By Adiel Ismail – From the offset I need to point out that I am no expert on this matter. I am an ordinary parent who have children at university and who is also concerned about the recent spate of events at universities.
I will now describe the problem to your listeners so that they, hopefully, can get a clear picture of the actual problem.
In view of the #FeesMustFall protests, I looked at the National Student Financial Aid Scheme or NSFAS.
Poor families with an income less than R122 000 per annum, are offered student loans by NSFAS.
However, several articles featured recently in main stream media, where students were complaining about NSFAS. As a result of these articles, I then had a closer look at NSFAS loans and was shocked by the repayment procedure offered to students.
The question that I want to pose is, “Whether a NSFAS loan is a blessing or a curse to its recipients?”
To answer this question, we need to look closely at NSFAS loans.
• interest on NSFAS loans is charged at 80% of the repo rate.
• the repo rate was increased on the 20th November 2015 to 6.25%, setting the NSFAS interest rate at 5%.
• annual repayment of a NSFAS loan is calculated at 3% of the annual income of the recipient if the income is less than R59 300, otherwise the repayment is calculated at 8% of the annual income of the recipient.
Note, the repayment is calculated on the income and NOT on the loan amount. Herein lies the problem, as I will explain.
As an example, a recipient of an NSFAS loan of R170 000 who earns R75 000 per year will be repaying 8% of her annual salary, which equals R6 000 per year, or R500 per month.
Bearing in mind that the interest accrued for the first month on a loan of R170 000 at an interest rate of 5%, amounts to approximately R708. In the example mentioned, the student is actually paying R208 less than the interest portion.
If we assume that the repo rate remains the same for the next 50 years, then the balance of her loan will grow to over R693 000 after 50 years! In other words, the balance of her NSFAS loan will increase fourfold or quadruple, burdening her with a debt for life.
The approach of NSFAS by calculating the repayment amount based on a student’s income and ignoring the minimum repayment to offset the interest portion, may burden students with low income, with an ever increasing, non-terminating loan.
An analysis of NSFAS loans of different amounts revealed further worrying information.
It is not unreasonable for students to have outstanding NSFAS debt, ranging from R150 000 to R600 000 after completing their studies. For example, fees for medicine at UCT is approximately R65 000 per annum, add to this R35 000 for accommodation, will result in a total debt of R600 000 after 6 years.
Let us now look at the required repayment amounts of NSFAS loans to be repaid over 5 and 15 year periods.
In order to repay a NSFAS loan of R150 000 over 5 years, a recipient will have to earn a salary of slightly more than R34 000 per month. Outstanding debt that are multiples of R150 000, would require similar multiples of this salary. So, a loan of R600 000, which is 4 times R150 0000, to be repaid over 5 years, will require a salary, 4 times R34 000 which equals a whopping R136 000 per month!
Also, in order to repay a NSFAS loan of R150 000 over a 15-year period, will require a recipient to earn a salary of approximately R15 000 per month. And, for a loan of R600 000 to be repaid over 15 years, will require a salary, which is 4 times R15 000, or approximately R60 000 per month! Note, not even newly qualified medical doctors earn this amount in salary per month.
Finally, I claim that graduates whose salaries allow them to service their loans view the NSFAS loan as a blessing, while to other students who earn too little, the loan will be viewed as a curse.
If this matter is not addressed by the NSFAS administrators, then it may further fuel an already highly volatile university environment.
Lastly, the following can be used as a yardstick by your listeners to check the repayment period of a NSFAS loan. If the monthly income as a percentage of the NSFAS loan is more than 13.3%, then the loan will be repaid over 10 years. And if the monthly income as a percentage of the NSFAS loan is approximately 24%, then the loan will be repaid over 5 years.