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How to choose a Student Loan in South Africa

For many people in South Africa, student loans are a necessity. For students attending a tertiary institution, the country provides numerous financial options. Those who qualify for other financing products such as bursaries, scholarships, and NSFAS bursaries can go through tertiary education without having to make any repayments.

However, not everyone will be able to use these financial resources to further their studies. As a result, a student loan may be required. South Africa has a number of banks that offer student loans, including the Big Five banks.

Student loans can be used to cover a variety of educational expenses. This form of loan can be used to pay for things like housing, tuition, a laptop, calculators, and textbooks. This is to ensure that the majority of expenses are paid, particularly those that are judged necessary for completing one’s studies.

Student loans have a long history in South Africa, and without them, many people would not have been able to obtain the education they desired. With the advent of NSFAS (National Student Financial Aid Scheme) in 1999, the South African government has managed to help a lot of people. 

NSFAS was converted to a bursary in 2017, marking a watershed moment in the student loan sector. However, because not everyone is eligible for NSFAS, student loans remain in high demand in South Africa.

Before we give you tips on how to secure a student loan when you need it the most, let’s first discuss what student loans are and how they work in South Africa.

What is a student loan? 

A student loan is a type of loan that is used to pay for education. Student loans are primarily geared for tertiary students, whose costs can range from tens of thousands to over R100,000.00 per year. Student loans cover nearly all of the costs associated with completing one’s studies.

The most commonly financed things under student loans include computer equipment, stationery, housing, and tuition costs. Some student loans are extremely generous, covering expenses such as meals, transportation, and spending money.

Student loans are not bursaries; therefore, they have to be repaid. The majority of student loans require repayment right after the loan is taken out. Other financial organizations, on the other hand, allow loan account holders to take a payment break and resume payments later.

The amount of money that will be repaid will be subject to interest. Student loan interest rates vary by institution. When compared to personal loans or overdrafts, student loan interest rates are quite low.

FNB currently has the lowest student loan interest rate at 6.75%. However, the amount of interest charged is mostly determined by one’s credit profile. The better one’s credit rating is, the lower their interest rate will be. 

Who can qualify for a student loan? 

Student loans, unlike bursaries, have income requirements; consequently, to qualify for a student loan, one must work. One might ask, “What if I’m unemployed or don’t have a source of income?” There are two options for getting funding for your studies through a student loan.

1. By yourself 

Since a student loan is likely to need immediate repayment after taking out the loan, you can qualify for the loan and begin making payments if you have a source of income. Income can come from employment or self-employment. 

To qualify for a student loan, part-time students must be employed or self-employed in most situations. As a result, understanding which bank you wish to borrow money from is critical, since a guarantor may not be approved by some banks if you are a part-time student.

2. Through a guarantor

For full-time students, a guarantor can be designated as the primary applicant, with proof of income required from the guarantor instead of the student. Repayments to the account will be the responsibility of the guarantor.

Other circumstances may necessitate the use of collateral for a student loan; nevertheless, the big five banks do not currently demand collateral for such a loan. In the event that the guarantor passes away, the debt can be secured using credit life insurance. 

Because a student loan can be taken out by either the student or a guarantor, the decision to utilize a guarantor will be based on whether or not the student has a source of income. Student loans are subject to credit vetting, so even if you have a steady salary, you may be turned down for a loan. It’s a good idea to keep a solid credit score and pay off debt before applying for a student loan.

What are the qualifying criteria for a student loan? 

For a student loan, each financial institution has its own set of requirements. However, there are some common requirements for obtaining a student loan. The amount of loan that one wishes to apply for determines qualification in terms of earned income. Some student loans may need a minimum monthly income of R3000.00, while some banks may need a minimum monthly income of R6000.00. 

What does the student loan cover? 

Many expenses associated with one’s studies are covered by a student loan. There are various costs associated with attending college or university that do not include tuition fees. Financial institutions make every effort to ensure that part or all of the costs associated with your course are covered. Suppliers and service providers receive funds directly from the government financial institution that grants a loan.

The majority of the money you get as a student loan will be deposited directly into the learning institution’s bank account, your landlord’s account, and so on. The following items are covered by a basic student loan:

  • Tuition fees, 
  • textbooks, and accommodation.

Student loans, on the other hand, can be used to cover expenses like meals, transportation, and allowances.

What your student loan covers is mostly determined by the amount of money you’ve been allocated. A year’s worth of student loans might be as much as R300,000.00.

What are the documents required when applying for a student loan? 

