Interest rates are cheaper and you are responsible for the repayment anyway, writes
I recently met a woman who had taken on a R50 000 personal loan from a bank to pay for her daughter’s university fees. When I asked her why she had not opted for a student loan instead, she said she felt that she was responsible for her daughter’s education and that she did not want her daughter burdened with debt. What she did not realise was that she could have taken out the student loan on her daughter’s behalf, and at a much lower interest rate than she was paying on her personal loan.
City Press spoke to several banks to find out what their policies were on student loans. One important feature of a student loan is that it carries a lower interest rate than a personal loan, and another is that a parent or sponsor has to sign surety if the student is not earning an income.
Liesl Lourens, senior quantitative analyst at Nedbank, says the rate charged on a personal loan will be based on the credit risk profile of the customer and can be as high 28% (21% above the repo rate). A student loan will be 12.5% (2 percentage points above the current prime interest rate).
According to Jan Moganwa of Absa retail and business banking, Absa will charge up to the maximum of 28% on a personal loan, but its student loans are issued at the current prime interest rate of 10.5%.
Phil Penlington, head of sales and marketing for FNB loans, says the minimum rate on a personal loan starts at 15%, while the minimum rate charged on a student loan is 10.5% with a maximum rate of 6 percentage points above prime.
Zanele Mbere, head of personal lending at Standard Bank, says the interest rate charged depends on different factors, such as whether the student is applying to study towards a diploma, degree or certificate, as well as the year of study. Standard Bank’s interest rate works on a sliding scale, meaning for every year passed, the rate reduces by 1%.
All banks require a parent or sponsor to sign surety for the loan. Nedbank and Standard Bank require the loan to be in the name of the student for it to qualify as a student loan, but if the student does not have an income, the parent must sign surety on the loan.
Absa and FNB enter into agreements with the parent or sponsor directly and the loan is issued in terms of the principal debtor’s name.
According to Penlington, the individual who signs the contract (the applicant) remains fully liable for the repayment of the student loan. In cases where the student and the principal debtor are different people, the student is not liable for payments.
The parent must have a good credit record and must be able to afford to repay the loan, although the same would apply for a personal loan. Student loans are issued for each year of study – so you need to reapply for a loan each year.
With a personal loan, the capital/principal debt and interest form part of the repayments from the first month and must be repaid within the agreed time frame. In the case of a student loan, only interest must be paid during the course of study and the repayment of the capital/principal debt must begin six to 12 months after the studies have been completed. The loan must be fully paid within four to five years.
With a student loan, most banks offer a six-month grace period for the student to find a job, but this can be extended to up to 12 months as long as the interest on the loan is serviced. If the student needs to complete articles, an internship programme or community service, proof of this needs to be given to the bank. During the period of internship, articles or community service, interest must be serviced on the loan.
As a parent or sponsor, you can decide if you want to just pay the interest or if you want to repay the interest as well as the capital, which is what would be required with a personal loan.
According to Absa, the average annual loan amount requested is R55 000 and the average duration of study is 35 months. On average, the loan is paid back within 40 to 45 months after the studies are completed.