Don’t let those student loans linger too long

The students of today should be the homeowners of tomorrow but unfortunately many of them are now getting into such debt by the time they qualify that it may be years before they can even think about buying property.
“Young South Africans are generally committed to the idea that education is the best investment they can make in their future, but the high costs of obtaining a tertiary qualification are driving more and more of them to rely on student loans from the banks or the National Student Financial Aid Scheme (NSFAS),” says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s biggest mortgage origination group.
“However, if they don’t want to damage their home-buying prospects and be burdened by debt long after they have qualified, they really also need to learn how to manage those loans and commit to paying them off as soon as possible.”
The growing student debt problem, he says, is reflected in the fact that adult children now often continue to live with their parents for many more years than previous generations did,while they try to repay their loans – and that, as BetterBond’s statistics show, the average age of first-time homebuyers in SA has advanced from 27 or 28 in the Nineties to 34 or 35 now.
“And the extent of it becomes clear when one considers that the NSFAS is currently making about R9bn worth of loans to 400 000 students a year, but only receiving about R400m of repayments a year.”
The major reason for all this lingering debt, Rademeyer says, is obviously the difficulty that many new graduates currently have in finding employment – because those who receive loans from NSFAS don’t have to start repaying those loans until they are employed and earning at least R30 000 a year.
“However, what many don’t seem to realise is that the interest on those loans continues to accrue at 4% a year, so the longer they take to find a suitable job or to make another plan to start making repayments, the bigger the total debt grows. We know of several cases, in fact, where it has taken borrowers twice as long to pay back their loans as it took to get their qualification.”
Lifestyles have changed, too, he admits, with many graduates preferring to rent rather than buy a home in order to “keep their options open” to travel or work overseas, and people generally waiting longer to marry and start a family than in years gone by.
“But increasingly we see that old student debt is a significant obstacle for many who are ready to buy their first homes, because it prevents them from being able to qualify for home loans and may result in them having to delay their purchase plans by months, if not years.”
On the other hand, Rademeyer notes, students and recent graduates who quickly meet all their student loan obligations are laying the foundations for a good credit rating, which will undoubtedly mean easier and quicker access to mortgage finance – and to their own homes.
"And because the benefits of home ownership are enormous and lifelong, we seriously recommend that all those who are considering taking out a student loan first ensure that they are properly informed about the total they will have to repay - which is the amount borrowed plus all the interest – and how long that will take.
“Our stance is that the reason for taking the loan must be important enough to justify the extra money they will have to pay back in interest, and that if it is not that urgent, they may actually do better to work and save for a few years and then fund their own studies.”
As for those who are currently studying with the aid of a loan, he says, they should be very careful to keep the total amount borrowed as low as possible, by keeping a tight rein on their budgets.
“They should use public transport whenever possible, for example, or join a lift club instead of using their own car. If living away from home, they should try to share accommodation and food costs. They should also watch their expenditure on books and especially on cell phone and internet costs.
“If it is at all feasible, they should also get some sort of a part-time job – not only for the extra money they will earn but for the work record and experience they will gain.This will undoubtedly make it easier to find proper employment once they qualify so that they can start repaying that loan as soon as possible.”

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