Full-time students

  • Obtain proof of income from the designated guardian or sponsor. This can be a 3-month bank statement showing salary deposits and a recent payslip. 
  • Acceptance letter from a SAQA-approved university, a TVET (Technical Vocational Education and Training) college, or online courses recognized by the US Department of Education or the UK Government of Higher Education.
  • Proof of residence that is no more than three months old.
  • A valid South African identification book or smart card is required. A work permit if you apply as a foreign national. 
  • For second or subsequent years of study, proof of the previous year’s academic results or proof of the previous year’s academic results.

Part-time students 

  • You must have a valid South African ID book or smart card. 
  • Have proof of income which can be a 3 months bank statement and recent payslips.
  • Acceptance letter from a SAQA (South African Qualification Authority) accredited institution or from a TVET (Technical Vocational Education and Training) college or online courses accredited by the US Department of Education or the UK Government of higher education. 
  • proof of the previous year’s academic results for second or subsequent years of study. 

It’s time to discuss how to choose a student loan now that you know what a student loan is, how to receive one, and so on.

How to choose a student loan? 

When taking out a student loan, there are a few things to consider, and one thing that a smart borrower should do is compare student loans.

Comparing student loans could include a credit check, but if you have a decent credit score, this is not something to be concerned about. There are two methods to compare student loans: you may compare them yourself or you can use an agency to do it for you.

The following are the factors to consider while comparing student loans.

Interest rate

When taking out loans, particularly student loans, it is critical to compare interest rates. Those with a good credit score might ask for a lower interest rate or an interest rate that is lower than the national average. In addition, one can request an interest rate review at a later date to reduce the amount of interest charged.

Student loan interest rates start at 6.75 % and can reach % per year. As a result, if you have a good credit score, make sure you acquire the lowest interest rate available when choosing a student loan.

Repayment frequency and duration

The period of the loan and the regularity with which instalments are due are two factors that you should consider as a person seeking a student loan. Normally, these are calculated using a bank’s calculator; however, after a final offer from a bank, instalments may change.

The loan’s term is important because you’ll be able to choose which payback period is best for your budget. There’s no need to overindebted yourself or massively cut back on your spending because student loans can take up to 84 months to pay off.

Liability 

Student loans are different from personal loans in that they can be taken out by either the guarantor or the applicant. The state of the loan’s liabilities will most likely be determined by the bank that is used. Some banks enable full-time students to name a sponsor or guarantor, while others require only the applicant to assume repayment responsibility. 

Other fees associated with the loan

Other fees associated with student loans are not included in the price. It is your responsibility to understand which costs will be incurred, whether one-time or recurring.

When taking out a student loan, for example, an initiation fee may be required, which is a one-time payment, whereas a monthly service fee is payable on a monthly basis. Budgeting can be easier if you are aware of the expenses linked to your student loan.

How the loan will be disbursed and what the loan will be used for

Student loans are issued in a variety of ways: some are paid directly to suppliers, while others are deposited immediately into the applicant’s account. If money is given directly to suppliers, you must ensure that you have all relevant quotes from suppliers, including the school’s tuition quote.

Although each loan has its own set of financing terms, it’s important to understand what a student loan covers. Part-time students, for example, are frequently denied funding for accommodation. This information will assist you in obtaining a loan to cover all of your study-related expenses.

What are the advantages and disadvantages of a student loan? 

9 Advantages of a student loan 

  1. A student loan allows you to pay for tertiary education even if you don’t have the financial means to do so.
  2. In South Africa, almost any tertiary education is available to those that have good grades. The disadvantaged can pursue courses such as an MBA, which may cost over R200,000.00pa.
  3. The application process is simple, and anyone who earns money or has a sponsor can apply.
  4. Other than tuition, student loans can be used for items like housing, school trips, textbooks, stationery, and more. 
  5. One’s income will likely be used to derive the instalments that are due, which will be affordable to the loan account holder. 
  6. The interest rate on student loans is lower when compared to other types of loans. Interest on loans can be as low as 6.75%.
  7. One can build their credit score by making timely repayments to the loan account, which will make it easy for them to obtain credit after graduation. 
  8. Interest accrual can be after you finish your studies, or you may be required to only repay interest and make principal repayments when you finish your studies. 
  9. A repayment grace period can be affordable. 

6 Disadvantages of a Student Loan

  1. Unlike bursaries, which do not require repayment, student loans must be repaid at some point.
  2. If you default on a student loan, you will be charged interest, and you will end up paying more than you intended.
  3. Part-time students must be employed and cannot rely on a guarantor to secure a loan on their behalf.
  4. Student loans typically do not cover expenses such as housing for part-time students.
  5. Since one will be indebted right away, a student loan can stand in the way of other financial and lifestyle objectives.
  6. Failure to make payments will have an impact on your credit score.

 

Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at [email protected]

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