Students swamped by debt

Rise in under-25s struggling to pay off tertiary education

A growing number of young people are battling to cope with debt, mostly to pay for their tertiary education, say experts.

Ian Wason, chief executive of local debt management firm, DebtBusters, said the country already had a poor savings culture, but this was perpetuated by young people getting into debt – before they are employed – to pay for their studies.

Wason said the high cost of higher education meant many students were in debt before they were employed, and had no means of repaying it.

He said the firm’s latest Debtometer showed an increase in the number of people under the age of 25 struggling with debt. The number had increased from 10% of its clients in 2012 to 26% this year.

Wason said once the student graduated, the full loan amount was due, regardless of whether the student was employed.

“By the time the student has completed their studies, this could range between R100 000 and R200 000, with a monthly repayment of between R2 000 and R4 000 a month over a 60-month period.

For most, this additional monthly repayment pushed them into a situation which would see them “over-indebted”.

Wason said students needed to be made aware of the implications of taking out a loan and how the repayment process worked.

Neil Roets, chief executive of debt management company Debt Rescue, said chronic debtors were getting younger, with debt in the 18- to 34-year-old category sky-rocketing.

He said a significant percent-age of this debt related to school fees and student loans: “The people walking through our doors looking for debt relief by going under debt review are getting younger by the day.”

Kagisho Mamabolo, spokes-man for the National Student Financial Aid Scheme, said students who had benefited from the scheme were obliged, according to legislation and contractual agreement, to make repayments as soon as they were employed and earned an income.

He said payments started at 3% of annual salary, increasing to a maximum of 8% when their salary reached R59 300 or more a year.

Mamabolo said this meant, for example, that a student would pay back R900 a year on a salary of R30 000 a year, or R84 a month.

Clif Johnston, vice-chairman of the South African National Consumer Union, said tertiary education fees had been increasing at above-inflation rates over a number of years.

Magauta Mphahlele, chief executive of the National Debt Mediation Association, said the association had been receiving
applications from mainly employed adults, but had noticed that many had a deficit in their budgets because of an increase in school or university fees, accommodation and food for students who were not staying at home.

“The increase makes it difficult for them to meet their debt repayments, and as a result they fall behind, or they have to borrow to make ends meet.”

Tshegofatso Selahle, spokes-man for Nedbank, said: “We have structured the loan offering in a way that the student can afford to repay it during the course of study, as only the interest portion is required.

“This is an effort to avoid a situation where students feel overwhelmed by the debt in place and are unable to make repayments.

“Once a student completes their studies and are still looking for employment, a six-month grace period is given to them.”

Pieter du Toit, chief executive of personal loans at FNB, said interest rates on student loans were charged while the student was studying, which needed to be serviced monthly by a parent or sponsor. The bank provided a further six months grace after completion of studies before capital repayments started.

A spokesman for Absa said the bank was unable to disclose information on how much student loan debt was worth, saying only that the impairment levels were currently within expectations.

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