Master of Money Management

Student loans-the pro’s and con’s

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Funding your education is no small feat, this expense is now in the same league as buying a car or in some cases (a medical degree) even a home. The high cost of tertiary education has made it necessary for many school leavers to take out student loans. Under resourced parents can no longer hand out cash to launch their children’s career. The most they can do is to sign surety for a bank loan. While a student loan can mean the difference between getting a degree and settling for Matric you need to be aware of the pitfalls. Student loans are not limited to school leavers, anyone who needs funding can apply, so don’t worry if you are a late starter.

If for example, you borrowed R150,000, for a period of 4 years at an interest rate of 12% the repayment would be R3157 .00  per month. Obviously this payment would be a hefty commitment for a full time student, so the bank allows the student to only pay the interest portion of the payment. The capital remains unpaid for the full period of the loan. The borrower can opt to settle the debt and pay the R150,000 or refinance it. The interest potion of the loan would amount to R1536,00 per month which is a whole lot more affordable

If you opt to only pay the interest portion of the loan, at the end of the 4year period the loan starts again. Unfortunately most people have to choose this route. So what started out as a 4 -year loan turns into an 8 -year commitment unless you can find cash in your budget to settle it. If you don’t settle the loan an let it run its full course you will pay around R80,000 in interest charges.

It is a tough one to get around, so here are some tips to help you make the best of a student loan.

  • Perhaps see if you can get portion of the cash from a family member. Agree to a set monthly payment while you are studying and arrange for an increase when you start full time employment.
  • Find out about grants or academic bursaries from your chosen place of study.
  • This is really simple, get a part time job. It may put a little extra pressure on you but many people have been able to juggle work and studies successfully.
  • Consider delaying your studies and work for a year to build up capital.
  • Find a job that offers a work-study programme. However be aware that if your employer pays for your studies, they may require you to work for them for at least three years.
  • Moving out of home may seem very appealing but it will cost you a small fortune. Stay at home and keep your overheads to a minimum.

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