If you are looking to fund your child’s tertiary education, or you are a student needing to borrow money, a student loan is the most cost-effective option.

It also has more flexible repayment periods and can help a student build up a credit record.

We spoke to several banks to find out their policies on student loans.

Personal loan or student loan?

According to Cowyk Fox, Managing Executive: Everyday Banking at Absa Retail and Business Bank, the key benefit of their Study Loan is that it’s generally priced lower than a personal loan.

“At Absa, customers could qualify for an interest rate from prime on the Study Loan. Importantly, with a Study Loan, the applicant can opt to only repay the interest portion (not capital) for the first 12 months. This option is not available on traditional personal loans.”

Amika Maharaj, Head of Product: Retail Loans at FNB, says interest rates are typically lower on student loans compared to personal loans. With FNB Student Loans, rates are personalised based on your credit profile and start from as low as prime less 0.5%

Andrew Foss, Solution Owner: Student Funding at Standard Bank, says the bank offers student loans with interest rates as low as prime.

What courses qualify?

Any course qualifies for a student loan if it is SAQA accredited at at least NQF level 5. Standard Bank also funds international studies for students who want to advance their education abroad, and also includes flight schools for personal and commercial pilot licenses.

Who is responsible for the loan?

Unless the student is earning their own income, banks require a parent or sponsor to sign surety for the loan. This guarantees that the loan will be repaid if something prevents the student from being able to repay the monthly loan amounts. The guarantor’s credit history would be used.

For an FNB Student Loan or Absa Study Loan, the applicant would need to have an income. This means that in most cases it is the parent, guardian or sponsor who applies for the student loan in their name to fund the student’s tertiary education.

“Our Study Loans are mostly to parents as we have to determine affordability in line with the NCA,” says Fox. For an FNB Student Loan the applicant needs to have a minimum income of R3 000 deposited into their account.

Nedbank and Standard Bank require the loan to be in the name of the student to qualify as a student loan.

If the student does not have an income, someone must sign surety on the loan. For Nedbank, surety is not restricted to the parents of the student. Anyone who would like to sign as guarantor and meets the criteria can sign surety, while part-time students who are employed do not need a guarantor.

What this means is that the parent must have a reasonable credit record and be able to afford to repay the loan, which would disqualify many students from getting a student loan.

Because of this, Standard Bank recently introduced a student loan option that requires no surety for eligible students.

“This student loan option is currently offered to students studying select approved courses at one of our partner institutions. Plus, no payment is required while the student is studying; the repayment of their loan is only required once they’ve completed their studies,” says Foss.

How long is a student loan issued for?

A loan is issued for a single year of study – the student needs to re-apply for each academic year. Therefore, it’s important to keep up to date with your repayments, maintain a good credit profile, and keep expenses low, in order to increase your chances of success on the next loan application.

According to Absa, customers can easily re-apply for a loan for subsequent years of study provided that the parent or sponsor is able to afford the additional loan amount.

“Further to this, customers can extend the option to repay only the interest portion of the loan for a further 12 months while re-applying for additional funds to cover subsequent years of study,” says Fox.

FNB offers loans from R1 000 up to R300 000 but recommends you only borrow the amount you need per year to avoid over-indebtedness and paying more interest than necessary.

Absa’s minimum student loan is R15 000.

When are payments made?

There are two repayment options:

• Pay off the interest portion only for the first 12 months and thereafter start repaying the capital (and remainder of the interest). The interet-only period can be extended until the student finishes studying. Banks typically give a six-to-12-month grace period once the student has completed their studies before full repayments need to start.
• Start repaying the loan in full (both capital and interest, as well as loan fees) from the first month of the contract. This means the loan will be paid off sooner.

Most banks require the loan to be fully paid off within five years, though Standard Bank will allow a repayment period of up to 10 years once full repayment has commenced.

The best advice for a student taking out a student loan is to prioritise this repayment before taking on any further debt.

If you are able to take out a student loan in your own name, this will help you build a healthy credit score, as long as you fully meet your repayment obligations.

This article first appeared in City Press.