Employment and fees to get into tertiary institutions are a sore subject amongst South Africans. Many young folk who want to further their education, simply can’t or can only do so if they take out a loan to help them pay for their studies.

And unfortunately so many people are so desperate that they often take out loans without thinking about the implications, especially when it comes to considering the repayment plans being offered. 

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Yes, student loans facilities and financial institutions are certainly there to help, but what you need to remember is that these institutions aren’t just there to help you – they need to make money in return as well.

So in light of this, we’ve compiled a helpful guide of what to look out for before you sign your name on the dotted line.

Personal loan vs student loan

I chatted to Carla Oberholzer, debt adviser & public relations officer for DebtSafe.co.za who provided us with a little insight on the topic.

When it comes to applying for a loan, the first thing Carla says you should take into account is understanding what kind of loan you’re applying for.

“A student loan is designed to help students pay for tertiary education and the associated fees involved, such as tuition, books and living expenses. This option differs from other loans in the sense that the interest rate could be considerably lower and repayment only begins when the student has completed his or her studies. There are several institutions that offer student loans, for example: ABSA, Nedbank, Standard Bank and FNB.”   

If you’re a student, your best option is actually to take out a student loan, since the repayment structure is often much more flexible. So rather don’t take out a personal loan (or let your parents take out one if they want to help but aren’t really able to).

According to Old Mutual, if you do take out a student loan, sometimes the only amount that you need to pay back on your loan while you’re studying, is the interest on the loan. The rest of your loan you start paying back when you’re finished with your studies.

Even if you fail (unfortunately). 

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A personal loan, on the other hand, Carla explains,”is given by the bank, which they pay back on a monthly basis over a fixed period.”

“The fixed interest rates on a personal loan are much higher than that of a student loan but lower than a credit card. It also creates stability as the fixed amount enables him/her to budget in advance.

"If the student is under the age of 18, a parent or someone who meets the qualifying criteria, has to co-sign on the learner’s behalf. Personal loan options can be obtained from banks and other institutions such as givemecredit and HippO.co.za (to name but a few).”

Carla says it’s very important that young people who are taking out student loans try and think ahead, because so often they make the mistake of committing to other credit agreements.

“Unfortunately for them, the institution that provides the student loan, expects a full re-payment. Many students get caught in this trap. They should therefore make sure that paying off their study debt is their top priority when they enter the workforce.”

Make sure that if you do go for this option you know the following:

• Credit providers are required to give them a quote and they should clearly explain how the fees and premiums work. This gives the individual the opportunity to choose the best option given by the different providers and they can compare different services with each other.

• Once the agreed upon personal loan amount is paid to the student’s account, there is an immediate expectation to pay the instalment.

Get an affordability assessment done

One thing that can help you to plan your payments is to be assessed in terms of what you’re earning and how much you’re spending. Eduloan, for example, will look at the information provided on the loan application form and determine whether or not you’re eligible for the amount you’ve applied for.

Discovering the best options according to what you’re earning (especially if you’ve just gotten an entry-level position) can go a long way in helping you how to budget within the parameters of the amount of money that you need to pay and will help you to determine what you can afford in terms of splurging.

Read the fine print. Seriously.

Okay, we all know that reading the fine print is about as bothersome as acknowledging terms and conditions, but when it comes to the rules of the loan you’re taking out – then it’s super important to really know and understand just what you’ve signed up for.

Do you know what your options are if you default on your loan?

Are there any grace periods given to you, especially after you’ve just graduated and don’t have a job yet? Things like this are key points to consider – and you need to protect yourself as much as financial institutions want to cover their own bases. 

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