March 10, 2015
Guest Author (Maya on Money)
Our office often receives complaints from newly graduated students who find out that they have been negatively listed at a credit bureau when trying to apply for jobs, or for credit to purchase cars or at times when applying for loans to study further. Upon further investigation, the source of the problem often points to listings due to dishonoured student loans. In extreme cases, you find that tracers track the graduates down and they end up unknowingly signing documents which may result in judgments or even emolument attachment orders being instituted against their new-found salaries.
The difference between student loans and other loan
Student or study loans are tailored to specifically cater for tertiary education. They are solely for the purpose of studying and have these unique characteristics:
- For most loans you only pay for the interest while studying.
- They usually require proof of registration at a tertiary institution.
- In most instances the money is paid directly to the institution where you are studying and not into your bank account.
- These loans often have lower and more competitive interest rates compared to other forms of loans on the market.
- Some products offer the student and/or the sponsor a grace period after graduation before they have to start repaying the capital amount.
What being a guarantor or ‘sponsor’ really entails
Unlike other loans, the student loan is the only loan where another individual may apply on your behalf. This person is often referred to as the sponsor and, unlike in the past, the sponsor need not be the student’s parent. Any fully employed individual may opt to be the student’s sponsor.
As with any other credit agreement, the person who stands surety or applying on the student’s behalf will need to undergo the necessary credit application checks, including affordability assessments and credit bureau checks in order to ascertain whether or not they qualify for the student loan.
Because of the way student loans are structured, the sponsor will have the obligation to pay for the interest, until the student has graduated. It is for this reason that the loan cannot be granted to parents or sponsors who are not employed, as some payment is required while the student is studying.
The obligations of the sponsor therefore entail paying for the interest on a monthly basis while the student is studying and in the event that the student is unable to pay for the loan once the studies have been completed, the sponsor will have the obligation of paying for the full loan on the student’s behalf.
Should they (the student and the sponsor) fail to pay, they could be faced with legal action that the credit provider may take in order to recoup their money.
Why and how does the student or sponsor get listed negatively on a credit bureau?
In every credit agreement the signatory agrees to and accepts terms and conditions relating to steps which will be taken by the credit provider if they fail to uphold their side of the agreement. Student loans are not exempt from such terms and conditions, although they may read slightly differently.
Depending on the loan agreement, students have the obligation to pay for the loan (the capital portion) either upon completion of their studies or once they have graduated. When the student fails to pay as stipulated in their contract with the credit provider, they will face being listed by the credit provider negatively at the credit bureau, often with a default listing or in extreme cases, with a judgment.
At times, those who managed to find employment risk being handed over for debt collection, or even end up with an emolument attachment order (more commonly known as a garnishee order), against their salary where further legal action has been taken.
In instances where the student is unable to pay, the sponsor will bear the brunt of the consequences stemming from the credit provider’s efforts to recover their money through legal action or soft collections.
What are your rights and obligations?
Those applying for student loans should be aware of the following:
- As a consumer, whether you are the student or the sponsor, you are obligated to pay as stipulated in the contract which you signed.
- Always communicate, in writing, with your credit providers should your circumstances change and you are unable to pay as agreed.
- You have a right to be informed about the intention of a credit provider to list you at a credit bureau and be given a period of 20 business days before they actually list you. If this process was not followed, this could be an unfair listing and could be removed from your credit profile.
- Take note of when you have to start paying for the capital amount of the loan – is it upon completion of the course, is it upon graduation or finding employment. There is often quite a difference in time between the two as you may complete your course and graduate months later.
- Finance is not guaranteed for the duration of your studies – you need to make a new application for finance every year, and each new application is subject to a credit and affordability assessment which will determine the amount you qualify for is.