Essential Guide to Student Loans in South Africa
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Student loans can provide an essential means of funding your studies when others fail, and allow for better repayment options.
Almost everyone has dreams of studying towards a prestigious qualification in the field of their choice, but the fact is that tertiary education can be expensive – often prohibitively so. For many prospective students, the financial requirements of such studies are insurmountable, whether due to having a disadvantaged background or simply because of an expensive choice of study program. Whatever the case, it is difficult when money stands in the way of achieving your dreams.
Due to the highly competitive nature of bursaries, scholarships and other types of funding that does not require financial repayment, sometimes it is impossible for the financially challenged student to attain these highly sought-after means of funding, despite their best efforts. Fortunately, there is another option that, while being somewhat less desirable, can still make the difference between being able to finance your education and having to give up on your academic aspirations. Student loans provide this vital financial lifeline in a way that can make them manageable even for prospective students who are struggling to overcome the financial difficulties that come with tertiary education.
A student loan is a type of loan that is provided specifically to students for the purpose of funding their studies on a tertiary level, and is designed to cover associated costs such as tuition and administration fees, accommodation and meals, textbooks, stationery, equipment, other necessary supplies, and day-to-day living expenses. The main difference between student loans and other types of financial loans is that, being designed for students (who typically do not have much money), these loans generally come with substantially lower interest rates, and more relaxed repayment schedules that often allow for students to defer repayment until the completion of their studies. They may also be subject to different laws that affect loan renegotiation and bankruptcy, offering more protection for students in this regard. All this can be very helpful in making student loans affordable and accessible to as many prospective students as possible.
How do student loans work?
Given that student loans work a little differently to other types of loans, it’s important to understand exactly how they function and what will be expected of you as the holder of the loan. To start with, the terms of a student loan can refer to the specified time during or by which the loan must be repaid, as well as the conditions under which it is given. In the case of the former, for student loans, the term of repayment is often substantially more relaxed than for other types of loans, which often require sooner repayment. These terms differ depending on the specific loan in question, but in general allow for repayment over a period of many years, often starting only after the student has graduated (and is therefore able to put their qualification to use as a professional).
The terms and conditions of student loans are also somewhat different to those that apply to other loans. In many cases, a parent or sponsor of the student will be required to sign surety on the loan, thereby providing the loan provider (usually a bank) with a more concrete guarantee that the repayments will be covered, most often starting between three and six months after graduation to allow the student time to find a paying job. Generally, unless the student is earning enough money at this time to cover repayments as well as decent living expenses, the loan provider will not allow the student to repay the loan, and will instead require the person who signed surety to do so. It’s important to make note of clauses like this so that you are aware of who is liable to pay back the money when the time comes, and that you are prepared to assume responsibility for that.
Another potential pitfall to look out for when taking out a loan is an ‘auto-default clause’, which can result in the loan provider demanding full repayment of the loan, or place it in default, if the co-signer dies or files for bankruptcy. This can have severe legal and financial consequences for the student if it does take place.
Pros and cons
There are many reasons that student loans are appealing, and also many reasons that they should be approached with caution. Perhaps the biggest advantage of student loans is that they provide the opportunity for students with sufficient intelligence and promise to pursue studies and embark on career paths that they would otherwise be unable to. This is an important consideration, as the expense may well be worth the payoff in the long run. The fact that student loans offer relatively easy repayment and relaxed conditions supports this argument.
The low interest rates that apply to student loans are also advantageous, as they take more of the financial burden off of students (and their parents/co-signers). This means lower monthly repayments and less financial stress as a result. Most student loans also do not require any type of security against the loan, which makes them easily accessible to a far wider range of people.
Perhaps the most important and obvious disadvantage of taking out a student loan is the simple fact that it entails entering into debt at a young age, and for a considerable period of time. This can be exacerbated by the fact that the interest on a loan will keep increasing the longer it takes to repay it, and that even graduates who are lucky enough to find good jobs as a result of the education their student loan has enabled them to afford will find a large proportion of their salary going towards loan repayments on a monthly basis. This can lead to an unfortunate shift of focus from exploring different career options that are fulfilling and offer opportunities for advancement to simply finding a job that will pay enough to keep up with loan repayments.
