Student Loans in South Africa
Education is one of the essential elements of economic development; every nation that seeks to excel economically should make counter investment in the educational sector.
This will enable the country to have a stable labor supply, limiting the shortage of unskilled labor. Our nation has a tremendous lack of skills; vast numbers of South Africans lag on education from other Africans.
This has seen our citizens suffering a significant blow from other African citizens who come with skills that generally outplay us. This has also created a rift between South African citizens and a large number of foreigners. Somehow this has resulted in xenophobic attacks on some parts of the country.
Why are our citizens failing to enroll or complete their courses?
South Africa needs education not only to sustain economic development but also to improve the standard of living amongst citizens.
In major cities, there is a significant number of kids who fail to enroll for school. The adults will fail to enroll them for tertiary education, from which the relevant skills for national development are obtained. But, the question remains: “why are our citizens failing to enroll or complete their courses.”
On many occasions, the answer to this question leads us to the finance part of education in South Africa. Besides being part of the developing countries, South Africa has the most expensive tertiary education on the continent. At the same time, the country has some of the lowest paid employees, which does not correlate to general educational expenses.
This calls for a progressive solution from all stakeholders in the education sector, a mix of finance institutions, tertiary institutions, and the government can yield better results in mitigating this crisis.
What are student loans?
Student loans are famously known as educational loans, and these are credit facilities extended to learners as a way of covering educational and education-related costs. Student loans come in various forms, and they range from personal loans, bonded scholarships, and bursaries.
The vast number of student loans are issued as loans under developmental finance. The developmental finance area is one that focuses on the social and economic development of a nation, and these easy loans are not commercial loans.
That means student loans are part of the loans issued by organizations to improve both education and standard of living. These loans are mainly issued by Non-governmental organizations (NGOs) and parastatals.
Student loans can be issued to the student or the guardian who is directly responsible for the financial support of the student involved. When Student loans are granted to unemployed students, they come in the form of long-term personal loans that are only repaid after the period of the study.
The organization that issues such a loan will employ the student after the studies, and it is from such employment where the repayments will be deducted from. If a student loan is provided to an employed student or guardian, the credit will take the form of a short-term loan, quick loan, payday loan or a personal loan, depending on the needs of an applicant. The student loan here will be issued to an individual who is capable of making repayments, and it forms part of the commercial portfolio to the issuing company.
Why Educational loans?
The cost of tertiary education in South Africa is far higher than what ordinary citizens can afford.
Universities average tuition is at R45 000 per year, in addition to that students will need to pay for living and other education-related expenses. While the economy of South Africa is not performing well, the disposable income of many families cannot accommodate such expenditure. When the situation reaches this point, it means that people have the option of quitting or vie for student loans.
The student loans are useful in mitigating the impact of the cost of education in South Africa. The educational expenses can be manageable when they are paid in small monthly installments with the student consequently attending classes.
Who is eligible for student loans?
Student loans were developed for a specific class of people, and these are the people who have places or are registered with recognized educational institutions.
Educational loans are not available to the populace as these loans have their low rates and charges that align with the purpose of the loan. The loans are very common to university and tertiary students as these are the levels of education where most people encounter related financial complications.
Who issues student loans?
Student loans are issued with fewer companies as compared to quick loans, payday loans, and other forms of personal loans. The reason behind this is that these loans are relatively cheaper, and they do not give much premium to business entities. Most companies have a profit motive sideline for student loans.
A large number of financial institutions that issue student loans are large banking corporations, non-governmental organizations, and companies that have a particular interest in an area of education.
For example, a company that is actively involved in the engineering sector might facilitate bonded scholarships for all students who are studying engineering. That is the company may pay all the fees for the students and offer them a five or six-year employment. Upon completion from which the educational costs will be deducted from.
Banking institutions issue personal loans that are meant to facilitate educational expenses. Usually, the loans are offered to both students and guardians to the students. The loans will have covenants that suit students and educational purposes, from interest rates to the terms of repayment.
