Taking out a student loan? First read this

If your dream career requires a tertiary education, you will have to find a way to fund your student expenses. This can be challenging, considering the large sum you’ll need.  

We have a look at who should take out a student loan, we offer tips on how to repay it, and we look at some alternatives you can consider.  

Tip: A personal loan can help you fund your tertiary education. To apply, click here.

Who should consider a student loan?

According to Mala Suriah, chief marketing officer at Fundi, a local company that specialises in education finance, if you're serious about your studies but can't afford to pay for your course, you should consider applying for a student loan.

“You're most likely to qualify for credit if you have a fixed and secure source of monthly income. This means that your parent might actually be the ideal person to take out the loan on your behalf. This is something you should discuss as a family, and consider,” says Suriah.

She explains that Fundi has found that nearly 56% of their female borrowers are the parents of students, and not the students themselves.

READ MORE: What are the risks of signing as guardian for your child’s student loan?

Tips for paying off your student loan

Suriah says that a student loan must be regarded as a very real responsibility.

“Sometimes students don't read the fine print and they’re unaware of what can happen if they don't pay on time, every time,” says Suriah.

She believes that payments become easier when they are prioritised and scheduled. Therefore, she suggests setting up a debit order.

“If there's a month where you're to struggling to pay, communicate with your loans provider immediately so that you can make an alternative plan. This will help you avoid getting a bad credit record,” says Suriah.

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According to Johann Rossouw, certified financial planner at Fiscal Private Client Services, you should set up a monthly budget and stick to it.

“This may not be the sexiest piece of advice, but all good financial plans start with a well-structured and coherent budget. Once you have a better idea of your spending patterns, try to cut back on any unnecessary expenses, and use extra funds to pay off the debt quicker,” says Rossouw.

He points out that you should always pay the minimum amount due – and extra if you have any surplus funds available. A side-hustle can help you earn extra money and thereby pay off your debt quicker.

READ MORE: How are you taxed on your “side-hustle”?

Are you penalised if you pay the loan off sooner?

In general, as regards a personal loan, you may be subjected to early settlement penalties if you finalise ahead of time. The creditor stands to make a loss in comparison with the original loan agreement, and the penalty allows them to recoup some of this. But does this also apply to a student loan?

Rossouw says that penalties will depend on the financial institution that lent you the money, and the amount of debt outstanding. However, a student loan is treated the same way as a personal loan in general.

“According to the National Credit Act, a lender may not charge any early-settlement penalties if the loan amount is below R250,000. If the amount is over R250,000, the lender may charge penalty fees – but this cannot be more than 3-months’ interest,” says Rossouw.

READ MORE: Everything you need to know about student loans

What alternatives are there to student loans?

There are a number of alternatives to student loans, and Rossouw highlights the following options.  

• Personal loans: This can be from a family member or a financial institution. Do your homework, and know the interest rate that will be charged. Personal loans from financial institutions will most likely have a higher interest rate than a student loan from the same institution.
• Bursaries: Most educational institutions can award bursaries and scholarships to deserving students. Find out whether you qualify by contacting their admissions office.
• Work-study programs: Under this option, your employer will pay for your studies, on the understanding that you will continue working for them after your studies have been completed. This is an excellent benefit, as you will avoid going into debt, and you will be guaranteed a job. It is, however, important to understand the implications, should you fail a course or decide to move to a different company.

If you’re unable to meet your student loan repayments, you should consider debt consolidation.