This situation is made even worse if the graduate is unable to find a job that pays enough to cover this cost as well as living expenses. If this financial imbalance leaves the person unable to keep up with their loan repayments, it can lead to the loan being placed in default. This has dire consequences for the credit rating of the individual in question, which can continue to affect his or her entire financial life for many years into the future – definitely a situation that should be avoided at all costs.
How to apply
Applying for a student loan is, by design, a relatively straightforward process. The most important aspect of this application is ensuring that all your documentation is in order. The same applies to that of the person who is signing surety on the loan. Of course, it is also important to choose this person carefully (and make sure that you maintain a good relationship with him or her), as they may become responsible for repaying your loan if you are unable to do so. Parents or other immediate relatives are generally the best choices for co-signers.
When applying for a student loan, you will generally need to take along your ID book as well as that of your co-signer, the co-signer’s proof of income and proof of address, and proof of your own enrolment at a recognised tertiary institution. You will need to submit these, along with the bank’s own forms as required, in which you will have to include the full details of your intended program of study and the amount of money you estimate you will need. It’s generally best to go with a slightly lower estimate than one that is too high, as this may increase your chances of being approved for the loan.
Once all the above, as well as your co-signer’s credit history and income bracket, has been assessed (a process that should take no more than half an hour), the loan provider will approve or decline your loan. Within a few days, you should receive the money in your account, and be on your way to a tertiary education.
Getting a student loan is, of course, the easy part – repaying it can be much more difficult. A few general guidelines can help to ensure that you maintain your repayments without too much difficulty, avoiding the very dire trap of defaulting on your loan. First and foremost, it’s a good idea to draw up a concise budget that includes your repayments upon graduation, so you know what you’re up against. If you are lucky enough to find a job straight away, this can help you to weigh your income against your expenses. If your loan allows for a choice of repayment periods, do your best to aim for the quickest repayment possible, as this will prevent ever-increasing interest from piling up. Keep track of the balance of your loan, its interest, and your repayments at all times so you know where you stand.
In your day-to-day life, it’s going to be important to manage your finances prudently and intelligently. Avoid splurging on luxury items before repaying your loan, and do not incur any more debt during this period. If you are unable to find suitable employment, inform your loan provider of this – they are far more likely to offer some leniency for student loans than any other type. It’s also important to notify your loan provider of any changes in contact details or address, as you can be penalised for not doing so. If you are confused by any aspect of your loan, seek the advice of a qualified financial adviser rather than make regrettable mistakes.
Alternatives to student loans
While student loans can be the simplest and most easily accessible ways to finance your education, they come with their own challenges and can be difficult to manage. It’s therefore important to consider alternatives before making the decision to take out a student loan. The most obvious of these is the avenue of scholarships and bursaries that may be available for your study program. It goes without saying that every possible bursary or scholarship should be explored before making the decision to take out a loan, as these can provide the means to finance your education without getting into debt (the advantages of which are obvious). Spend some time researching the various options that are available, as there are often more than you think!
If you want to study a short course or as a part-time student, different types of bank loans or credit plans may suit you better than student loans, which are often only available to those wishing to study towards full-time degrees. In recent years many banks have started introducing new loan options specifically tailored towards this kind of thing, so it’s definitely worth looking into.
It may not be the easiest route, but holding down a part-time job to finance your studies can be a good way to stay out of debt and provide the necessary funding. It’s important to make sure that this does not impact negatively on your studies however, or else it may end up being a somewhat wasted effort. Some companies also offer training programs or internships that can provide useful certificates and even full diplomas.
Financing your tertiary studies is certainly no easy task, but it can be achievable with the help of a student loan. As with any loan, it’s vital to stay on top of things and ensure that you are keeping up with repayments and not sinking deeper into debt. Above all, focus on the end goal, which is to achieve your academic goals and use them to pay off the loan. Once you have achieved this, you will be able to enjoy the financial life that you have worked hard for – and the worries about repaying the loan will be far in the past!