“Years ago I borrowed J$80,000 from the Students’ Loan Bureau. I had some difficulties paying back the loan as scheduled, but in all I have repaid about J$50,000. I’m trying to make a deal with the Bureau to clear my debt, but I don’t understand why my balance is in excess of J$120,000. There must be something wrong with their calculations!”
The Students’ Loan Bureau provides a revolving loan scheme which has given many persons the opportunity to improve their income earning potential by attaining higher education. However, despite the benefits that thousands have received, there are some persons who complain that the student loan has been more hassle than help to them.
I have heard comments like “I am just working to pay my student loan,” or “I would not encourage anyone to take a student loan.” The negative emotions are usually accompanied by a declaration that they don’t understand how the payments are calculated or why interest for students should be so high.
Even worse, the high level of loan delinquency indicates that some persons are taking advantage of the unsecured credit to get their higher education without feeling an obligation to repay.
It’s pretty easy to get information on how to access a student loan. The Bureau’s website, www.slbja.com is high tech and straightforward. However, it’s clear that there is some confusion as to the calculation and repayment of the loans. Let’s take an in depth look at how the Students’ Loan Bureau deals with its loans, while the borrowers are in school and after they have graduated.
The school phase
The Bureau gives a maximum of ten years between the time you receive the loan and when you finally close it off. There is a moratorium on repaying the loan for the agreed school period, so you are not required to make payments during that time. However, the loan still incurs interest at the rate of 12 per cent on the reducing balance, and every day, interest due on the account is calculated.
Need help with getting out of debt? CLICK HERE!
Many people are not aware that any payment they make to their loan in the school phase will be applied to the principal. As we learned last week, interest on reducing balance loans is only charged on the remaining principal. So if you were even able to pay J$1,000 per month to your loan, your overall interest due would be less by the time you were ready to pay back the loan.
The repayment phase
Based on the original agreement, there is a set date when the Bureau will move your loan into the repayment phase. It’s important to note that they won’t reschedule your repayment start date if you have failed a course and have to re-sit. However, if there was some emergency situation you can plead your case with a loan officer.
In this phase the amount originally borrowed, plus the interest accrued over the school phase, is added together. This total is capitalized and interest of 12 per cent add-on is charged on it. There is also a mandatory insurance that is taken out on the loan, in case you die or become ill and can’t repay the loan. The premiums for the entire duration of the repayment phase must be paid within the first six months, if you don’t wish to pay a lump sum.
The time left to repay the loan would be the rest of the ten-year period after you finished school, however, you can negotiate a shorter repayment period if you wish. The Bureau also gives you six months from the time you were originally scheduled to leave school and the time you must start paying. Hopefully you will be employed in that time!
A worked example
Let’s look at a worked example to see what happens when someone borrows from the Bureau:
John receives J$100,000 in September 2006 for a course finishing in June 2007. His repayment phase officially starts in January 2008, because he receives a six-month moratorium. The Bureau calculates his capitalized loan balance as the original J$100,000, plus accrued interest of J$15,024.66. Normally, he would have nine years to repay, but John wishes to clear off the loan in four years.
John’s monthly repayment is calculated on the add-on basis:
Add-On Interest = Principal x Interest Rate x Number of Months in the loan / 12.
115,024.66 x 12% x 48 / 12 = J$55,211.84. The total interest is added to the capitalized principal to get J$170,236.50. Therefore total monthly loan and interest payments over 48 months would be J$3,546.59.
Insurance on the loan is charged monthly at 0.125% of the capitalized principal, so the total amount due for 48 months would be J$6,901.48. This would be paid in equal installments over the first six months of the loan.
There are penalties for missed or part payments, so make every effort to keep current with your student loan. If you are having difficulties in servicing the loan, or if you wish to pay off the loan early, you should speak to a loan officer at the Bureau.
Copyright © 2007 Cherryl Hanson Simpson. No reproduction without written consent.
DON’T MISS MY NEXT ARTICLE! CLICK BELOW TO RECEIVE IT IN YOUR EMAIL:
Subscribe to Financially S.M.A.R.T. by Email
Originally published in The Daily Observer, June 14, 2007
Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl