Your Student Loan Advice For 2020

So you’re done with school and it’s time for the big leagues, university or college. By now you’ve probably looked at all the different campuses and you’re excited about the future. But there’s one problem, you don’t have the cash to pay for tertiary education. Although you have a few options, student loans are widely used for financial support. So, how do you choose the right student loan? 

By now you may have realised that the South African tertiary education is not cheap. Finding as much financial help as possible will be in your best interest. 

Over the past years, we’ve seen an uprise of students protesting the price of their education, complaining that these fees are just too high. Although we’ve seen the rise of #feesmustfall over the past years, only a small number of students will have access to free education. 

Only students who qualify will benefit from this financial relief. Most students who enrol into higher education will have to find finance for their education themselves. 

Student loan vs personal loan

Now that you have to start taking care of yourself, you need to find ways to pay the bills. The good news is that you don’t need three jobs to pay off your loan while studying. Before taking out a loan consider all your available options.

Apply for as many grants, bursaries and scholarships as you can. Getting financial help from one of these alternative options will put you in a better financial position. Which means you don’t need to take out a huge loan amount.  

Some South Africans would rather take out a personal loan than a student loan. This is because both parents and students don’t know the difference between a student loan and a personal loan.

Or parents feel responsible for their children’s education and don’t want to put this burden on their children’s shoulders. Taking out a personal loan for your studies is the last thing you should be doing.

And here’s why.

Personal loans generally have higher interest rates. You’ll end up paying a lot more for the loan than what the loan is actually worth. A personal loan also requires you to start making the first instalment the month after you’ve opened the account. Paying off the amount you borrowed while you’re studying is going to be very tricky.

Taking out a personal loan to pay for your studies will only set you up for greater risk of debt.

We advise you to stay away from personal loans when seeking financial assistance for further education.

A student loan is a good option if you need some financial assistance. Both parents and students can co-sign when applying for a student loan. Generally, the parent, with an income, pays off the interest rate while the student is occupied with studies.

The full loan amount will be in the student’s name until they’ve graduated. Once they’ve finished their studies and start earning their own income, the student then takes over and pays off the rest of the loan.

Choosing a student loan

There are two options for South African students who are looking for financial assistance. The first being, the National Student Financial Aid Scheme (NSFAS) and the second, the big banks of South Africa; Standard Bank, First National Bank (FNB), Nedbank and Absa.

Let’s look at these two options in more detail.

The National Student Finical Aid Scheme (NSFAS)

NSFAS is a Government-funded initiative that aims to provide financial aid to poor and working-class families.

Prior to 2018 the NSFAS mainly provided loans to students which they could start paying back once they start working. However, the South African Government has committed itself to free education, which has changed the structure of the NSFAS.

Although the NSFAS structures it’s financial aid like a bursary, it’s still very much a loan. What makes it different from other loans is that students stand a chance of decreasing their loan capital amount by 20% or more.

Although the interest rate on the NFSAS loan is less than traditional banks, this is something students need to consider.

What the loan/bursary covers?

University

• Accommodation as charged by the University. Private accommodation can’t exceed the costs of a university residence.
• Transport up to R10 000 per annum.
• Living allowance up to R14 400 per annum.
• Book allowance up to R5 000 per annum.
• Incidental/personal care allowance for students in catered residence up to R2 750 per annum.

TVET (Technical and Vocational Education and Training)

• Accommodation in an urban area R24 000 per annum.
• Accommodation in a peri-urban area R18 000 per annum.
• Accommodation in a rural area R15 000 per annum.
• Transport up to R10 000 per annum
• Transport up to R7 000 per annum.
• Incidental/personal care allowance for students in catered residence up to R2 750 per annum.

Who qualifies for NSFAS funding?

According to NSFAS, the following criteria will determine the success of your application:

• All South African citizens
• All SASSA grant recipients qualify for funding
• Applicants whose combined household income is not more than R350 000 per annum
• Person with disability: Combined household income must not be more than R600 000 per annum
• Students who started studying before 2018 whose household income is not more than R122 000 per annum.

How the loan/bursary works

Although the NSFAS structures its funding like a bursary, the funding is still very much a student loan. So where does the bursary part come in?

The NSFAS will fund all students who qualify. But, NSFAS will grant you a partial bursary if you pass your classes.

Students will have to submit their academic results to NSFAS, which will determine a bursary approval or not.

Students who have passed all their subjects will receive a 40% bursary. Which means the NSFAS deducts 40% from that year’s loan. Students therefore only have to pay 60% of the total loan amount instead of the full amount owed.

Students who only pass half of their subjects will receive a 20% bursary. While students who don’t pass the year will not receive any bursary benefits and will have to pay the full loan amount.

This could become a powerful motivator. Students who work hard during their studies could end up saving a lot of money along the way.

How do students repay NSFAS?

Students will only start paying back the loan once they’re employed. Although this is normal for a student loan, the NSFAS repayment structure is unique.

Students will only have to start making repayments once they start earing R30 000 per year or R2 500 per month. The NSFAS requires students to make a minimum repayment of 3% of their annual income or a maximum of 8% of their annual income.

