Before applying for a student loan, you must consider several important factors carefully. Getting that university acceptance letter is only half the battle regarding tertiary education. You also need to find a way to pay for it; tertiary education is not cheap. You also need to take into consideration the economic outlook of South Africa, the constant hike in repro rate and the current grey list status.
Is it worthwhile taking on significant debt to earn an academic degree? The answer is a resounding yes. There are, however, a few things students and parents need to carefully consider before making any university-related financial decisions.
Know what type of student loan you are applying for
Loans come with different terms and conditions, but a student loan will come in one of two forms;
- Federal (funded by the government) or
- Private (from banks and credit lenders).
In many cases, some students can qualify for more than one type of loan. It is, therefore, vital to know the difference between the two and which one best suits your financial needs.
Federal student loans come with incentives like fixed interest rates and the ability to restructure payments based on income.
Private student loans have slightly higher interest rates and fewer incentives; however, with a little in-depth research, you may find a private loan with lower interest rates.
It is better to first try and maximize your federal student loan options before getting your finances tangled. Knowing which type of student debt you are eligible for will streamline your application process.
Know your credit status
Before applying for a student loan, you should draw a detailed credit report. The credit report will give you an overview of your financial status and chance of getting a loan.
Debtline provides a free service to download your credit report and examine your credit score.
Like all debt, your credit score can affect the size and type of loan you can receive – and a student loan is no different. It is important to educate yourself on your credit score, financial position and the options available not to miss any benefits or hidden policies that can affect you.
Ensure any errors are reported and corrected before contacting your financial aid officer.
Different student loans
Another thing to consider when understanding and repaying your student loans is the difference between ‘short-term’ and ‘long-term’.
The shorter time it takes you to repay your debt, the more you will pay per month, but the less interest you will pay over the life of your loan.
However, if you choose to make smaller payments towards your debt over a long period, you may end up paying a significantly larger amount of interest over the years.
Understand the grace period
Your grace period is a set period you can wait before making your first payment. But not all loans come with a grace period. Grace periods can be helpful as they allow you time to get a job and save money before making your first repayment.
However, if you choose to forgo your grace period, you can offset some of your accruing interest.
Deferment and forbearance
Deferment and forbearance of student loans allow the payer, under certain circumstances, to temporarily stop making loan payments or reduce monthly payments for a fixed period.
Check to see if you qualify for one or more of these payment options, as stopping or reducing your payments could help you manage your debt and avoid default.
How to pay less for a student loan
Paying less for your monthly loan can help you better manage your finances and repayments. There are two options for reducing your student loan monthly repayments:
- Debt Consolidation
Debt Consolidation is the financial act of combining all your loans into one payment with lower interest rates. While this simplifies your payment process, it doesn’t reduce your loan burden.
Refinancing requires you to take out one new loan, with lower interest rates can help you pay off your debt faster. It is vital to research which option is best for you and your financial plan before implementing either of these financing options.
Is your student loan worthwhile?
This is a hard question, but it is worth considering. Knowing your probable earning potential after you graduate and your projected salary after receiving your degree will help suggest whether taking out a student loan is worthwhile for you and your finances.
Depending on your desired degree, you might not be able to find a steady job immediately or a job that pays enough to meet the minimum monthly repayments.