Which is more cost effective, to pay for my child’s university from my access bond or to take out a student loan?
City Press replies:
Student loans can be very cost effective and, in most cases, you would be paying around the prime interest rate, which is similar to what you are paying on your access bond.
There are additional reasons you may consider a student loan:
1. It allows your child to take some responsibility for their education.
You can tell your child that you will service the interest, but that they will have to pay the capital once they start working.
This makes them place value on their studying, rather than its being a freebie from their parents.
They share the financial burden of an education that they will benefit from, while you can focus on planning for your retirement.
2. It helps them build up a credit record in a safe way.
This does depend on the bank, as some banks issue the student loan in the child’s name.
Others issue the loan in the parent’s name, unless the child is working full time.
An ideal option is where the child has the student loan in their name and the parents have signed surety.
This allows the child to build up a credit history.
3. You can spread the repayment with a student loan.
With an access bond, the capital/principal debt and interest form part of the repayments from the first month.
In the case of a student loan, only interest must be paid during the course of study and the repayments of the capital/principal debt must begin within six to 12 months of studying coming to an end.
The loan must be fully repaid within four to five years.
With a student loan, most banks offer a six-month grace period to find work, but this can be extended to up to 12 months, as long as interest on the loan has been serviced.
If the student is required to complete articles, an internship programme or community service, proof must be supplied to the bank.
During the period of internship, articles or community service, interest must be serviced on the loan.
4. With a student loan, as a parent you can decide whether you want to just pay the interest, or whether you repay both the interest and capital.
5. If you pay with an access bond, you have to ensure that you still repay it within the time period of the studies.
If you only pay it off over the 20-year period of the home loan, it will become a very expensive education as the total interest paid will be far higher.