Dealing with student debt can be tough. You have probably read the recent headlines regarding student loans with over 85,000 Kenyans defaulting on their HELB loans. With the prevailing state of unemployment and lack of access to credit, experts predict that the number will continue to rise this year.
Seven out of ten students will complete their university education in 2017 with student loans, the most common being those issued by HELB. The number could be higher if you include those who pursue advanced degrees, switch degrees or went back to school. Statistics from the Higher Education Loans Board show Ksh. 9.7 billion is owed in non-performing loans.
For most students, loans are a necessary burden to put up with through university that could help them land that high paying job in their field of choice. To others, the loans may be spare cash for you to spend on anything you fancy or just something to deal with once you graduate.
Whatever the case, student loans are causing many Kenyans to have sleepless nights especially if you think about the rising interest costs, fines, and penalties you incur with late or missed payments. If that is not enough, loan defaulters have their details forwarded to the Credit Reference Bureau to be blacklisted thereby limiting their access to key financial services.
Paying Off Your Student Loans
Before you give in to stress and despair, there are intelligent ways you can manage your student loans, pay a lot less quickly, and enjoy a debt free life. Here are some tips you can try out:
Use the grace period to your benefit
Depending on the nature of your loan, your lender may grant you a grace period after you complete your course, where you don’t have to pay back anything towards the loan. For HELB loans the period is usually 12 months though it may be much shorter for banks and finance companies. Avoid the temptation of being complacent and ignoring your debt. If you still have the freedom of a grace period, now is the time to study the terms of the loan and come up with a plan. Start making the payments sooner rather than later.
For instance, if your minimum monthly loan payment is Ksh. 1,500 once your 1 year grace period expires, begin repaying the amount immediately. Not only will it put you in the green to the tune of Ksh. 18,000 but you will have already developed the habit of putting Ksh. 1,500 aside, every month.
Understand the structure of the loan
When dealing with your student loans it is vital you understand what you are dealing with. You can easily get into the routine of making payments every month but if you want to make a real difference, understand how the loan works from the beginning. First ensure you are clear on the repayment terms, rates of interest, channels of payment, charges for late or missed payments.
For those with HELB loans, the interest rate on the principal amount is 4% p.a. For example, if you took a loan of Ksh. 35,000 for a period of 4 academic years. Your principal amount would, therefore, be 140,000. By using the HELB Loan calculator you can calculate how much you would end up paying and for how long. If you decide on a monthly payment of Ksh. 2,000, according to the loan calculator your total payment will be Ksh159,687.89 over 80 months.
Choose a suitable repayment plan
As mentioned above, it is crucial you understand the repayment terms. But of more importance is what type of repayment plan are you looking for. You can go for an income-based repayment plan or Pay-as-You-Earn arrangement. Whatever option you choose it should be a manageable minimum monthly payment based on your current, and not expected income. For HELB loans, if your employer is listed by the board, you can direct him to remit a standard amount from your salary as payment.
Another option would be to place a standing order with your bank to have a minimum monthly sum transmitted to your student loan provider. However, you will have to inquire about standing order fees from your bank. Both repayment plans are advantageous in the sense they enable you to avoid postponing payments or using the money for other needs. However, remember while paying the minimum on your debt is easier on your income, it can be quite expensive in the long run when you factor interest costs.
Continue your university lifestyle
Now that you have graduated you may feel it’s time to upgrade your lifestyle. You have just landed a job and are tired of crampy bedsitters, cheap furniture, and quick fix meals. After all, was not enjoying life’s simple pleasures your reason for studying hard.
While you are entitled to enjoy the pleasures of life, paying off your loans first, will give you a sense of security. The longer you can keep living a simple lifestyle, the quicker you can pay off your student loans. Here are some things you can continue doing:
- Reduce your expenses whenever possible and search for suitable ways to invest.
- Continue living with roommates so you can split living costs and rent.
- While you may need to look sharp for work, try not to get carried away. Buy a few flexible, good quality clothes for the office and continue dressing on the cheap when you are outside.
- Prepare meals at home whenever possible instead of going to eat in restaurants and hotels.
- If you have a car try and use it less frequently. Instead, you can take advantage of public transportation, carpooling, walking, or cycling to work.
- Avoid the pricey dinners and frequent night outs for free things such as outdoor activities and get together with friends.
Don’t take on more big debts right away
Life after graduation can be very expensive and you have to be very smart about managing your finances. You may begin to think about buying a home, having a wedding or purchasing a car. These are really good options especially if you can afford them. That being said, if you already have a considerable amount of student loans, sinking deeper into debt is not a prudent choice. An ideal scenario is where you take out a loan and use it to buy assets, or set up a small business, both of which will help you pay your student loans.
Increase your income
While this may be difficult in practice, it still remains the best way to clearing your student loans. Below are a few ideas you can try out and see how it works for you.
- If you are currently employed try to take on more responsibilities at work so you can be in a better position to negotiate for a salary increase or promotion.
- Look out for overtime or double shift opportunities. However, don’t end up overburdening yourself.
- You can start a business on the side based on your interests or better yet identify freelancing opportunities.
- Sell unwanted belongings or second-hand items on OLX, and any other similar online platforms.
- You can take part in the sharing economy like renting space in your apartment on Airbnb or driving for Uber.
- You can also start offering your services in subjects or activities you are experienced in, such as tutoring on Skype Tuition or create an online course on Zydii.
If not dealt with early enough student loans can end up adding to your stress levels. Don’t fall into the trap of waiting to get a job before you start paying down the loan, that only worsens the problem. Instead, try and implement a few of the tips above and see how it works for you. You can also look for a suitable savings account and start putting money away for investing or starting an enterprise. The extra cash will go a long way in helping you to deal with your student loans.