/ 7 March 2006

Easy money for students

Banks are not usually seen as an easy touch for loans, usually requiring collateral that many would-be borrowers do not have. But in the case of student loans, leading banks say the only limitation is students who do not realise that money is available.

According to Old Mutual regional marketing manager for Johannesburg Thobile Tshabalala, a young adult starting a three-year commerce degree in 2009 will need to fork out R87 225, while a six-year degree in medicine will cost R220 066. So it is good news that students qualify for lower interest rates, paying as little as 7,5% compared to the prime rate of 10,5%.

The only catch is that students have to service the interest on the loan while they are studying, paying about R200 a month in the case of a R30 000 loan.

In most instances banks don’t require collateral, but they usually do require someone to act as surety. Only in exceptional circumstances do banks waive this requirement.

In many cases, banks will provide finance to students who would normally not qualify for personal loans. For example, an MBA student may qualify for a R120 000 student loan, but were this person to apply for an equivalent personal loan, he or she may not be successful.

Loans typically have to be repaid over the same length of time that the person studied. For example, one would have three years to pay off of a three-year degree. This does depend on the student’s financial position and qualification, however.

Some banks set aside funds for students who are unable to make interest payments. First National Bank (FNB), for instance, has R3,1-million this year from the FirstRand Foundation to be made available to previously disadvantaged students in rural areas.

For those who miss out on this, FNB has launched a tailor-made product based on the current income of the parent and the estimated future earnings of the student.

To bring awareness to the market of its different student-loan products, FNB has also launched the ‘Rocking Future” school roadshow, to inform scholars about finance for tertiary studies.

Werner van der Merwe of FNB forecasts a significant increase in applications for student loans between January and March, when parents apply for study finance for their children. FNB offers between R15 000 and R50 000, depending on the parents’ financial profile.

Paul Fallon, director of lending products at Standard Bank, says the bank sets no limits on the value of student loans that are advanced to underprivileged students. He said the only hurdle was that most students found it ‘intimidating” to walk through the doors of a bank to ask for a loan.

Standard Bank has stepped up its marketing and communication campaigns to highlight its student loan products. Absa is also currently running adverts to bring its student loan product to the attention of the public.

Most banks declined to disclose the size of their student-loan book, but FNB has outstanding loans to students of R384-million, suggesting that the big four banks probably have a combined exposure of more than R1-billion.

While Standard Bank would not disclose the extent of its loan book, Fallon says the bank is one of the biggest providers of loans through its student-loan products and through its partnership with Edu-loan, an education financing institution. It has a novel approach to incentivise students to focus on their studies. As a student passes and goes through to the following year of study, the interest rate drops.

Student loans are open to all students who are at public tertiary institutions or approved private ones.

Saving for your child’s education

It is always better to have saved for your child’s education than to have to borrow money.

For this reason most banks offer special savings vehicles that incentivise you to save for an education. For example, Absa recently launched FuturePlan, a contractual savings product that carries no bank charges and gives an opportunity for parents and guardians to invest in their children’s future.

The saving plan will attract prevailing market-related interest rates. Absa will top up accounts by an additional 3,5% for every deposit of up to R1 000 made per month.

While this product requires regular monthly deposits, it also allows ad hoc contributions to be made. The account, which can be opened with as little as R100, must be opened in the name of a child beneficiary younger than 15.

The minimum saving period is three years. The interest rates are linked to the size and the length of the period of saving.

A personal encounter

A recent beneficiary of a student loan, who prefers not to be named, is a Cape Town-based student. She was able to access about R33 000 from Nedbank last year when she wanted to pursue postgraduate studies at the University of the Witwatersrand.

When she applied for the loan, the only requirement from the bank was to see her academic record to make sure she was an exemplary student.

As her results were impressive, Nedbank granted the loan and the student’s sister signed as her surety.

The student said she had to pay about R200 a month over the course of the year, which was not ‘exactly easy”.

She expects to get a letter from the bank anytime now asking for the money to be repaid. She began work last month and is ready to begin paying back her loan.

”I wouldn’t say bank loans are cool. I wouldn’t recommend this as the first choice; for me it was the last resort,” she said.

”I have to pay back my student loan in 18 months and a huge amount of my salary will go towards repayment of the loan.”