Not everyone at university is fortunate enough to have their parents pay for their tuition. For those who don’t have this privilege, there is the option of a student loan. However, student debt incurred by a loan is becoming a serious problem in South Africa and in other countries.
It almost goes without saying that obtaining a degree or diploma improves an individual’s chances of finding a well-paying job. The Centre of Higher Education Transformation conducted a study that not only revealed this idea, but also showed that an individual is more likely to be promoted to better-paying jobs if they have a qualification.
Research done by the Southern Africa Labour and Development Research Unit in 2009 confirmed that salaries showed a gradual increase between payslips for employees who have a matric certificate and those who have a degree. In 2009, an individual with an average matric certificate earned about R1 100 a month, whereas an individual with an average diploma or certificate earned R3 100 a month. Finally, this amount increased to R5 400 a month for a person with an average degree.
It’s easy to see why students are willing to fork out and repay their loans once they have graduated from university. All loans, whether funded privately or by the government, come with their own terms and conditions. Therefore, it’s important for students to find a loan that suits their unique needs.
According to Gerald Ouma, a senior lecturer at the University of the Western Cape, the National Student Financial Aid Scheme of South Africa (NSFAS) – an organisation funded by the Department of Education – offers loans and bursaries to approximately 80% of students at South African tertiary institutions. In fact, according to the organisation, it supports roughly 32% of all students registered in 2011 alone.
From 1992 to 2011, NSFAS had spent a total of R23 billion in loans and bursaries, yet only R3,8 billion had been recovered by the 2011-2012 financial year. Business Day suggests that because South African universities have a high drop-out rate, students are unable to pay back their loans.
On the other hand, apart from loans offered by NSFAS, many students rely on private banking institutions to finance their education. According to the Mail & Guardian, three of South Africa’s major banks refused to reveal any data concerning the issue. For this reason, it remains unclear how many students depend on loans offered by private banking institutions.
Arrie Rautenbach, ABSA’s head of Retail Markets, has said that the average size of a loan at ABSA is R49 500 and takes approximately six to eight years to repay. Standard Bank’s repayment term averages around five years, Sugendhree Reddy, head of Personal Markets at Standard Bank, has said.
“One of the fundamental underlying risks of granting a student loan is whether that student eventually gets employed and is able to pay back the loan,” says Reddy. But the fact that the majority of students do pay back their loans from private institutions indicates that they are in fact more likely to be employed, as has been suggested by the Centre of Higher Education Transformation. “Our low delinquency rates indicate to us that we see a large scale of employability of graduates using student loans to finance studies,” Reddy continues.
Apart from these options, many South African companies offer bursaries to academically able but financially needy students. The conditions of these bursaries vary from company to company, but most of them require individuals to reimburse the company by working there once they have obtained their degree. The advantage of this, of course, is immediate employment and work experience.
Perdeby spoke to Morgan Carter, a BA(Hons) English Studies student at UP, who has a NSFAS loan. Carter says that, “Student loans obviously do incur a lot of debt in the long run,” and adds that, “starting your working life knowing that you are already so deeply in debt is quite daunting.”
Carter insists that for those who are not fortunate enough to have parents pay for tuition and accommodation, “there is no other viable option”.
According to the NSFAS, a student loan is manageable since you only start repaying the loan once you are earning a salary of R30 000 or more per year, with payments starting at 3% of your annual salary and increasing to a maximum of 8% once your annual salary reaches R59 300 or more.
Additionally, up to 40% of the loan can be converted into a bursary (and therefore does not have to be repaid) if an individual’s year-end results are exceptional.
Courier-Journal.com reports that during Barack Obama’s first term as president, he signed a law (only effective as of 2014) which will make repayment of loans easier for students. This law guarantees security for students as no more than 10% of their disposable income will be spent on repaying loans. Additionally, after 20 years, the remaining debt owed will be pardoned.
As for those working in public service (such as teachers), they will not be required to pay their student debt ten years after graduating.
South African students could benefit from a similar system. Carter argues that a reduction in the loan amount that needs to be paid after one’s studies could lead to students being motivated to work hard. “The point of getting a degree is to get a job and a life, not to spend the next ten years paying for your education,” he says.
With education being regarded as a crucial element to making a success out of life, it’s not difficult to understand why most students turn to loans as a means of payment, despite the disadvantages. President Obama took more than ten years to repay his student loans. Perhaps one should persevere, knowing that financial success is possible.
Photo: Eleanor Harding