The financial realities of tertiary education are seeing increasing numbers of students having to take out loans in order to fund their education; this coupled with the fact that jobs are harder to come by and cost of living expenses continue to climb, means it is taking students far longer to conquer their mountain of student debt.
Cause of the problem
The cause of the problem is substantial increases in the cost of education in the last decade, exacerbated by poor money management skills. The increase in the price of education has resulted in many matriculants abandoning their dreams of furthering their education while others, in order to study further, can trap themselves in debt many years before they’ll ever draw their first salary cheque.
The National Student Financial Aid Scheme (NSFAS) has paid out in excess of R9-billion in bursaries and loans. Although the uptake of loans is at an all-time high, the organisation recovers a mere R400-million a year in student repayments. High unemployment rates in South Africa are thought to be the main cause of this poor recovery rate. And with delayed payments, students are having to pay increasing interest on the borrowed sum – a state of affairs that could easily spiral out of control and lock young adults into a debt cycle for many years to come.
But it isn’t all doom and gloom. It is possible to minimise the negative impact on a student’s financial future by following these 8 tips.
Know the costs involved. It is important that students who take out student loans are aware of the costs involved and make sure they are informed about how to structure a repayment plan. To avoid any nasty financial surprises down the line it is imperative that you understand, fully, the real costs associated with furthering your education: not only course fees, but additional expenses like textbooks, registration fees and technology which could include laptops, tablets and other study equipment associated with your studies. Draw up a budget when you graduate and include a payment schedule that will see your loan paid off within four years.
If you would prefer to take out a smaller loan for the odd item here and there, cash loan providers like wonga.com offer small loan amounts repaid over a shorter period of time.
Get a handle on your lender. Never touch a loan unless it is provided by a well-known, registered bank or institution. Always speak to your bank first for sound financial advice.
Quick question: What do you owe? You should be able to answer this question immediately and without hesitation.
Make a plan. Your regular payments plan should be set out by the time you graduate. If you understand the full terms and conditions of your loan, you will know that missing a payment will result in additional interest being charged on the loan, resulting in your debt growing instead of diminishing over time.
No pain, no gain. It’s a fact of life. You will need to forego spending money on luxuries and trend items until you have paid off your loan. Practice good financial discipline from the start; you’ll avoid paying out extra interest on delayed payments.
Consistency is the name of the game. You may not have had much luck yet trying to find a job but whatever you do, never stop paying your loan. In the real world, your grades are not the only score you need to worry about – your credit score has the power to seriously hurt your financial future. These scores are often used by insurance companies to determine your risk profile which could see you paying higher premiums, as well as prospective employers who can use your score to gauge your level of financial responsibility. So, contact the lender and arrange an affordable repayment solution. But do not stop paying altogether!
Keep your lender on speed dial. You could be penalised if you change your phone number or address without telling you lender so make sure you stay in touch until that loan is paid off.
If in doubt, ask. A Certified Financial Planner can help you with the entire student loan process so if you have any doubts, you do not have to go it alone.
Student loan resources:
For a list of bursaries and scholarships see here
The National Student Financial Aid Scheme (NSFAS) is the South African government student loan and bursary scheme. They provide loans and bursaries to students at all 25 public universities and 50 public TVET colleges throughout the country.
Eduloan is an education finance specialist operating in Southern Africa. Since 1996 they have awarded over 750 000 study loans to the value of more than R4 billion.