Income-Based Student Funding: How Paying a Percentage of Your Salary Differs From a Loan

Income-based student funding does not charge you an instalment. It takes a percentage of what you actually earn, starting only once your income passes a threshold, for a fixed number of payments and up to a total cap. The practical consequence is the opposite of a loan: your payment is unknown in rand but known as a share of your salary, and the total you hand over depends on how well your career goes rather than on an interest rate. That makes it cheaper than a loan if you earn little after graduating, and substantially more expensive if you earn well.

What is income-based student funding?

A funder pays some or all of your study costs now, and you agree to pay back a defined share of your future income later. Four contractual numbers do nearly all the work:

• The percentage of income you hand over each month once payments begin.
• The income threshold below which you pay nothing at all in that month.
• The number of payments you owe, which is usually counted in payments made rather than in calendar months.
• The cap, a ceiling on the total you can ever repay, normally expressed as a multiple of the amount funded.

How does it differ from an interest-bearing loan?

A loan fixes the rand and leaves the burden to chance. An income-based arrangement fixes the share and leaves the rand to chance. Three differences follow from that one swap:

• Risk sits in a different place. On a loan a bad year is your problem and the instalment arrives anyway; here a bad year reduces or suspends the payment, so the funder carries part of that risk.
• There is no interest rate to compare. A loan reduces to a rate and a total before you sign. This does not, because the total is unknowable until you know your own salary history.
• The upside is sold, not borrowed. You give away a slice of your earnings for a period, and if those earnings turn out large, so is the slice.

Neither structure is inherently better; they distribute the same uncertainty differently.

What does the arithmetic look like on real numbers?

The figures below are round illustrative numbers, not anybody's published terms and not a quotation. Suppose R120,000 of study costs are funded, and the agreement asks for 10 percent of gross monthly income once you earn more than R15,000 a month, for 48 payments, capped at twice the amount funded, so R240,000.

• A graduate earning R20,000 a month pays R2,000 a month. Over 48 payments that is R96,000 — less than the R120,000 advanced, and the shortfall is absorbed by the funder.
• A graduate earning R45,000 a month pays R4,500 a month, so R216,000 over 48 payments, or 1.8 times the amount funded.
• A graduate earning R60,000 a month pays R6,000 a month and reaches the R240,000 cap after 40 payments, stopping eight payments early but still paying twice what was advanced.

Now price the same R120,000 as an ordinary loan at 15 percent a year over 48 months. The level instalment works out at about R3,339 a month, and 48 of those come to roughly R160,300, of which about R40,300 is interest. The break-even point is therefore a gross income of about R33,400 a month: below it the income-based deal is cheaper, above it the loan is. The graduate on R45,000 pays about R55,700 more than the loan would have cost, and the one on R60,000 about R79,700 more. Repaying R216,000 on R120,000 over four years is, in rate language, roughly the equivalent of borrowing at 32 percent a year — a number the agreement never mentions, because it is not a rate. You can run the comparison on your own figures in the (Manati) Student Loan SIM app, an independent, unofficial simulation and calculator rather than a funder.

Who gains and who loses from this model?

It genuinely helps a student with no collateral, no guarantor and no credit record who would otherwise not be funded, and a graduate who ends up in a low-paid first job, because the payment follows the income down.

It genuinely costs more for a graduate who does well and so subsidises the model, and for a borrower who could have qualified for ordinary credit at a normal rate and never compared the two.

Is it credit, and does the National Credit Act apply?

If an arrangement is a credit agreement under the National Credit Act, statutory protections come with it: a registered credit provider, a pre-agreement quotation, disclosure of the cost of credit, limits on charges and a defined complaints route. If it is structured as something other than credit, some of those may not attach in the same way.

Do not assume either answer. Ask the provider in writing whether the agreement is a credit agreement under the Act and whether they are a registered credit provider, and check the registers and consumer information published by the National Credit Regulator at the official NCR site, www.ncr.org.za.

Frequently asked questions

Is income-based funding cheaper than a student loan?

Only if you earn modestly after qualifying. On the illustrative figures above it is cheaper below roughly R33,400 a month of gross income and more expensive above it.

Do I pay anything while I am still studying or unemployed?

Under the model, no payment is due for a month in which your income is below the threshold. How that is verified, and whether such months count towards your payment total, are contractual questions to read in your own agreement.

Can the total ever exceed the cap?

The cap is meant to be the ceiling on repayments, but whether fees, collection costs and arrear charges sit inside or outside it is a clause you have to read. Ask for the cap as a rand figure, not just a multiple.

Can an app tell me what my agreement will cost?

No. An independent calculator can show what a given percentage, threshold, payment count and cap produce on figures you type in. Only the signed agreement governs what you owe. Never enter an identity number, a bank account number, a password or a one-time code into any third-party app or site.

Work out both totals before you sign: what the income-based arrangement costs at the salary you realistically expect, and what an ordinary loan of the same size would cost. To rehearse that arithmetic, the independent, unofficial app on Google Play works with no account and no login. It is not an official representative of Manati Alternate Student Funding and is not affiliated with, endorsed by, or connected to Manati Alternate Student Funding. It does not offer loans and cannot be used to apply for a loan, does not process applications, disburse funds, check application status, or access any account. All figures are estimates for planning only; always confirm the actual terms with Manati Alternate Student Funding directly. Not financial, tax or legal advice.