STUDENT FUNDING: When you’re not poor enoughhttp://www.financialmail.co.za/features/2015/01/29/student-funding-when-youre-not-poor-enoughBY ANDILE MAKHOLWA, 29 JANUARY 2015, 09:44

MENTIONED IN THIS ARTICLE

Organisations: Department of Higher Education and Training

FM Edition: January 29 - 2015

THE department of higher education & training has tasked the National Student Financial Aid Scheme (NSFAS) to investigate the prospects of setting up a fund for students who don’t qualify for its loans, but are also turned away by banks.

Diane Parker, acting deputy director-general for university education at the department, says this is an attempt to find a solution for the many students who do not qualify for aid in terms of the aid scheme’s means test even though they are poor.

The Public Investment Corp (PIC) and the Government Employees Pension Fund (GEPF) have been roped in to support the proposed fund.

The NSFAS — a state-owned agency which offers affordable loans and bursaries to students attending public institutions — gives loans only to students whose family income is lower than R120 000/year. Parker says this excludes many students whose parents earn between R120 000 and R300 000/year, as many of them cannot afford a university education.

The NSFAS itself is funded by several government departments, including the departments of higher education & training and basic education, as well as by the Skills Fund and donors. It applies the means test because it has limited resources.

CEO Msulwa Daca says the agency has R9,5bn this year to fund about 415 000 university and further education & training college students.

But that is hardly enough. Several institutions are trying to put out fires as students protest over the shortage of funds — scenes that have become common at the beginning of every year.

Daca says the decision to rope in the PIC and the GEPF to back the proposed fund was made because many of the students who don’t qualify for NSFAS loans and are turned away by banks are children of police, teachers and other low-earning civil servants.

He is mindful that there are limits on the use of pension funds.

"The talks are promising. By the end of March we will be tabling our recommendations to the minister [Blade Nzimande]," says Daca.

Parker says there’s a need to set up a fund that is different from the NSFAS and will provide surety to banks that are willing to give loans to high-performing students.

For many students there are limited choices when it comes to affordable loans besides approaching the NSFAS.

Eduloan, a private lender operating in the middle income range of both public and private institutions, does not compete with the NSFAS in its offering, and is therefore unable to alleviate the problems faced by the state agency.

The NSFAS charges interest of 80% of the repo rate on the loan, which kicks in only a year after a student has graduated or dropped out, and requires repayment only once students are employed and earn more than R30 000/year.

Eduloan CEO Totsie Memela-Khambula says 75% of the lender’s loans are taken by people who want to upgrade their qualifications, and the remainder by parents for their children.

Eduloan is perhaps the cheapest of all the microlenders that offer study loans. Its interest rate is prime plus 1%. The problem is that its loans have to be serviced immediately, and the capital amount must be repaid within 24 months.

The gripe with banks generally relates to their demand for surety, and their steep interest rate. On average, they charge prime plus 2% or 3%. Though they allow students to repay the capital loan only once they are working, they demand the payment of interest in the meantime. That excludes many parents who are in the middle income range.

Theunis Kruger, head of unsecured lending at Standard Bank, says the conditions for qualification for a student loan are based on principles similar to those for other loans. "However, in most instances the interest rate on a student loan is preferential, which may lead to lower repayments." Therefore they are more affordable than ordinary loans, says Kruger.

"When assessing a customer’s eligibility, the surety’s income, expenditure and employment are taken into consideration to determine his or her ability to repay the loan. We also take into consideration the surety’s conduct on other credit products, where applicable."

Roxanne Steenekamp, manager: product & personal loans at Absa, says SA banking institutions offer study loans at competitive interest rates which are linked to the prime interest rate and based on a customer’s individual affordability and risk profile.

"At Absa, the study loan product model has also been built to cater for difficulties that students may have in finding immediate employment in the job market after studying, and they are allowed to apply, on a case-by-case basis, for a repayment extension," she says.

"On average for 2014, financing requests for student loans came in at R80 000, with the average duration of study being 35 months. The average pay-back period after study is 40-45 months," says Steenekamp.

She says study loan volumes have remained stable. A large majority of applications has been for the funding of new studies.

The bank’s student loan portfolio amounts to roughly 10% of its personal loan lending total.