For example, students who have an annual salary of R30 000 will have to make a minimum repayment of R900 per year (3%) or R75 per month. Students who earn an annual income of R59 300 or more will have to make a minimum repayment of R4 744 per year (8%) or R395 per month.

Students can pay more towards their loan which would help pay off their loan even faster. Paying the loan as fast as possible would also reduce the interest rate attached to the loan.

The interest rate attached to the NSFAS loan is charged at 80% of the repo rate. This is the repurchase rate that the Reserve Bank charges commercial banks. This fee will change each year as the repo rate changes. The interest rate would be around 5% – 6% per year.

These rates will be charged on all outstanding balances. So it will be a good idea to start paying off the loan as soon as possible.

The interest rate charged to students who qualify for the NSFAS funding might be better off in the long run. However, students need to be aware of how dangerous interest can be. They should prioritise their debt and pay it off as soon as possible.

Student loan from a bank

A student loan from one of the major banks is probably your best bet when seeking out financial assistance. These loans are designed to actually help students pay their studies.

All the big four, FNB, Nedbank, Standard Bank and ABSA, offer student loans. Although the student loans offered by these banks may vary in the way they function, the principle of a student loan remains the same.

Full-time student loans are designed to keep interest rate charges as low as possible while you’re studying. That means that as long you make your monthly repayment while you’re studying the interest rate will not compound for the full duration of your studies.

What a student loan includes

Most major banks will offer similar features.

According to Personal Finance, most banks offer similar student loan offers, which include;

• Cover tuition, accommodation, book fees and money for study-related equipment. These loans generally do not include living expenses. This would include food, drinks, travel etc.

• Banks will only allow a student to apply for a loan to a specific year of study. Once the loan has been granted you will have to pay each new registration year.

• Payments could be made to institutions or residence directly, while the money is sent to the student for books and equipment.

• All banks will require proof of identification, proof of address, income statements, acknowledgement of study or registration papers and the cost of all fees.

• Generally, banks will require you and your parent or guardian to take out life assurance. This allows the bank to cover itself in the case of a death, disease or disability.

• The bank will perform an affordability assessment of the person responsible for the loan. They have to do a background check to evaluate the income and credit record of the main applicant.

• Banks will charge a monthly administration fee as well as an initiation fee.

• If you are interested in reapplying for another student loan for an additional year of study, you’ll have to send your final year results as well as the registration forms.

• Full-time students will have to start paying back their loan as soon as they’ve completed their studies. However, banks do offer grace periods to students who are struggling to find a job, completing articles, doing internships or community service.

• Part-time students will have to start making payments while they study.

FNB Student Loan 

Features and Benefits 

• Access to loans from R4000 to R80 000 for each year of study
• Only pay interest, fees and charges while the student is studying and start repaying the remaining interest, fees, charges and capital on completion of their studies
• Credit life insurance
• You could boost your ebucks reward level

What the loan overs 

• Tuition fees
• Textbooks, other study material and devices
• Equipment
• Accommodation

Interest Rate 

• Personalised interest rate

Standard Bank

Features and Benefits 

• Pay only interest and fees while you study
• Your full-time student loan covers fees, accommodation books and equipment
• Finalise your application in-branch once it’s been provisionally approved online
• Pay no additional charges if you are able to settle your loan early

What the loan overs 

• Tuition fees
• Books
• Study equipment

Interest Rate 

• Sureties will get a student loan at prime interest rate (which is currently 10%) if they are a Standard Bank customer.

Nedbank 

Features and Benefits 

• Interest rates with flexible repayment options.
• Only pay fees and interest on the loan while studying.
• Pay back the capital once you’ve completed your studies.
• Optional credit life cover.

What the loan overs 

• Tuition fees
• Textbooks
• On-campus accommodation
• Various other study-related equipment.

Interest Rate 

• Contact Nedbank for more information

ABSA 

Features and Benefits 

• Pay interest only for the 12 months and only start repaying from month 13.
• Competing interest rates
• Get a Credit Protection Plan

What the loan overs 

• Tuition fees
• Accommodation
• Study book
• Technical equipment

Interest Rate 

• ABSA claims that they will beat any competing interest rate. Terms and conditions apply.

Advice for students 

1) Taking out a student loan is OK: You might think that taking out a student loan is ‘bad’ and you might be fearful of having debt. But if you have a plan to help you along the way, you’ll be alright.

You should start asking yourself relevant questions before even taking out the loan. Like “How long will it take to pay off the debt?”, “What should my starting salary look like after studies?”, “What is the return on investment?” etc. Asking yourself these questions will put you in the right mindset when going forward.

2) Start building the right money habits: Having the right money habits is important whether you’re a student or working. The sooner you learn how to budget the better you’ll manage your money after your studies.

3) Learn to live within your means: Living within your means is to live with what you have. It’s a good idea to only use the money that you’re making, instead of using a credit card as well. Although a credit card can be used for good, they generally cause more destruction.

4) Start earning an income: Having a part-time job while you’re studying will help you learn how to manage your time and money. The best time to learn these skills is while you’re young. These skills will help you to find the time and money to pay off your student loan.

Remember, taking out a student loan means you’re investing in yourself. You might be in a lot of debt before you’ve even landed your first real job, but the education, or the return on investment, is totally worth it.

We wish you all the best in your studies.

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