How to fund your education by borrowing money you need from banks or the state

By Neesa Moodley

14 Mar 2023

The textbook on student loans and financial aid

As thousands of students around the country continue to protest against problems with the National Student Financial Aid Scheme (NSFAS), others who fall outside the NSFAS net are taking on debt to fund their tertiary studies.

Here’s what you need to know about student loans.

There are two types of loans available: a government loan through NSFAS and a private loan from banks.

If you are taking out a bank loan and plan to study full-time, you need a parent or working adult to stand as surety or guarantor, and the application will be based on an assessment of their income. The main reason is that under the National Credit Act, the bank has to consider the applicant’s credit history and ability to repay the loan.

Student loan applications typically require proof of registration at a recognised SA tertiary institution, your matric certificate or previous year’s academic results (if you have already started your tertiary studies), and invoices or statements reflecting your fees and costs associated with accommodation and textbooks.

Gavyn Letley, First National Bank’s head of loans, says the bank offers a maximum loan of R300,000. To be eligible for a student loan, the principal debtor (the person who borrows the money) must earn at least R3,000 a month.

If you are employed full-time with the goal of furthering your studies, you can also apply for a student loan if you earn the qualifying income and can afford the student loan instalment.

Nedbank’s annual results for the year to the end of December 2022 reflected advances of R238-million for student loans.

Standard Bank reports that it has seen a significant increase in student loans year on year, in both new applications and limit increases. The average loan application this year is R86,558, which is 8% higher than last year.

If you are a full-time student, the interest and service fees are payable while you are studying, and you must start making full repayments within six months of completing your studies or getting a job, whichever comes first. If you have chosen to study part-time, then you must start repaying the loan immediately.

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Tshegofatso Betha, head of student funding at Standard Bank, strongly recommends that you read the fine print and also understand the cost of credit.

She says the cost of credit should provide you with a breakdown of how much you can expect to pay and also show you the service fees, interest rates and repayment terms, as well as the total cost.

“Before you apply for a loan, use the student loan calculator on the Standard Bank website to work out how much you qualify for, estimate your monthly repayments and see how changes in term and interest rates will affect the repayment,” says Betha.

FNB’s Letley says the average cost of a year of tertiary education is between R120,000 and R150,000, depending on the field of study and the academic institution.

“Education is an important enabler of success, but many families in our society do not always have the financial means to pay for their loved ones’ education,” he says.

“As a result, student loans could be extremely beneficial to families seeking to better their lives.

“We have recently made student loan applications available on the FNB app to enable applications any time, anywhere, with real-time feedback.”

However, he cautions that once you have been approved for a student loan, it is important to manage the loan effectively, including ensuring that repayments are made on time.

“It’s important also to choose the right loan amount, and applicants must also keep in mind that interest on the student loan is relatively lower when compared to a personal loan or credit cards,” he says.

“In addition, a student loan must be used for its intended purpose and proof of registration will be required. Where possible, customers can also pay in extra money to further save on interest and fees and decrease the total cost of credit.

“There are zero penalty fees for paying off the loan early, and, if additional funding is required for the next year of study, a new application needs to be submitted. It is important to apply only for the amount that you need and keep expenses low to ensure a healthy credit profile for the future.”

How NSFAS loans work

To qualify for a NSFAS loan, you must be a SA citizen with a combined household income of less than R350,000 a year. If you started studying before 2018, the combined household income to qualify is capped at R122,000.

Some of the benefits of a NSFAS loan are that you start making repayments only once you are earning R30,000 or more a year (R2,500 a month); interest is charged at 80% of the repo rate, which works out to a favourable 8.6% at present; and a final-year loan can be converted to a 100% bursary if you pass all your courses and graduate.

In other years of study, passing all your courses will translate to 40% of your NSFAS loan for that year being converted to a bursary. If you pass half your courses, 20% of your loan is converted to a bursary. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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