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How to Tackle the Affordability of Education

By Danelle van Heerde, 19 March 2020

The cost of education in South Africa remains a hotly debated topic, as the affordability issue impacts many parents and students.

While government has managed to arrest fee increases for some students, the reality is that many still don’t qualify for state-funded financial aid, and many parents have to prepare themselves financially for the high cost of tertiary education, says Danelle van Heerde, Head of Advice Processes and Tools at Sanlam.

Education Inflation Remains Ahead of CPI

Van Heerde points out that education costs typically increase at a higher rate than general inflation (CPI). Historically, this rate has been between 2% and 4% above general inflation. Following student protests last year, the Department of Higher Education has capped fee increases at 8% for students who aren’t eligible for fee increase subsidies.

If one considers that a BCom degree at one of South Africa’s top universities costs just shy of R30 000 and up to R62 500 per year in 2016 – and assuming an 8% increase per year – a child that started Grade 1 in 2017 will enrol in university in 2029 paying a minimum of R81 600 per year. This excludes residence fees, meals, books and other administration costs.

Tertiary Education Drives Employment in SA

Van Heerde says although affordability is an issue for many parents, a recent Sanlam study showed that some parents are quite prepared to hold down two jobs to put their children through school in a country where tertiary education often still determines employability. “Tertiary education has been proven to increase the odds of getting some form of employment in South Africa. Even though it doesn’t always give a ‘choice’ of employment, statistics show lower levels of unemployment among youth who received tertiary qualifications compared to the rest of their peers.”

The latest Statistics SA quarterly labour force survey showed that of the tertiary population in South Africa, 72% are employed, 16% are not economically active and only 12% were recorded as unemployed. This compares very favourably to South Africa’s official unemployment rate of 27.1%, or 36.4% when using the expanded definition of unemployment, which includes people who have stopped looking for work.

Alternative Funding for Tertiary Students

While parents are encouraged to start saving for their children’s education from an early age, the reality remains that many are unable to save enough for tertiary education as the cost of basic education is also rising ahead of general consumer inflation (CPI). If a child cannot obtain a bursary, a student loan is often the next option to explore.

Van Heerde, however, cautions parents to take a moment to understand what loan will best suit their pockets. She highlights two options.

Bank Student Loans

  • Bank loans require parents or other principal debtors to sign surety and to pay the interest portion of the loan on a month-to-month basis while the student is studying. Following graduation, the student is required to repay the loan through monthly instalments. Banks usually provide a grace period for capital repayments to students who have to complete articles, internships or community service. However, most banks require immediate repayment of their loans where students fail to complete their studies.
  • The interest rates vary depending on the loan amount and the risk profile of the person who signed surety
  • Students who do not have a principal debtor with a good credit record to sign surety can take out a student loan in their own names if they have a regular income. However, some banks require students who work part-time to start repaying the loan as soon as they start studying.

National Student Financial Aid Scheme

  • This scheme also offers loans that need to be repaid. A portion of the loan amount may be converted to a bursary for qualifying students. Previously, only students from households with an income of less than R122 000 a year qualified for NSFAS loans. However, from 2017 the scheme has extended its support to the ‘missing’ middle – the lower middle class households whose annual income exceeds this threshold but don’t have the means to put their children through tertiary education institutions.
  • Students can qualify for varying amounts up to the maximum of R71 800 a year. NSFAS loans only need to be repaid when the student has finished studying and found employment.

In Conclusion

Van Heerde says the recent impasses at universities bear testimony to frustrations about the escalating cost of tertiary education and thus the need for parents to start saving as much as they can, even if it is just to top up on the funding that is provided by a student loan. “Even if you may end up going the student loan route for tuition fees, there are other expenses like accommodation, books and meals that you may be able to cover with your savings.”

This article was prepared by Sanlam Reality.

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