Tag Archives: National Student Financial Aid Scheme

Student loan debt reaches $1.5 billion and climbing

Current student loan financed by the National Student Financial Aid Scheme (NSFAS) for tertiary education at the moment stands at R13.4 billion (US$1.5 billion) in delinquent loans it has been revealed by South Africa’s Higher Education Minister Blade Nzimande. Somewhere around 20% of students who took out loans are yet to pay a single cent towards their debt repayment packages.

The Minister has stated that recovering the capital sum is a priority of the education department and has encouraged the South African Revenue Service (SARS) to get involved and  garnish money from defaulters’ salaries.

NSFAS has publicly stated that it is lacking the relevant skills to recoup loans and that the scheme is not proficient at recovering debt. NSFAS has told parliament that only 5% (R638 million) of the total long-term debts has been recovered as at the end of 2011 which stood at R12.2 billion.

In spite of the delinquency rate of students loans, Nzimande has applauded the NSFAS scheme as “a feather in the government’s cap”. In 2012, R5 billion in students loans was granted and that since the scheme’s inception in 1999 more than R19 billion has been disbursed.

 

Student financial aid 1

 

Background of Student Loans

Higher education in the country has demonstrated and plays a crucial role in boosting the economy and contributed towards developing a wealthier society by producing highly skilled graduates.

The intention of government is to boost the annual university enrollment from 900,000 to 1.5 million by 2030 and realize their objective of a 23% higher education participation rate.

In January of 2012, a Green Paper was published setting out the goals and objectives of government pertaining to post-school education and training, with a target of generating  4 million students by way of colleges and other post-school institutions.

Currently, the country has a 16% participation rate of adults aged between 18 and 24 in comparison with a global average of 30%.

To be able to open access to  higher education and increase the number of students, it is vital that a student loan and bursary scheme remain in existence and promoted. In 1994 there were merely 495,000 students annually registered for university education. In 2012, this number stood at 900,000.

The current loan and bursary scheme has a stated objective to provide a sustainable educational funding system for student loans and bursaries and making it possible for academically deserving and financially needy students to realize their potential. The goal is to “make a difference in our land” – a key goal for a deeply unequal society.

The principal way whereby poorer students can obtain access to higher education is via the nation’s grants and loan scheme. Based on reports from the NSFAS, students loans and granted supported something like 32% of all university students in 2011.

 

Student financial aid 2

 

Access to and repayment of student loans

Based on Absa’s head of transitional banking,  Harriet Heymans, the bank estimates that a further 25% of students make application via other commercial institutions to obtain student loans to finance their studies.

In the USA there are reports and statistics proclaiming that the current student debt exceeds $1 trillion and that it takes somewhere around 10 years for individuals to repay their students loans after entering the work force. There are concerns that South Africa may very well be heading in the same direction.

As opposed to the USA, South African banks are well regulated and force lenders to comply with the National Credit Act and Consumer Protection Act. It is precisely these acts and laws that will prevent the country from entering an education loan crisis.

The National Credit Act and Consumer Protection Act assists to protect and support students. Making sure that loans are repaid within a specific time frame, all student education loans are registered in the names of the students parents  or in the case of part-time workers the student themselves.

Ensuring that students loans are repaid has additionally been backed up by Wits University Vice-chancellor Loyiso Nongxa who has expressed that it is crucial  that loans are repaid and that the non payment of loans goes beyond a mere resistance to honoring the debt.

Beside the undeniable fact that there currently exists a high level of graduate unemployment; there also exist the issue where students who are granted loans however do not graduate and find it difficult to seek out employment and repay their debts.

Even if a student drops out of college or university they are still liable and accountable for their debt. South African Students Congress claims that this figure is roughly a third of all students who have received loans.

According to NSFAS student loan terms and conditions, it specifically states that students who receive loans have a primary responsibility “to repay the confidence shown by studying hard, graduating and [entering] the workplace”. Thereafter, the loan has to be repaid.

In spite of this, currently students are only obliged to repay their debt once they have found employment and their salaries exceed R30,000 annually. Once this threshold has been achieved students are obliged to pay 3% of their annual salary increasing to a maximum of 8% upon attaining a salary of R59,300.

