Guidelines to financing your education

17 Dec 2013

To find the best option to finance education, you have to do some homework even before you start your studies.

The fact is that few of us can afford tertiary studies without taking out a loan. To invest in your future by securing a study loan can be an excellent decision, as long as you understand exactly what the loan entails and where it will take you.

Before you even think about a loan, think long and hard about your future career path and how your studies will get you there. It is no use choosing a career, studying for three or four years and then realising you had it all wrong or you can't find work.

Proper career planning, finding your niche in a job market where critical skills are key in finding employment, and good management of your finances all play a crucial role in your future and in your financial situation.

There are three steps to the best study financing deal, said David Scholtz, Eduloan's chief financial officer. "Start by creating a budget you can afford, check your credit history to make sure it is accurate, and, lastly, get quotes from as many lending institutions as possible to find one that matches your budget."

Your budget and the cost of your chosen field of study may not correspond, and it is therefore equally important to establish what impact your eventual qualification will have on your finances.

To set the foundation for a debt-free future is important, said Scholtz. "Many people view a degree in executive education as one of the steps to future financial success. Yet, a Masters of Business Education degree can set you back between R60 000 and R200 000, depending on the learning institution of your choice.

"Think of your student loan as a product, just like any other product you can buy in a supermarket. Shop around and compare prices. Negotiate a loan repayment that suits your financial need. The reduction in debt will be worth the effort," said Scholtz.

To shop around and compare prices in this case means to look at the effective interest rates and related fees that different lending institutions offer. This can save thousands in the end. The lower the interest rate you can negotiate, the less debt you will have to repay after completing your studies.

The choice between a fixed-interest loan and one linked to the national prime lending rate depends on your unique circumstances. A fixed interest rate provides assurance of a fixed monthly instalment, and if you are financially stretched this makes it easier to budget as you know exactly what the monthly repayment amount will be for the rest of the period. On the other hand, an interest rate linked to prime can save you money if the interest rate drops, but may make repayments difficult if the rate increases.

Keep your future debt in check

Your financial behaviour can have quite an impact on what your study loan will cost you. Scholtz said that the following tips may make a substantial difference:

Build a good credit record to get a better interest rate by paying your debts on time;

Avoid default. If you cannot pay rather make an arrangement with the institution;

Spend less on luxury or non-essential purchases;

Avoid lower monthly instalments in exchange for a longer and more expensive repayment;

Collateral or surety may lower the interest rate;

If at all possible, pay more than the negotiated instalment if you can afford it. This will allow you to become debt free sooner; and

Use your quotations during negotiation.

Whatever your means of financing your studies, make sure that you don't budget for disposable income only, but to include a buffer for emergency spending should interest rates go up or other urgent expenses come up.

Totsie Memela, CEO of Eduloan, said that the fact that over 40% of first-year students never make it past their first year is a reason for concern, as well as that only 15% of students entering university in South Africa eventually emerge with a degree in hand after the minimum of study required.

"This means that money is either wasted or that unnecessarily prolonged studies cost much more than they should.

"Apart from proper career guidance to prevent students from dropping out of university, parents should start putting money aside for their offspring's education as soon as they are born by taking out policies or other ways of investing.

"The current cost of up to R75 000 per year may well translate into a million rand for a three-year degree in 10 years' time. Start now, as this will go a long way to covering the cost in the end and saving your child an excessive debt burden after completing his studies."

Eduloan has empowered thousands of South Africans to unlock their potential and start realising their dreams, said Memela. "We understand the real costs of tertiary education and offer study loans covering not only the course fees, but also additional expenses such as textbooks, registration fees and educational tools such as laptops and PCs. "