University and college tuition are rapidly increasing. In 2022, the Department of Higher Education and Training proposed a 4.23% increase in tuition fees for the 2022 academic year and a maximum increase of 6.23% in accommodation for all 26 South African universities.

The cost of a tertiary education rises as the cost of tuition and housing rises. Many South Africans cannot afford to pay their tuition and living expenses out of their own pockets. With over 755 000 students funded by NSFAS, government aid has done a lot to encourage students to pursue tertiary education.

Those whose parents earn an income that disqualifies them from NSFAS funding but restricts them from self-funding their studies fall between the two groups. As a result, these individuals look for alternative funding sources to continue their education.

Student loans and scholarships are the best options. These types of educational funding have different requirements, and they can create a lot of competition among students. These types of funding are still popular in South Africa, and their demand and use are increasing.

What exactly is the distinction between student loans and scholarships? What are their benefits and drawbacks? We answer these questions to help you understand student loans and how they work.

Difference between a student loan and a scholarship 

Student loans 

A student loan is a type of financial credit granted for the purpose of studying. These loans are made available by financial intermediaries registered with South Africa’s National Credit Regulator. As a result, these issuers could be banks or other licensed financial institutions.

A student loan can be used to pay for tuition, living expenses, study materials, and other educational expenses. The amount of a loan varies by lender and can range from thousands to hundreds of thousands of rands per year of study.

A student loan must be repaid at some point in the future. Lenders can grant debtors a payment holiday. For example, a lender can grant a debtor a one-year repayment holiday and require the debtor to begin repaying the loan after one year.

Student loans are subject to interest, which can be variable or fixed. Lenders who offer student loan payment holidays typically charge interest on the payment holiday days/months.

Student loans differ from other types of loans in that they provide some level of protection to the student as repayments are not instant. Some student loans may require collateral, whereas others only require a parent, guardian, or sponsor to sign as a donor.

Here are some of the leading student loans in South Africa:

• FNB Student Loans, 
• Absa Student loans, 
• Nedbank student loans, and 
• Standard Bank student loans. 

Advantages of a student loan

• Student loans have lower interest rates than other types of loans.
• Student loans meet a variety of students’ financial needs.
• There are various repayment terms to choose from.
• Personal loans are more difficult to obtain than student loans.
• Student loans are available to both full-time and part-time students.

Disadvantages of a student loan

• A student loan is not available to every student, and even if a student qualifies, a sponsor may be required which they might not have.
• Because of the flexibility of repayment terms, student loans can take years to repay, accumulating more interest.
• A loan that may not cover the entire tuition or other student-related expenses requires students to fund the difference. 

Scholarship 

A scholarship is a financial gift that provides merit-based funding for college or university tuition. Scholarships are awarded to students who are deemed academically gifted. A scholarship can provide financial assistance to students for a part or all of their academic needs for a set period of time.

The awarded aid does not have to be repaid to donors, there is no money repayment, collateral, or interest for a scholarship. Academic performance is the most important factor in granting a scholarship.

However, academic performance is not the only criterion used to determine who receives a scholarship. A scholarship may also require the submission of additional relevant information. Certain scholarships may require a letter of recommendation from a previous or current school, a CV, a motivation essay explaining why you should be awarded a scholarship, and other documents.

Scholarships are not only given based on academic achievement. Other scholarships are given out based on athletic performance. Athletically gifted students may also be eligible for scholarships to further their education at a tertiary institution.

Among the best scholarships for South Africans are:

• Desmond Tutu scholarship. 
• Mandela Rhodes foundation scholarship. 
• Ellen Nilsen Memorial Graduate scholarship. 

Advantages of a scholarship 

• There is no obligation to repay the amount of money paid by the scholarship.
• There are no income requirements for applying for a scholarship.
• After finishing your studies, there is no need to work for the scholarship provider.
• A scholarship can pay for your entire education.
• There is an opportunity to network with others who have received the same scholarship.

Disadvantages of a scholarship 

• Due to the high academic expectations of a scholarship, students who do not meet the academic expectations of a scholarship do not receive a scholarship renewal.
• A scholarship may only cover a portion of your tuition.

Conclusion 

Scholarships and student loans are very similar, but they have distinct characteristics. Acceptance into either of the two financing options can be a good way to begin tertiary education. However, one imposes a financial burden at the conclusion of your studies, whereas the other does not.

A scholarship appears to be the best option for anyone, but it comes with stringent performance requirements. For the scholarship to continue, a certain level of performance must be met. Failure to meet the requirements, of the scholarship may result in its termination.