A reader recently wrote in, asking whether it would be better to pay for her child’s university education from her access bond, or to take out a student loan.

A student loan can be very cost effective and in most cases, you would be paying around the prime interest rate which is similar to what you are paying on your access bond.

There are further reasons to consider a student loan rather than using an access bond:

1. It allows your child to take some responsibility for their education. You can tell your child that you will service the interest but that they will have to pay the capital once they start working. This makes them place value in their studying rather than it being a freebie from their parents. They share the financial burden of an education that they will benefit from, while you can focus on planning for your retirement.
2. It helps them build up a credit record in a safe way. This does depend on the bank, as some banks issue the student loan in the child’s name while others issue the loan in the parent’s name unless the child is working full time. An ideal option is where the child has the student loan in their name and the parents have signed surety. This allows the child to build up a credit history.
3. You can spread the repayment with a student loan. With an access bond, the capital/principal debt and interest form part of the repayments from the first month. In the case of a student loan, only interest must be paid during the course of study and the repayments of the capital/principal debt must begin within six to twelve months of studying coming to an end. The loan must be fully paid within four to five years. With a student loan, most banks offer a six-month grace period to find work but this can be extended to up to 12 months as long as interest on the loan is serviced. If the student is required to complete articles, an internship programme or community service, proof must be supplied to the bank. During the period of internship, articles or community service, interest must be serviced on the loan.
4. With a student loan, as a parent you can decide whether you want to just pay the interest or whether you repay both the interest and capital.
5. If you pay with an access bond you have to ensure that you still pay it back within the time period of the studies. If you only pay it off over the 20-year period of the home loan it will become a very expensive education as the total interest paid will be far higher.

This article first appeared in City Press.