Don’t allow the ghosts of student debt to haunt your future

Education is the key to a great future, but, like all good things, it can come with a steep price tag.

For many graduates, this means shouldering part of the national R16.5 billion student debt and starting a working life with this financial burden. But, says Old Mutual, it’s not all bad news.

Having a diploma or degree is an investment that can offer rich returns for the rest of your life, says John Manyike, Head of Financial Education at Old Mutual. Yes, you may have debt, but how you manage it will be key.

“Student debt is a serious issue in South Africa. Debts accumulated by young people are increasing. For many, taking a student loan is often the only way to realise their dreams. “

“For parents, the obvious thing to consider is an education plan that matures when a child is due to enter a tertiary institution. If contributions keep pace with education inflation, this could guarantee a paid-up place at a university. Even if the amount realised falls short, it could reduce the loan size needed to get that qualification.”

For potential students who will have to pay their way, the thinking should begin early, says Manyike. Things to consider are:

What you want to study and its market value.

Having a degree or diploma doesn’t guarantee employment. Qualifications in fields that are important to commerce and industry will offer a better chance of work. It’s best to do research, check out market requirements and then select a career that appeals.

Numbers don’t lie

Find out exactly what a loan is going to cost you. Know how much cash you need, the interest rate, the total cost of a loan and the repayment terms. The secret here is to borrow what you need only. Being told that you qualify for a R 50 000 loan doesn’t mean that you must take that amount.

“Responsible borrowing can add value to life, but loans must be repaid. With some student loans, repayment day may begin the day you start your first job. Again, you don’t have to wait for this. Being proactive can save you money,” says Manyike, who advocates making early repayments

To get ahead and reduce the spectre of high future payments, any money you can get from side hustles, part-time employment or even gifts can make a dent in what you owe and cut future monthly repayments. Reducing overall debt while still studying is the way to go.

Other ways of paying your student debt are:

Setting up a budget and making student debt payments a priority.
Paying the monthly instalment through a debit order. This strategy ensures that payments are made on time, every time, which helps develop a good credit record.
Pay more than what is due if possible. Additional monthly payments add up quickly, reduce the loan term and interest payable over time.

“Small sacrifices can make a big difference. If, for instance, you love take-aways and treat yourself daily at the office, you are probably spending about R 250.00 a week and R1, 000 per month and R12, 000 per annum. That money could help pay that loan off faster.” Rather make a lunch box from left overs.

“Servicing debt is also about knowing the difference between what you want and what you need. Starting a career and surrendering to the temptation of further loans to enable a glitzy lifestyle means the ghost of that student loan will be around much longer than you anticipated.”

“Steadily paying your student loan and avoiding late payments will provide another unseen benefit. You will have a good credit record, and when you are ready for a mortgage loan or car loan, your credit record will speak for you.

A bad credit record can deny you a job opportunity too. Making the correct choices today means having plenty of benefits in the future.” Says Manyike.

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