How do Student Loans Work in South Africa?
In previous articles, we’ve broadly discussed the nature of loans and how you can go about applying for one. For the most part, the examples that we look at involve major physical purchases such as houses and cars, but there is another kind of loan that is often overlooked – Student Loans. Every year, many South Africans set out to register for university and get a degree only to realise a horrible truth… Universities can be really, really expensive. For many people, the only possible way that they can pay for something like this is to get a loan from the bank and pay it back later. It seems simple enough, but this process can be surprisingly complex and many people are left wondering – How much are Student Loans in South Africa? What happens if I Fail? And how do Student Loans Work anyway? How do Student Loans Work in South Africa?
For the most part, student loans work in a very similar way to other large-scale loans. You approach the bank or lending institute of your choice, you borrow the necessary funds from them, and you pay the money back at a later date with interest.
They do, however, have some notable differences when it comes to their repayment plans and interest rates.
The first thing to note about student loans is that they tend to come with a certain grace period which activates during your studies. Unlike other loans which will normally demand that you start paying back money with interest right away, many student loans will only require that you pay for the interest on the loan while you’re studying. In such cases, you may only need to start repaying the actual loan when you finish your degree.
Another important thing to remember is that student loan interest rates tend to be far lower than others. Many banks will calculate student loans at a prime lending rate, making them far less costly than personal loans.
How are Student Loans Paid Out?
Although different banks and lenders have different payment protocols, student loans are, for the most part, generally paid out by the lender in the following way –
- The tuition fees are sent directly to the university.
- You can reapply each year if you choose to continue with your studies.
- Accommodation fees will be paid out to the landlord.
- Extra funds for books, computer equipment, etc. can be paid to either the surety or to the student themselves.
Do Student Loans Go Straight to the School?
Yes, student loans are generally sent straight to the university. Likewise, accommodation costs are usually sent straight to the account of the landlord.
Other funds used to cover things like books and equipment may go to either the surety or to the student.
Do Student Loans Cover 4 Years?
No, student loans usually only cover one year of studies. If the student wishes to continue their studies, they can apply for extra funds.
What Happens If I Fail a Subject While on a Student Loan?
Failing a subject while on a student loan does not negate the loan or the interest incurred. As noted, most student loans only cover a year’s worth of studies. If you fail multiple subjects, you may need to pay for an extra year to fully complete your degree.
Some banks do make certain allowances in these scenarios so it’s important that you ask them for details about how such an event would potentially affect your repayment plan and/or your ability to receive further loans.
Make sure that you do this research before taking out the loan so that you are not caught unawares if you do happen to fail. Once again, you will still need to repay your debts even if you cannot complete your studies and choose to drop out.
What is the Average Student Loan Payment Per Month?
Student loans can vary greatly depending on the university in question, the subjects that they study, the loan that they take out, and much, much more. That said, an average student loan in South Africa will normally sit in the region of around R50 000.
How do Grace Periods Work on Student Loans?
As mentioned, most lenders offer a small grace period to students while they complete their degrees/training.
Most of the time, this grace period allows you to forgo any repayments while you study and will only end once you have obtained your higher education or after an agreed-upon period of time.
During this period, you may still need to pay for the interest on your loan along with any additional fees, but the loan itself will only need to be repaid once you’re done.
In some cases, the bank may even extend this grace period for up to 6 months after you have finished your studies, which will (hopefully) allow you to get a job and start making money.
Certain exceptions do exist, however. For example, part-time students will normally be expected to start paying their loans back immediately.
Can you Receive Student Loans/Bursaries From the Government?
In certain circumstances, yes, you can. South Africa has a National Student Financial Aid Scheme (NSFAS) which can provide financial aid to people who wish to continue their studies but who are unable to pay for it themselves or receive bank funding/student loans.
These funds (known as Bursaries) can be applied online but are only available to those who are considered to be eligible.
You will, for example, only be considered for a bursary if your combined household income is less than R350 000 per annum.
How do you Deal with Student Loans?
Much like any other kind of debt, student loans can quickly spiral out of control if you don’t get a handle on them. With that in mind, let’s look at some ways in which you can manage your loans and stay afloat –
Managing Student Loans – How do Student Loans Work in South Africa?
| Create a Budget – It’s not good enough to have a rough idea of what you need to pay and when you need to pay it by. Go over your finances with a fine-toothed comb and figure out where you can save money and which debts need to be paid first. The best way to do this is to create an in-depth budget. |
| Do Your Research – Don’t just sign your name to the first student loan you get offered. Spend time comparing quotes and reading through the fine print so that you don’t end up in a disadvantageous position. |
| Only Take Out What You Need – Try to ensure that you’re in debt for the least amount of money possible. Maybe you can find second-hand books from a friend who did the same degree. Perhaps you can find a more affordable college. Little concessions like these can stack up and save you a lot of money in the long run. |
| Start Paying Back What You Owe Early – You don’t have to wait for the grace period to end before you start repayments on your principal. If you manage to make a dent in the original amount early on, you’ll end up paying less interest overall. |
At the end of the day, student loans can be financially ruinous investments if they are mismanaged. Make sure that you only take one out if you really need it and be certain that you’ll be able to pay it all back.
In Conclusion – How Do Student Loans Work and How Do I Manage Them?
Student loans work similarly to other loans albeit with a few minor caveats. At the most fundamental level, you simply approach a bank and borrow the money you need to cover your student fees. Then, when you have your degree, you pay back what you owe.
The main two differences that relate to student loans are their repayment flexibility and their interest rates.
Most student loans offer a grace period while you complete your studies. This means that you will not have to begin payments on your loan until you’ve completed your degree/training. Additionally, some banks may even extend this grace period by around 6 months once you have finished your schooling, which should allow you to find a job and start earning money. That said, you may still have to pay for the interest on the loan and for other fees while studying.
Another great thing about student fees is their interest rates. When compared with most personal loans, student loans tend to have far lower interest rates and can even be offered at a prime lending rate. Some exceptions do exist however, for example, part-time students will often experience higher interest rates and will be expected to begin the repayment process immediately.
When you take out a student loan, the tuition fee is sent directly to the university and accommodation fees are sent directly to the landlord’s account. Extra funds that are used to cover books and equipment are usually sent to the account of the surety or to the student themselves.
Your student loans will still need to be repaid even if you fail or drop out of university. Loans usually cover a year’s worth of studies and you will need to apply again if you wish to continue with your studies.
Little changes in your agreement with the lender can have massive consequences down the line so it’s vitally important that you scrutinise any documents before you sign them and that you compare quotes before you make your decision.
Once you’ve received your loan, budget effectively so that you can make your payments on time and try to pay off as much of your principal as you can as early as possible as this will reduce the overall interest which you will incur.
Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance-related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.
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