IN A NUTSHELL Don’t despair if your parents or guardians do not have enough savings to pay for your studies, there are various options available.
Do you want to study but your parents or guardians do not have enough savings? You are not alone ̶ almost 60% of South African students apply for a study loan. Here are the basics.
How do student loans work?
Many financial institutions offer student loans. The one thing most of them have in common is that you need someone who can stand surety for your loan. Once the student loan has been approved, the credit provider will pay tuition and accommodation fees to your tertiary institution. Some providers, mostly banks, will also open an account for you and transfer money into the account for you to use for handbooks and living expenses.
What does “stand surety” mean? A surety is someone such as a sponsor/parent/guardian, etc. who accepts responsibility for your debts. He or she is legally responsible for the debt should you not be able to pay.
What options do I have if I cannot find a surety? Consider finding a job and studying part-time. In this way, you can make monthly payments towards a student loan. Also, see Government loans below.
Nolwazi explains…
Student loan vs Personal loan
Student loans have lower interest rates, longer repayment periods, and interest-only payments until you start working. Personal loans usually have higher premiums and you must make immediate repayments since they are unsecured. Interest rates for personal loans average 15%, while student loans start around 11%.
Types of student loans
Government loans
If you are a South African citizen from a household with an income of less than R350 000 per year, you can apply for a study loan at the National Student Financial Aid Scheme (NSFAS). You will need a National Senior Certificate and be admitted to one of South Africa’s 25 public universities or TVET colleges. NSFAS covers tuition, registration, accommodation, food, and travel expenses. You need to apply annually and pass at least 50% of your modules to continue receiving funding.
How do repayments work? Based on your academic results, up to 40% of your NSFAS study loan can be converted into a bursary. This means you do not need to repay that amount. Repayments of NSFAS student loans will only be required once you have graduated and started earning over R30 000 per year. These repayments start at 3% of your annual income. For example, if you earn R30 000 per year, you pay back only R900 annually or R75 per month on your salary.
Bank loans
To attain a student loan from a bank a surety needs to apply on your behalf. The surety must earn over R3 000 per month and have a clear credit history. Each bank offers different repayment plans, so explore your options from South Africa’s major banks.
Private company loans
Independent credit providers such as FUNDI or Helpmekaar Studiefonds, etc. focus specifically on study loans.
How do repayments for bank and private loans work? The repayment period is fixed once the loan has been issued. The repayments are usually split into two periods. The first period starts while you are still studying, and your parent, guardian, sponsor or surety pays interest. The second period begins after graduation. You must pay back the capital amount and interest. The loan issuer, i.e., the bank, will allow a period of grace of 6 to 12 months post-graduation for you to job hunt. If you are lucky, can negotiate with your new employer to settle your student loan in exchange for years of service. However, if you remain unemployed after the period of grace, the surety will have to cover repayments.
Nolwazi explains…
It’s interesting…
A common misconception is that student loans do not accumulate interest, but they do, just like other household debts. For example, let’s say your parents take out a student loan of R80 000 at an interest rate of 11%. While you are studying, they pay the R863.40 monthly interest. Once you graduate you still owe the bank R80 000 plus 11% interest, which can be paid in a monthly installment of R1 834.65 calculated over 60 months. This means you will end up paying about R118 713 on your student loan.
Consider getting a part-time job while studying to build savings to ease the burden once you start with repayments.
CHECKLIST: What do I need to apply for a student loan?
You need the documents below to prove to the financial institution that you are attending university. Make sure you have original and certified copies to avoid delays.
- Your university or college acceptance letter
- Proof of academic results*
- Proof of costs
- Proof of residence no older than 3 months (for you and your surety)
- ID documents (for you and your surety)
- 3 Months’ pay slips (only for the surety)
- 3 Months’ bank statements (only for the surety)
*After the first year of your studies, the credit provider will require proof of the previous year’s academic results to make sure you are permitted to continue your studies. You can request academic transcripts from your university.
Before taking out a student loan, research thoroughly, explore options, and select one that suits your needs. Make sure you understand the repayment plan and payment due dates.
Good luck with your studies and enjoy the journey!
Sources
All Bursaries South Africa: Student Loans in South Africa – Study Tertiary Education
Fundi Connect: Student Loans in South Africa: Everything You Need to Know
Just Money: Everything you need to know about student loans
RCS: Things to consider when taking out a student loan
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