It is that time of the year when parents of successful matriculants have to take action to enrol their children for their next schooling life stage with the start of tertiary education. For those fortunate enough to have secured bursaries and sponsorships, the only thing to worry about is getting their children settled into their new college or university environments.
Unfortunately, the heavy load of funding their children’s tertiary education belies most parents as bursaries are few and far in between. Very few parents can afford the additional costs which in most cases far exceed what they used to pay for schooling. For those who have not saved for their children’s tertiary education, the only option is to borrow in order to fund their children’s further studies.
‘South Africans are generally not a saving nation and when it comes to funding education, most parents cannot afford to pay for these studies without taking out a loan,’ says Credit Ombudsman Manie van Schalkwyk. ‘Just like entering into any other credit agreement, you need to do your homework and ensure that you know what you are getting yourself into when shopping around for study loans’, he adds.
‘As with all credit agreements, the applicant’s, in this case the parent’s, credit rating plays a significant role in interest rate they will be charged and whether or not their application will be approved in the first place,’ notes van Schalkwyk.
Types of funding available
‘Some families are fortunate enough to have members within the family, either an aunt or uncle or older siblings who are willing to assist to fund the studies. In such cases, ensure that everyone is on the same page with regards to expectations that go with the funding such as minimum marks to be achieved or funding another sibling’s studies in the future,’ says van Schalkwyk.
If this is not an viable plan, one of the best options would be to apply for funding from state funded bodies such as the National Student Financial Aid Scheme (NSFAS) which offer ‘study now, pay later’ funding. Last year, the institution funded the studies of close to 400 000 academically deserving students through their student loans.
‘The advantage with funding through organisations such as NSFAS is that students do not need surety from parents or guardians and the entire loan amount is only repaid once the student has completed their studies, unlike with most banking institutions which require the interest to be paid while the student is studying,’ adds van Schalkwyk.
Other financial institutions which specialise in educational finance are also a viable option where funding is concerned. These institutions often provide lower interest rates and affordable repayment options.
For ease of reference, a summary of some of the available options and basic requirements are covered below*.
Institution
Basic requirements
Pro’s
Cons
State funded bodies, e.g.
NSFAS
· Students must be in the process of or enrolled at an institution of higher education
· Students can apply themselves
· Students must be academically deserving and financially needy
· Reasonable repayment terms based on what you earn and you only start paying once you have an income of R30 000 per annum
· Lower interest rates than banking institutions at 80% of repo rate
· Depending on results, up to 40% of the loan can be converted into a bursary and you don’t need to repay that amount
· Charges interest on all outstanding balances. It is therefore important to start repaying as soon as possible
· If you wish to study at institutions other than universities, they only fund public Further Education and Training (FET) colleges (i.e. they do not fund private further learning institutions )
Banking institutions
· Students need to be enrolled or in the process of enrolling for either full time or part time studying
· The parent or guardian applies on behalf of the student
· Most institutions allow you to only pay interest on the loan while studying and repay the actual capital (loan) amount once studies are completed
· Some institutions offer a grace period for students who need to complete community service or internships as part of their studies
· Interest is often calculated differently from that of a personal or micro loan, making it a better option to fund studies through these loans rather than through a normal personal loan.
· Parents or guardians with a bad credit record could jeopardise approval of the loan or it may result in higher interest rates
Educational financial institutions
· Students need to be enrolled for studying
· If the student is employed and studying part time, he/she can apply for the loan themselves
· May charge lower interest rates than normal personal loans
· In most cases loan money is released to the educational institution directly so you do not need to make payments yourself
· Some institutions allow anyone who is employed to apply on behalf of the student
· You might have to pay off the loan while you are studying
· At times you might have to re-apply every year for funding i.e. you do not receive funding for your entire course of 3 or 4 years through one application
*Please note that this is not meant as a definitive list but merely a guide to help parents or students who have to go through this process without any assistance, to asses some of the options.
When people are faced with difficult circumstances, at times they may be enticed to seek funding from just about any source. ‘Be very careful of turning to unregistered micro lenders to borrow money to pay for your children’s studies,’ cautions van Schalkwyk. ‘Using a micro loan could prove to be too costly in the long run as the nature of micro loans is that they are designed for short term funding and interest rates are usually much higher than the rates charged for longer term loans,’ he adds.
Van Schalkwyk advises consumers to consider the following when seeking for funding to school their children:
· What are the terms of repayment? You need to understand very clearly exactly what, how much and by when you need to pay.
· Are you choosing the best option only to suite your pocket at the moment? Take into consideration the long term effect that taking out the loan will have on your finances as well.
· Remember that the capital amount outstanding will always attract interest as any normal loan would (in instances where you have opted for loans where you pay off interest only whilst your child is studying, the capital at the end of the studies will continue to bear interest on the full outstanding balance every month).
· Ensure that you pay your loan timeously and according to your credit agreement. This way you stand a better chance of being approved for further loans to cover the rest of your child’s studies in cases where you need to apply on a yearly basis for funding.
· Always remember that as a parent, your credit rating will play a role when applying for your child’s funding, even if you are only standing surety for the loan. If there are any problems with regards to your credit report, sort this out in advance. The first step is to immediately request a copy of your own credit report to view the information contained in it.
· Most major banks have special products to cover study loans which have better interest rates than normal personal loans, and it is worth it to make enquiries with all the major institutions.
· Carefully compare and consider all the different products available before settling on a specific loan option.
Consumers can contact the office of the Credit Ombud for free assistance on matters relating to unfair or incorrect listings on a credit bureau as a result of student loans, problems experienced with their credit agreements or any matters with regards to garnishee orders or debt collection. The office can be contacted on 0861 66 28 37 or visit their website on www.creditombud.org.za. If we cannot assist you, we will refer you to the correct organisation to assist you with your problem
