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Don’t let student debt dictate your future

The recent student protests have focused South Africa’s attention on the huge cost of tertiary education – and 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 to 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, “but 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. It is 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.

“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, and that is not only reducing the demand for new apartments and starter-homes, but 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 – “and 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, and 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.

“And one way to do this, we believe, would be to ensure 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.”

Rademeyer says it does not appear as if 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 part of SA’s financial landscape.

“Traditionally, SA 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.

“But it is vital 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.

“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.

“This may seem like a long way around to a better career, but it really is preferable to leaving university with huge debt or a bad credit record that will undoubtedly hurt your prospects for years to come – or inflicting similar long-term financial damage on your parents or other family members who were only trying to help you.”

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