Options for 'missing middle' to fund studies
If you're not eligible for free tuition from the government or haven't managed to get funding from the National Student Financial Aid Scheme, you're among the many thousands of matriculants in the "missing middle" trying to figure out how to fund your tertiary studies this year.
More than 790,000 pupils wrote matric exams at the end of November. For those who have managed to get into a university, they can expect to pay about R60,000 for their first year of studies. This is according to Feenix, an online crowdfunding platform for university students.
Last year, the cost of a BCom accounting degree at one of the universities in Gauteng was about R51,000, and a student studying law paid about R40,000, says Feenix.
"These figures explain why 51% of the country's youth between the ages of 18 and 24 say they can't afford tertiary education.
"Government financial aid is available to this year's matriculants from households with combined incomes below R350,000, but many matriculants from middle-income households still fall through the cracks," says Leana de Beer, Feenix's COO.
Many students and parents opt to take out a personal loan to cover the costs of tertiary studies, but this isn't their best option. A blog post by Old Mutual says this poor choice is probably due to ignorance about the ins and outs of student loans.
"The No 1 reason student loans are better than personal loans is the way they are repaid: with a student loan, the monthly payments made while you're studying are on the interest and services fees only."
Once you've finished your studies, you or the principal debtor have six to 12 months (the grace period afforded to you to find a job) before you start paying off the capital. "Your student loan would then need to be paid within four to five years, as a general rule," says Old Mutual.
With a personal loan, on the other hand, you start paying off the capital plus interest and costs almost immediately.
But every bank's student loan offering is different, and you need to shop around for the loan that suits your circumstances.
With Absa, for example, you can opt to pay off your capital with costs from the get-go, if you can afford it. The bank offers a highly competitive interest rate of prime, currently 10%, says Cowyk Fox, the managing executive of Everyday Banking at Absa.
Rates for student loans are significantly lower than those fo rpersonal loansMandy Blewitt (Nedbank)
Another compelling reason to opt for a student loan over a personal loan is the interest rate.
"The rates for student loans are significantly lower than those for personal loans - in the range of prime to prime plus 5%," says Mandy Blewitt, the senior marketing manager of unsecured lending at Nedbank.
Standard Bank will give you a student loan at the prime rate if the person standing surety is a Standard Bank customer, according to a spokesman for the bank.
With a personal loan you can be charged up to 27.5% interest a year, the maximum a credit provider can charge on such a loan, though this is what high-risk clients will pay. Interest rates are generally personalised, meaning the rate offered by the bank is determined by your or your parents' risk profile.
Emma Mer, CEO at FNB Loans, says the principal debtor's risk profile and ability to repay the loan are key determinants when the bank assesses an application for a student loan.
FNB also looks at the student's proof of admission and whether the tertiary institution is accredited with the South African Qualifications Authority.
Also look out for the cost of credit life cover, which can be expensive. This is insurance that pays out in the event of the principal debtor (which would be one of your parents, or you if you're a working student) dying, becoming permanently disabled or contracting a critical illness before the debt is paid up.
A credit provider can insist you take out credit life cover, but it can't insist on which provider you use.
Blewitt says Nedbank's credit life cover costs R0.35 per R1,000. In other words, on a R60,000 student loan, credit life cover would cost R21 a month. This is significantly less than Absa's credit life cover, which starts at R2.50 per R1,000 covered - or R150 a month on a R60,000 loan. Mer says FNB's credit life cover starts at R2 per R1,000 covered, and Standard Bank declined to answer.
A student loan is generally granted to the student's parent/s or another eligible person who is willing to stand as guarantor - which means he or she is liable to pay the interest and costs on the loan until you get a job. If there's no-one in your life who can do this for you, you could consider crowdfunding your fees.
With crowdfunding, you have the benefit of beginning your career without the burden of having a loan to repay.
Donors also benefit in the form of a tax deduction, provided they donate to a public benefit organisation such as Feenix (https://www.feenix.org/) which provides a tool for students to formalise their fundraising efforts and a channel for funders to find students they want to support.
Feenix was launched in June 2017 in response to the #FeesMustFall movement that spread across campuses in SA in 2015 and 2016.
All bona fide donations are deductible from the donor's income in terms of section 18A of the Income Tax Act, provided the donor is not the parent of the student they are funding.
De Beer says that although students are not required to repay the funds they receive, Feenix encourages beneficiaries to pay it forward by helping their peers raise money or by becoming donors themselves once they have found jobs.
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