In these situations, banks will require institutional identity cards and registration forms to verify the legitimacy of a student. Banks that are commonly involved in educational finance include Capitec bank, ABSA, and Nedbank. These institutions have made priceless engagements with a large number of tertiary institutions in providing student loans.
What is the cost of a student loan?
Unlike payday loans and short-term loans, student loans have a relatively low cost in terms of interest rates and other charges. The loan providers reduce the cost to facilitate the development objective of student loans and give an easy repayment to their clients. The majority of student loans available in South Africa come with little to no additional costs.
The cost component of student loans can be divided into two things, which are interest charges and initiation costs. Student loan issuers have not made much use of administration and service fees that most personal loans are charged with.
Initiation fees are the costs used to cover expenses related to performing evaluation and disbursement of the student loan. These are generally once-off fees that are paid on the application of the loan. The initiation fees are not repayable to the students if the applicant fails to secure the loan. In addition to this interest, charges are generally applied to student loans.
Although most institutions issue student loans at shallow charges. All Interest rates on student loans are compelled to comply with the National Credit Regulator’s interest rates regulations. The maximum limit on which these rates must not exceed is marked at 5% per month, or 30% and 60% for six months and twelve months respectively.
Where the period of repayment differs from those provided, the rate shall be the effective interest rate, which is the adjusted interest rate to the period of repayment.
Does student loans consider credit scores?
The need for responsible financial practice remains the same; this calls for efficient and reliable credit assessment and rating. Responsible lending in educational finance tries to improve the education status of the students without endangering their prospects of obtaining funding in the future of their borrowing activities.
Credit checks are done on all student loans before the applicant is granted the loan. Most finance institutions perform both internal and external credit assessments to eliminate all chances of default. The clients are provided with student loans when the lending institution is entirely sure that there is a willingness and ability to make and complete the repayment.
Student loans are also recorded with credit bureaus, that is as the client makes repayments, their scores will be building up. If the applicant manages to complete repayment in the stipulated time, there is a great gain on credit scores. However, when the applicants default the loan, they also suffer a reduced credit rating.
Do students loans cover all expenses?
Most student loans available in South Africa are issued to facilitate the shortfall or the gap that the student fails to cover with their funds. In rare cases, student loans come in full amounts that cover the whole educational period.
Loans that cover all expenses are those issued to unemployed students. These fast loans are granted to academically excellent students on a merit basis. The student will make repayments after completing the course, repaying the income he/she will be earning from the employment provided by the company.
On the other hand, loans provided by banking institutions do not cover the whole amount of educational expenses. They are the loans meant to cover the shortfall, and they are repayable soon after the loan is disbursed.
What is require to obtain a student loan?
To obtain a student loan, one should be a student, parent, or guardian to a student who is registered with a recognized tertiary institution.
Depending on the type of student loan, the applicant needs to acquire, and the requirements may be elastic on each student loan provider. Student loans that are issued to employed students, parents, and guardians come with similar requirements to personal loans. The loans will require the applicants to be permanent residences in South Africa, where they are permanently employed, earning a regular income through the normal banking channel.
The applicant should be an adult who falls within the age group of 18 to 65 years at the time of making an application. When one meets the above requirements, they should be able to provide the following documents during the application process.
- South African National identity document
- Three months stamped bank statement
- Proof of residential address
- Latest pay slip from the current employer
- A document that proves the student’s status (letter of acceptance, student’s identity card or student’s registration certificate)
How to apply for a student loan?
The application of student loans is an easy but somehow lengthy procedure. The applicants can make applications online and finish the process through interviews and visits that financial institutions undertake as part of assessment.
The applicants need to fill their personal and financial information before submitting their forms online or on the relevant student finance office. When the application passes this stage, the finance institution will send credit assessors to make verifications of the information and documents submitted.
When the application is successful, the funds will be made available through the bank account provided on the application stage.
Lenders offering Student Loans in South Africa
Informative books about Student Loans
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