How to manage your loan repayment
Recent statistics revealed that 73% of UK graduates will still owe money on their student loans by the time they reach their 50s.
While there are no local statistics, it is believed that South African graduates face the same financial challenges of paying back their student loans.
There are two main reasons for this: the high cost of education, which is often paired with poor management of finances as a result of lack of financial education, says John Marsden of mutual financial services company PPS.
Along with the general increase in the cost of living, the cost of tertiary education has increased significantly over the past 10 years.
While this hindered further education for many South Africans, a lot of others took to loans to pay for their education.
Marsden, however, cautions that it is important that graduates who do take out student loans are aware of the costs involved and make sure they are informed about how to structure a repayment plan.
He lists nine key tips for graduates to ensure the loan does not end up having a severe and negative impact on their financial future:
- Only take out a loan from a recognised and registered bank or institution. If you are unsure ask your bank.
- Keep track of the student loan by knowing the lender, the balance and repayment status at all times.
- Make a plan to factor in regular payments to the lender as soon as you start earning a salary, so that the debt does not grow to an unmanageable amount.
- Set a specific time frame for the repayment of the loan and make sure that this is prioritised.
- Don’t spend money on luxury, trendy things before paying the loan debt.
- Do not stop paying the loan if you are struggling to find employment, as this can have a long lasting impact on your credit score and will haunt your financial future. Rather contact the lender and arrange an affordable repayment solution rather than stopping the payment altogether.
- Stay in touch with the lender by informing them of any change of address or contact details, as some lenders do penalise borrowers if they fail to keep them informed of their current situation.
- Begin by drawing up a budget as soon as you graduate, factoring in a monthly loan payment schedule with the aim to pay off the loan within four years of graduating.
- When in doubt, seek the advice of a Certified Financial Planner, who will assist you with the entire process.