How do student loans work? Find out how to apply

Discover how student loans in South Africa provide accessibility, flexible repayment, and investment in the future through access to quality education.

By talita melz in June 3, 2024 Latest update: August 29, 2024

Main benefits of student loans

Student loans offer a crucial financial bridge for many aspiring students who seek higher education but face financial barriers. These loans are designed to cover a wide array of educational expenses, from tuition fees to accommodation and textbooks, thus enabling access to tertiary education for those who might otherwise be unable to afford it.

While various institutions, including government bodies and private banks, provide these loans, they all share a common goal: to invest in the future of South African students and, by extension, the country’s overall development. Here are some of the top key benefits of student loans in South Africa.

Affordability

Student loans make higher education more accessible to a broader segment of the South African population. By offering financial assistance to cover tuition fees, accommodation, and other related expenses, student loans bridge the gap between potential students and their academic aspirations. For many, this financial support means the difference between forgoing higher education and pursuing a degree that can lead to better job opportunities and a higher earning potential in the future.

Flexible repayment options

One of the most significant advantages of student loans is their flexible repayment plans. Lenders often provide various options to repay the loan, including grace periods until after graduation, interest-only payments while still in school, and extended repayment terms. This flexibility allows borrowers to choose a plan that best fits their financial situation post-graduation, making the debt more manageable as they transition into the workforce.

Investment in the future

Viewing a student loan as an investment rather than a debt is a perspective shift that highlights its long-term benefits. Financing one’s education can lead to acquiring skills and qualifications that open up better employment opportunities, contributing to personal growth and career advancement. In essence, while the initial financial outlay may seem daunting, the potential return on investment through higher lifetime earnings and professional development is considerable.

Access to quality education

Student loans expand the pool of educational opportunities available to individuals. By providing the means to afford tuition fees at reputable institutions, students are not limited to choosing courses or universities based on cost alone. This access to quality education is crucial for nurturing talent and equipping the workforce with the necessary skills to drive national development.

Support for living expenses

Beyond tuition fees, student loans often cover living expenses, including accommodation, books, and other study materials. This comprehensive financial support ensures that students can focus on their studies without the added stress of financial constraints. By covering the full spectrum of education-related costs, student loans help create an environment conducive to academic success.

Credit building

For many students, a student loan is their first significant financial obligation, which, when managed responsibly, can help build a positive credit history. Timely repayment of a student loan demonstrates reliability and financial discipline to future lenders, potentially leading to more favorable terms on future loans, including mortgages and car loans. Establishing good credit early on is an essential step towards financial independence and stability.

Student loan simulation

For a student loan of ZAR 100,000 with a monthly interest rate of 14.50% over a term of 60 months, the simplified simulation yields the following results:

Monthly payment: ZAR 2,352.83
Total repayment over 60 months: ZAR 141,169.69

This means that by the end of the loan term, the borrower would have paid a total of ZAR 141,169.69, which includes the principal and the interest accrued over the term of the loan.

Here is how to calculate the loan

To simulate a student loan, we will use the formula for calculating the monthly payments for a fixed-rate loan.

Prerequisites to obtain the student loans

In South Africa, obtaining a student loan involves meeting certain prerequisites that vary slightly across different providers, including banks and the National Student Financial Aid Scheme (NSFAS). Here’s a summarized overview of the general requirements and steps involved in applying for a student loan:

Eligibility Criteria: Applicants typically must be South African citizens or permanent residents, enrolled in a recognized educational institution within the country. A valid South African ID is required, and applicants must meet the academic requirements of the institution they plan to attend. A guarantor or co-signer, like a parent or guardian who meets financial criteria, is often necessary.

Financial Institutions Offering Student Loans

South Africa’s major banks, including Absa, FNB, Nedbank, and Standard Bank, have a robust history and offer a wide array of services beyond student loans, such as risk services, tax assistance, and strategy consulting.

They’ve been instrumental in providing financial solutions that cater to diverse customer needs, including education financing. With solid operating foundations, these banks have navigated challenging conditions to deliver strong financial performances.

Their focus on digital channels and customer-centric products showcases their evolution into modern banking entities that balance traditional services with innovative financial solutions.

Banks and financial institutions that offer student loans

Several banks, financial institutions, and government bodies offer student loans, each with unique features tailored to meet the financial needs of students pursuing tertiary education.

These loans aim to cover a wide range of expenses, including tuition, accommodation, textbooks, and other educational materials, facilitating access to higher education for students who might otherwise be unable to afford it. Below are some of the primary providers of student loans in South Africa:

National Student Financial Aid Scheme (NSFAS)

NSFAS is a South African government-funded institution designed to provide financial assistance to eligible students from poor and working-class families. The scheme covers a significant portion of university and college costs, including tuition fees, accommodation, meals, study materials, and travel allowances.

NSFAS loans are unique in that they can be converted into bursaries for students who meet certain academic and eligibility criteria, partially relieving the repayment burden.

First National Bank (FNB)

FNB offers comprehensive student loans that cover tuition fees, textbooks, equipment, and accommodation. The bank provides personalized interest rates and allows students to pay interest only during their study period, with the principal debt repayment commencing upon graduation. This feature makes it easier for students to manage their finances while focusing on their studies.

