to student loans.   

Tip: Debt consolidation may assist you if you are in debt and in need of some cash flow to fund your studies.

Do you qualify for a loan?

According to FundiConnect, the average annual cost per course at a public university ranges from R4,500 to R20,000 for part-time programmes, and R5,000 to R75,000 for full-time studies. It costs more to attend a private institution – anything from R6,600 to R50,000 part-time per year and R38,500 to R99,500 full-time.

Most students will need to apply for a loan, unless they qualify for the National Student Financial Aid Scheme (NSFAS) or a bursary, or family savings have been set aside to fund their education.

“It’s important to understand all options that could be used to fund your studies, and to explore whether these are viable, before applying for credit,” says Amika Maharaj, business solutions head, FNB Retail Loans.

Banks typically offer loans to full-time employees earning at least R3,000 a month, but if students don’t meet these criteria, a parent or sponsor can apply on their behalf.

All applications are subject to a credit check and affordability assessment, Maharaj notes. The average FNB loan amount granted per year per student is approximately R100,000, and this covers expenses such as tuition fees, accommodation, textbooks, devices, and equipment, where applicable.

Students may still need to cover expenses for commuting, or returning home for the holidays if studying in a different province, plus extra-curricular activities.

“Each bank or financial institution has their own list of criteria as to what they do and do not cover,” says Johann Rossouw, a certified financial planner at Fiscal Private Client Services. “Prospective students need to ensure the loan covers their tuition fees and study materials at the very least.”

Discuss payment terms with your lender

Maharaj says students will pay only fees and interest for the first 12 months, but repayment thereafter will consist of fees, interest and capital.

Borrowers are generally expected to pay the loan in full once they’ve completed their course, unless the institution is flexible about payment – some allow debt settlement on employment, and not immediately after graduation. In addition, many lenders are willing to assist struggling students.

“We offer our customers the option of contacting us proactively if they know they won’t have enough funds to cover their monthly instalment, so that a payment arrangement can be made,” explains Nick Nkosi, head of Consumer Lending at Absa.

“It’s important that customers prioritise their loan repayments to maintain a good credit record, which will serve them well should they need additional funds for subsequent years of study.”

Nkosi says students get preferential loan interest rates. “We assess our customers based on their credit record and affordability to ensure we lend responsibly,” he says. “We also offer zero account fees on our student account and credit card.”

Tips for student loan applicants

Rossouw offers the following tips to those considering applying for a student loan.

• Borrow only what you need. The more you borrow, the higher your monthly repayments will be, placing pressure on your budget when you eventually start working.
• A student loan is not free money. Always keep in mind that you will have a debt to repay when you finish your studies. If you live beyond your means while studying, you will place unnecessary pressure on your budget when you embark on your career.
• Qualifications will be held back if students don’t pay off their loans. "While the student loan contract is between the lender and the principal debtor, the study fees account is between the student and educational institution. If the student’s qualifications are held back by non-payment, the lender is not involved," stresses Nkosi.
• Gather as much information as possible and ask questions, especially about the loan-repayment term and the interest charged. Student loan interest rates are generally lower than other unsecured lending products such as credit cards or personal loans, and some institutions offer loans for laptops and tablets, says Rossouw.
  
  “Standard Bank, for example, offers R20,000 loans specifically for laptops and equipment. Look into these offers, if doing a specific course without the requisite devices is going to prove challenging,” he says.
  
  Once the loan is paid into your account, it’s important to ensure that repayments are made on time and you pay in extra money where possible, Maharaj says. This will allow you to save on interest and fees, and decrease the total cost of the credit. It’s important to note that there are no penalty fees for settling a student loan early.
  
  “If additional funding is required for your next year of study, a new application will need to be submitted,” she says, “so borrow only the amount that you need and keep your expenses low. This, together with a healthy credit profile, should ensure that future funding is attainable without a hitch.”

Tip: A lender will look into your credit score when you apply for a student loan. Find out what your score is at JustMoney.