Nzimande is also committed to retaining the current policy whereby hard studying reduces the loan element, converting up to 40% of the borrowings into a non-repayable bursary which is dependent on the year-end academic results. The NSFAS annual report shows that at the present time this loan-to-bursary conversion translates into 15% of the current total student loan debt.

As reported by Business Day the country spends far too little on tertiary education. Current spending indicates that the current budget of R31 billion or 13% of the total education budget. The student loan system is trying to resolve two contradictory tendencies by, in essence, hoping to get more individuals into university while at the same time trying to maintain a constrained budget.

“The problem is complicated by a high dropout rate, which renders some of the spending ineffective,” – Business Day.

 

Education savings

 

Resolving the problem

Finding a solution to the students loans and grants issue is no simple task. The NSFAS is unable to say with 100% confidence whether or not the capital on student grants and loans will be repaid. There is a trend whereby students begin repaying their loans however in time become untraceable or end up in informal employment. The same holds true for those students who fall below the earnings threshold.

Furthermore, there is doubt whether or not debts will be repaid considering that that this depends on the reality that when students exit the tertiary will they find employment and what will their annual earning be. Also, will the scheme have the ability to monitor and keep track of students who are granted bursaries and loans; not forgetting the effect of inflation which also impacts the student loan. A loan of R10,000 currently does not translate into the same buying power for that capital three years hence. Add to that equation the reality that the scheme charges an interest rate equivalent to 80% of the repurchase rate, presenting a considerable discount to commercial interest rates.

Career Wise MD Monique Adams has stated that she is also wary of the loan problem and believes that there is an ever increasing debt problem in South Africa with more and more students taking out loans.

“The problem will not go away, but will increase as more students take out loans,” she concluded.

NSFAS student loans and bursaries

South Africa is home to many world-class universities and colleges, and you’re smart and want to get ahead in life. How are you going to pay for your studies?

Studying is an expensive undertaking. You can expect to pay between R10 000 and R20 000 for each year of undergraduate study at a South African university. Specialised or professional degrees, such as medicine, can cost much more.

South Africa also has a wide range of private colleges, where tuition fees can be higher than at the subsidized public institutions. Be sure to consider your options before deciding how to pay for your studies, and apply for any award or bursary for which you’re eligible.
University financial aid

If you have already enrolled at a university, or are considering doing so, their financial aid office should be your first stop. Most universities offer bursaries or grants to students that have excelled in their previous studies or on the sports field. Check with your university’s financial aid office whether you are eligible for any of these bursaries or awards, and make sure that you apply before the closing date.

National financial aid

If you are a South African citizen you may be eligible for a National Student Financial Aid Scheme (NSFAS) loan for study at one of the country’s public higher education institutions. The NSFAS, a statutory body funded by the Department of Education, provides study loans to academically able but financially needy students.

Much of an NSFAS loan can be converted into a bursary, which does not then need to be repaid, depending on one’s academic progress. A 100% pass rate would result in a 40% bursary rebate on an NSFAS loan.

The size of the initial NSFAS loan ranges from R2 000 to R30 000. You should apply at your university’s financial aid office.

External bursaries

Many South African companies offer bursaries to promising students.

The terms of these bursaries vary tremendously. Contract bursaries require you to “pay back” the bursary by working at the company once you’ve completed your degree – giving you a job and work experience immediately after your graduation. Many mining and engineering companies, in particular, provide contract bursaries.

The Bursary Register, available at most high schools and at your university’s financial aid office, will provide you with a full list of bursaries available in your particular field.

Student loans

All of South Africa’s major banks offer student loans, both to South Africans and to non-South Africans with valid study permits. Bank loans, unlike NSFAS loans, will also cover studies at a private institution.

When applying for a bank loan, you will have to show proof of registration at an educational institution. You’ll also need somebody, such as a parent or guardian, to sign surety for you.

Although you will only need to start repaying your bank loan once you’ve completed your studies, you will need to keep up the interest payments throughout the term of the loan.

Paying your own way

You can also choose to pay your own way. By taking a year off to work before studying, or by working part-time while pursuing your studies, you can gain valuable work experience while earning to finance your degree.

You’ll have to be disciplined, however, to make sure that you set aside enough time for both your studies and your work, and to make sure that you don’t fall behind in either.

Source: southafrica.info, ssw.uga.edu, nyu.edu, nsfas.org.za