Standard Bank

Standard Bank provides student loans for full-time and part-time studies, covering tuition fees, textbooks, accommodation, and other study-related expenses. Benefits of a Standard Bank student loan include competitive interest rates and flexible repayment options..

Absa

Absa’s student loans are designed to support both undergraduate and postgraduate students, offering competitive interest rates and flexible repayment terms. Loans from Absa cover tuition fees, textbooks, study equipment, and accommodation. Absa requires applicants to earn a minimum amount and be either a South African citizen or a permanent resident.

Nedbank

Nedbank provides student loans to both full-time and part-time students, with repayment options that are tailored to the student’s financial capabilities. Interest rates are competitive, and the loan covers tuition, accommodation, textbooks, and other study-related expenses. Nedbank also requires proof of academic progress for loan renewal each year.

Step by step to apply for the student loan

The process begins with researching and comparing different student loan providers to find the best rates and terms. Gathering necessary documentation, such as proof of enrollment, ID, and financial details, is crucial.

Applicants then fill out and submit an application form, provided by the loan provider, along with the required documents. Approval leads to signing a loan agreement, after which the funds are disbursed.

Positives and negatives of the student loans

Understanding the positives and negatives of student loans in South Africa is crucial for making an informed decision. Here’s a summary of key points to consider:

Positives

Access to education: Loans provide financial access to higher education for students who otherwise couldn’t afford it, bridging the gap between ambition and reality.
Investment in future: A student loan is an investment in the borrower’s future, enabling them to gain qualifications that can lead to better employment opportunities and higher earnings.
Flexible repayment plans: Many loan providers offer flexible repayment options, including grace periods and interest-only payments during study, which can ease the financial burden on students.
Comprehensive coverage: Loans often cover a wide range of expenses beyond tuition, such as accommodation, books, and living expenses, ensuring that students can fully commit to their studies.
Credit building: For many students, a student loan is the first step in building a credit history, which is beneficial for future financial endeavors.

Negatives

High interest rates: Student loans, especially those from private lenders, can have high interest rates, significantly increasing the total amount to be repaid.
Long-term debt: Loans can lead to long-term financial obligations, burdening graduates with debt that can take years to pay off, potentially affecting their financial freedom.
Risk of overborrowing: There’s a risk of borrowing more than needed, leading to unnecessary debt. Students may not always fully comprehend the long-term implications of their loan amount.
Economic vulnerability: In economic downturns or personal financial difficulties, repaying a student loan can become challenging, leading to potential penalties or impacts on credit scores.
Dependency on guarantors: Most student loans require a guarantor, usually a parent or guardian, who must meet specific financial criteria. This requirement can be a barrier for some applicants.

Alternatives to student loans

Beyond traditional student loans, South African banks and financial institutions offer various alternative funding options for education. These alternatives are designed to accommodate different financial situations and educational needs.

Manati offers an innovative approach to student funding, focusing on providing low-interest study loans through partnerships with universities, colleges, corporates, and government entities. Their goal is to make further studies accessible and affordable for a vast majority of students. More information on their offerings can be found at Manati.

Capitec Bank extends its financial services to education through its education loan product. This loan can cover up to R500,000 for tuition and other educational expenses at any South African-registered institution. It’s designed not just for university fees but also for primary and high school, online courses, and Technical Vocational Education and Training (TVET) colleges, providing a comprehensive solution for various educational stages.

Student loans average rates and fees

When considering a student loan in South Africa, it’s important to be aware of the various rates and fees that might apply. These can vary significantly depending on the lender, but here’s an overview of what potential borrowers could expect:

Interest rates: The average student loan interest rate hovers around 10%. Some institutions may offer lower rates for students who have been studying for a year or more, while personal loans used for education might come with higher rates. Interest rates can also be personalized based on individual circumstances.
Fees: Common fees associated with student loans include a monthly service fee, which can be around R69, and a once-off initiation fee that might range from approximately R649.75 to R1,207.50. These fees can add up over the life of the loan and should be factored into the total cost.
Repayment: Many lenders allow students to defer the principal repayment until after graduation, requiring only interest payments during the study period. Some may even offer a grace period if the graduate remains unemployed for a while after finishing their studies. However, it’s critical to remember that failing to complete one’s studies can lead to immediate repayment obligations.

Each institution has its set of requirements, benefits, and application processes. It’s advisable to contact them directly or visit their websites for the most current information and guidance on applying for a student loan.

Why choose student loans?

Student loans in South Africa are designed to be accessible, catering to a wide range of financial backgrounds, including those with limited credit history. They are particularly aimed at students and families seeking financial assistance for higher education, making them an entry-level loan in many respects.

These loans are flexible, accommodating students with varying financial needs and repayment capabilities.

Most banks and financial institutions have adapted to digital trends, offering online applications and management tools for these loans, making them easily manageable through digital banking platforms.

This digital ease of access combined with their inclusive eligibility criteria makes student loans suitable for a broad spectrum of customers, from those entering tertiary education to those continuing their studies, regardless of their financial history.