Finance your studies

By Letitia Watson
30 November 2017
PHOTO: Getty/Gallo Images

PHOTO: Getty/Gallo Images

Many students have to rely on loans to pay for higher education. Check out the options before you commit yourself.

Few families can really afford to pay for their kids' tertiary education. In fact, just 17% of South Africans save for their children's further education or training, according to the Old Mutual Savings & Investments Monitor.

Fortunately there are other options – but make sure you do your homework so you can choose the best one.

STUDY LOANS

These loans are specifically for tertiary education. They’re provided mainly by the major banks, and loan amounts range from about R4 000 to R80 000 a year.

You must prove to the bank you’ve been accepted at a tertiary institution accredited with the South African Qualifications Authority (Saqa).

Study loans usually require that interest and administration fees are paid while the student studies.

Once they’ve completed their studies, students repay the remaining capital amount, says Philani Potwana of FNB Personal Loans. This usually takes place over a specific period as stipulated in the contract.

If a student can’t pay the interest and fees while studying, a sponsor can do it on their behalf. The person who becomes the student’s backer needn’t be their parent or guardian but they must be able to afford the loan and shouldn’t have much other debt.

BENEFITS

? Generally the interest on student loans is lower than that charged on other kinds of debt, Potwana says.

? Because the interest and service fees are paid while students are studying, they should have less debt once they’ve graduated.

? Student loans are available for both part- and full-time study as well as for studying at institutions abroad, Kimesh Naidu of Standard Bank says.

CAUTIONS

? If you drop out of your studies, you may have to pay back the interest and capital immediately.

? Find out when you must start repaying your loan and do it unfailingly! You don't want a negative credit rating related to loans that aren’t paid back on time.

PERSONAL LOANS

They're usually short-term loans you can take out at a bank or from other financiers and aren't specifically aimed at students.

POSSIBLE BENEFITS

? Personal loans can be used for other purposes, for example for private courses not approved for loans by the banks or NSFAS.

CAUTIONS

? The interest rate on a personal loan is affected by the lender’s risk profile, the loan amount and the loan period. The interest rate is usually higher than on a study loan. The maximum interest rate is calculated as follows: repo rate + 21%. So with the repo rate at 6,76% it’s 27,5%.

? The loan plus interest is payable immediately.

? Watch out for creditors not registered with the National Credit Regulator. If you take out a loan with one of them you have little protection under the law.

NSFAS

The National Student Financial Aid Scheme (NSFAS) is funded by the Department of Higher Education and Training to provide study loans to students who perform well academically but don’t have the financial means to study. Previously loans were given only to households with incomes below R122 000 a year, but this year

it was extended also to households with higher incomes who still can’t cover their kids' tertiary education.

The loans are for studies at SA universities and tertiary colleges.

BENEFITS

? Nearly half (40%) of this loan can be converted into a free scholarship if you pass your subjects.

An even greater portion can be converted into a scholarship if you’re an academic achiever.

? The debt nor the interest has to be repaid while you’re studying. You usually start paying back the money only a year after completing your studies and when you’re earning more than a specific amount a year. The loan is then payable over the period stipulated in the loan contract.

? Interest charged on outstanding amounts is heavily subsidised at 80% of the repo rate. This is a significant subsidy if you consider the prime rate is typically 350 basis points above the repo rate. If the prime interest rate is 10,25%, NSFAS-funded students would pay interest of only 5,6% on outstanding loans.

CAUTIONS

? If you don’t pass, the loan can be cancelled and you'll have to start repaying the outstanding amount immediately.

? It remains a loan that accumulates interest so you should pay it off as soon possible.

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