Don’t let student debt dictate your future
The recent student protests have focussed South Africa’s attention on the cost of tertiary education. Not only that, but people have also been forced to look at the impact that cost can have on the financial future of the students themselves, as well as their parents and others who pitch in to help them pay for their education or pay back their student loans.
“We obviously want the students of today to become the homebuyers of tomorrow,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator. The truth is that in SA, as in many other countries, many graduates are facing years of debt repayment before they can even consider buying a home. This is acknowledged as one of the main reasons that the average age of first-time homebuyers all over the world has risen from the mid-20s a decade ago, to the mid-30s now.”
The ripple effect
“Indeed, a very large percentage of young adults are now not even renting accommodation after graduating but continuing to live with their parents or other family while they tackle their student debt”, explains Rademeyer. “This is not only reducing the demand for new apartments and starter-homes, but it’s also limiting the ability of their parents to give effect to their own plans for retirement, which once again has a negative effect on the residential property market.”
Current estimates from the Department of Higher Education, he says, are that student debt to the universities is at least R5bn. “On top of that, there must be millions of Rands more owed to the banks in the form of student loans, so this is not a small problem. It needs to be addressed soon if we want the next generation to be able to become homeowners, to start new businesses and to better the lives of their families.
Addressing the issue of student debt
Educating people is a good place to start. “One way to address the issue, we believe, would be by ensuring that students and their parents are better informed about the implications of borrowing money to finance their studies, about the commitments they are making to repay those loans, and about any alternative study options that are open to them”, says Rademeyer. He feels that it is not likely that a totally free tertiary education will be introduced in the near future, and that since so many South Africans are firmly committed to the idea that education is the best investment they can make in their future, or that of their children, student loans are probably going to remain a huge part of SA’s financial landscape.
Being fully prepared to take on a student loan
“Traditionally, our banks and other lenders have looked pretty favourably on student loan applications, and the availability of such loans has proved invaluable to parents, students and the economy as a whole. It is vital though that the borrowers fully understand the need to service these loans correctly and on time, and to assess whether they can realistically afford the repayments, or expect to afford them once they graduate”, states Rademeyer. “If they cannot, they may have to consider other ways of obtaining more qualifications, such as working and studying part-time or online, or perhaps initially taking only specific short-courses to enhance their employment potential, rather than a full-time degree over three or four years.”
Whilst this may seem like a long way around to a better career, it really may actually be preferable. “Leaving university with huge debt or a bad credit record can undoubtedly hurt your prospects for years to come”, says Rademeyer. “At the same time, you could also be inflicting similar long-term financial damage on your parents or other family members who were only trying to help you.”
Student debt can greatly impact your financial future so it’s important to consider all the variables before choosing to take on a student loan.