By: Andrew Cross, Certified Financial Planner® BDO South Africa
The current Fees Must Fall campaign has overridden the country’s news platforms more than ever. Following social and public conversations around this topic, it is quite evident that the need for funding education is higher than ever.
As much as there is uncertainty about what the outcome will be, student loans are still an option for many of our youth. As a result, the majority of graduates and young professionals start their careers with study loans to pay off. Debt can be both good and bad, however, it is pivotal to manage your expenses according to your lifestyle, as debt will always be a worrying thought. The best thing you can do is to educate yourself on how to manage your finances, reduce your debt and pay back your student loans in a timeous manner.
Below are a few tips about student loans that you should be aware of:
- You cannot (and should not) use a student loan to maintain a high standard of living;
- You should not forget about the debt during university and concentrate only on passing – rather spend wisely throughout your studies to help pay off some of your student loan before you have even graduated;
- Some say avoid debt at all costs, however, there are valid reasons to consider a study loan;
- If you manage a student debt properly and plan upfront, it will be possible to pay it off following a detailed financial plan;
- Interest on study loans is not zero-rated, which means student loans do bear interest – so you should work to pay them off as soon as possible.
Selecting a student loan
When selecting the appropriate student loan deal, there are two types of student loans to choose from:
1. National Student Financial Aid Scheme, which is managed by the government.
2. Loans from private lenders including the big four banks and other independent credit providers. All of these should be registered with the National Credit Regulator.
When choosing the option that suits you best, you should investigate all options and select one which best suits your needs and corresponding interest rates. If you are a full-time student not living with your parents, it is advisable to use your student loan to pay for tuition fees, books, equipment and accommodation. This will take strict budgeting and discipline.
You will need to make a new application for your student loan for each year. So check all the conditions and ensure that you continually comply. Loans are ‘grown-up stuff’ and you would not want your finance to be withdrawn on a technical issue.
Remember that a surety (something/someone that will take on your debt if needed) may have to apply on your behalf if you are a full-time student without a current income. That surety would need a disposable income and a clear credit history.
Things to remember when considering a student loan
The truth is that a student loan is not to support a high standard of living, you may not be able to afford your standard of living after graduation. It is therefore a mistake to take out a student loan without considering all the implications involved and reading the fine print carefully. It’s unfortunate that most young people don’t think enough about the implications of their loans. To a large extent, your future career will influence this decision you make on the amount of the loan you should apply for. When taking a loan, bear in mind that you will need to continuously monitor your loan and strive to minimise your debt, avoid incurring unnecessary debt. But if that means dropping out – or not enrolling for the next year of studies to complete in any courses, then taking out a loan, will be a good decision to make.
Confidence in repaying debt is key learn how to be the master of your money. Believe you can pay the loan off and find a way. There is opportunity everywhere; speak to your financial services provider to explain the interest on your loan and how they vary. The value of acquiring tertiary education is well worth the commitment to invest in a student loan.
Here’s what to look out for when acquiring your student loan:
The Don’ts:
- Don’t pick the first institution willing to grant you a loan, rather find one that best suits your needs;
- Don’t forget about your loan and believe you will just settle it once you start working. Constantly monitor your loan.
The Do’s:
- Do your research. Interest rates and payment options will differ from lender to lender;
- Recognise which option is suited to your individual situation;
- Have a payment plan. Be aware of what you owe and your repayment plan. Put the peg in the sand, have a specific timeline of your debt repayment as soon as possible.
Keep in mind, the main reason you invest in a student loan is to finance your tertiary education, typically repayable once you graduate. Loans need to be repaid over a 5- to 10-year time period. Be sure to budget for your student loan repayments from your first salary.
Read more BDO Insights