Rising Student Loan Demand: what SA parents should consider

Johannesburg - With the start of matriculation preliminary exams, parents are feeling the pressure to help secure university placements and financial aid for their children. South African public universities saw over 1.2 million students enrolled in 2023, which means admission was highly competitive.

According to the Department of Higher Education and Training, the volume of full-time university students grew by 2.5% annually from 2010 to 2021, outpacing the growth in academic staff.

Student loan applications have surged, with Standard Bank seeing a 10% increase in new disbursements since 2023. “This rise may be due to the increased difficulty of self-funding amid high unemployment and living costs, prompting more students to seek alternative funding”, says Tshiamo Molanda, Head of Youth and Mass Market Clients at Standard Bank.

Loan applications have surged back to pre-pandemic levels, and approved loan amounts have grown in response to tuition fee increases, which have averaged 10% per year over the past three years. Loan applications typically peak from January to March and again from June to August, with the latter period often driven by demand from students seeking additional funding. The increasing cost of education can hinder the dreams of many young South Africans, particularly those from middle-income families who may have limited financial resources.

At Standard Bank we recognise these challenges, so to help students overcome them we offer affordable student loans, including options that don't require a surety, to help students achieve their educational aspirations. “We understand that finding a surety or qualifying for a loan on your own can be challenging. To address this, we offer eligible students loans that do not require surety for certain courses at our partner institutions nationwide”, says Molanda.

Degrees in health sciences, including Bachelor of Medicine and Surgery, as well as Economics and Management qualifications, are the most popular among these students. Molanda adds, “We’ve seen an increase in requests for postgraduate degrees in recent months too”.

Financial considerations in student loan applications

When a client applies for a student loan, the credit record of parents or guardians who sign as surety is crucial, affecting the loan’s approval and terms. People who sign as surety should consider repayment responsibilities and the impact on their budget, as they remain liable if the student defaults, which can also harm their credit record.

Standard Bank offers a calculator to estimate monthly repayments and recommends borrowing only what is needed. "It is important to understand the total cost of the credit agreement,” advises Molanda.

How your child’s education impacts your estate planning

Many parents neglect their children's education in estate planning. In 2022, the Master of the High Court reported that fewer than 15% of South Africans had a Will. Standard Trust Limited echoes this concern, holding only about 500 000 Wills for Standard Bank’s 19.5 million clients, with most drafting their first Will around age 47.

"Clients with a Will often set aside funds for their children's education through a testamentary trust or provision for inheritance in their estates," says Shaka Zwane, Head of Insurance & Fiduciary at Standard Bank.

Zwane emphasises the need of verifying that the estate can cover future education costs, regardless of whether children choose public or private universities. This includes evaluating the estate’s value and addressing any liquidity issues. If assets are insufficient, insurance options like life insurance or education protection plans can help cover these expenses and student loan debt.

Other estate planning considerations

• Younger families should make provision for their children’s education, living expenses, and housing in case something happens to the parents.
• Parents of minor children must nominate guardians and include a testamentary trust in their Will to ensure that the funds they leave behind are used correctly for their children’s benefit.
• Families with older children can use testamentary trusts to cover tertiary educational expenses, if necessary.
• It’s crucial to review your Will whenever circumstances change, for example a child starting university or taking out a student loan. Standard Trust Limited advises reviewing your Will annually and after major life events such as marriage, divorce or the birth of a child or significant purchases.