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19 March 2024
With government tertiary funding now more accessible to families with a household income of R350,000 to R600,000, the financial pros of a student loan tend to trump a personal loan. Here, Ndimande delves into credit options for further education for the so-called ‘missing middle’.
Ndimande says, “Student loans are nearly always better than personal loans because of how they’re structured. Someone will stand surety for the student while they are studying, applying for the loan, and paying minimal premiums on their behalf. This is usually a parent or guardian. Once studies are completed, the loan is normally transferred to the student, and the premiums increase, irrespective of whether the student has found employment. Alternatively, a graduate can sometimes approach their employer and negotiate a settlement of their student loan in exchange for the equivalent years of service to their employer.
“Conversely, with a personal loan, you pay high premiums from the get-go. Usually, the student applies for the loan directly because it is unsecured; that means it’s often harder to find people to stand surety as the premiums are much higher.”
South Africa’s so-called missing middle refers to families with a collective household budget of R350,000 to R600,000, which means they typically just miss out on government support. Recently, however, the Department of Higher Education and Training introduced a ‘missing middle’ National Student Financial Aid Scheme (NSFAS) fund of R3.8 billion, which should go some way to make education more accessible to this group. Phase one should provide support to nearly half the +68,000 qualifying missing middle students.
Ndimande suggests speaking to a financial adviser as early as possible. The sooner parents or guardians can start saving towards their children’s educational futures, the better. “Even if it’s just R100 a month, it can earn interest over time, and make a significant difference later. For example, if you manage to save R20,000, you can pay registration fees upfront and take out a smaller loan. Unfortunately, educational applications tend to work on a first-come-first-serve basis, so those able to access financing quicker are in a better position to accept placement early on.
"I strongly suggest families work with an adviser to set shared goals, track progress towards these, and have a clear plan from early on, when their child is young.”
A credit coach partners with individuals to work towards an improved credit score, holistically. Ndimande says, “Sanlam Credit Solutions offers free one-on-one credit coaching, helping you achieve your credit goals, improve your credit score, and better your chances of being approved for financing. Coaches can also ensure your information is up to date and advocate with the Bureau on your behalf should any inaccurate information be negatively impacting your score.”
Whether you’re pursuing a personal or student loan, Ndimande says the credit check process is the same for the person applying or standing surety. She strongly advises getting to grips with the terms and conditions of the loan to avoid penalties. “For example, while Sanlam Personal Loans does not charge extra or penalties for early settlements, some loans can do so, if you do not notify the provider in advance.”
“Understand how the credit system works. You need to have a balance of credit to build your history. Your credit score is like a CV; it shows your record of credibility to prospective creditors. Even if you just have a small retail account you pay off timeously each month, you need some evidence of good credit behaviour to qualify for future loans and to pay less interest.”