Student Loans in South Africa
Are Student Loans in South Africa “a good thing”?
- Yes, when taking responsibility for a child’s education
- For sure, when you weigh up the benefits of debt versus education
- Yes, if you research available Student Loan options
- Yes if you qualify for a National Student Financial Aid Scheme loan
- Certainly, if you understand the financial implications of a bank-funded Student Loan
If going into debt can be “a good thing”, then that label would apply to Student Loans.
The benefits of higher education far outweigh the financial discomfits of having to repay borrowed funds.
Parents are urged to finance their children’s tertiary education from their own earnings or savings.
On the other hand, if they are unable to do so and their children cannot obtain a bursary or scholarship, then applying for a Student Loan is the next best option.
Who finances Student Loans?
South African students who want to further their education but who do not have the needed finances have two options.
The government-supported National Student Financial Aid Scheme (NSFAS) or one of the country’s “big four” banks – Standard, Absa, Nedbank and First National Bank.
What is the difference between these loans?
- Students obtaining a NSFAS loan are solely liable for the debt repayment.
- The parents or guardians of students obtaining loans from one of the banks are responsible for debt repayment.
Let’s take a closer look at these two options.
The government-backed NSFAS focuses its lending programme on students from low-income and disadvantaged backgrounds.
Student Loans are available for the country’s 25 universities and technical vocational education training (TVET) colleges.
The NSFAS will fund:
- Accommodation on the campus or private quarters
- Travelling costs
How to apply for a NSFAS loan
Students must make applications for loans via the university or college they will be attending.
The NSFAS allocated money to each of these educational institutions, basing the funding on the cost of student fees and the enrolment number of black, coloured and Indian students.
Working according to NSFAS rules, the universities and colleges make their own assessments as to which students will receive the funding.
What are the qualification criteria?
- Students eligible for loans must come from a household earning under R122 000 annually
- A sliding scale determines the loan amount
- Students from disadvantaged backgrounds receive maximum funding
- Disadvantaged students studying for a university degree can receive up to R71 800 annually
The NSFAS offers students a substantial bonus if they pass all their subjects every year.
Those students can convert up to 40% of the loan amount into a bursary that does not have to be repaid!
How are loans repaid?
Students are responsible for repaying the loans on completion of their studies and finding employment that pays at least R30 000 a year.
Repayment is three percent of annual gross income but increases to a maximum of eight percent once salaries rise to R59 300 or more a year.
In today’s economy, it is highly unlikely that a student with a tertiary education would enter the employment pool earning R30 000 gross annual income.
They are far more likely to earn at least R60 000 gross annual income.
At a loan repayment of eight percent, this income will attract an annual interest of R4 800, requiring a very affordable monthly loan repayment of R400.
What if I drop out or can’t find work?
The NSFAS does not expect payment from qualified students who have not found employment. They must begin paying as soon as they find employment.
However, students who drop out of university or college must pay back the cost of their studies up until the time of their departure from the campus.
Student Loans from banks
As mentioned earlier, South African banks that service Students Loans are Standard, Absa, Nedbank and First National Bank.
Parents and guardians are held responsible for the repayment of Student Loans.
The capital loan amount must be repaid on completion of the studies, but banks charge interest and administration costs which must be paid monthly.
Example of repayments
- A loan amount of R80 000 applies to a student for a four-year university degree
- The loan attracts an interest rate of 10%
- Monthly administration fees are R50
- Annual interest is R8 000
- Annual admin fees are R600
- Monthly repayment (excluding capital) amounts to R716.67
But here comes the rub!
The loan amount now doubles to R160 000 because, remember, the capital amount for the first year has not been paid.
The guarantor for the loan – the parent or guardian – has only paid off interest and administration costs.
So by the time the student completes the degree, the capital amount will have soared to R320 000.
This amount attracts its own interest and administration fees, leaving the guarantor with a final bill closer to the R400 000 mark.
That amount is over and above the money paid in the interim years by the guarantor to offset the bank’s monthly interest and administration costs.
What you get
- Bank student loans offer:
- Tuition fees
- Accommodation costs
- Study-related equipment such as laptops
Students must reapply for a loan every year on registration at the tertiary institution.
The banks pay the money for the cost of textbooks and study equipment directly into a student’s bank account.
Absa, however, pays all the money to the student’s sponsor.
There is no such thing as a “good debt”, but when it comes to education most parents will turn over backwards to help their children secure a good financial future.
However, it is obvious that attempting to obtain funding for tertiary education with a bursary is the best solution.