Pay back time

In 1998 when David Kipps graduated from UWI, St Augustine, he left his carefree college days firmly behind him, but in the distance loomed the daunting prospect of having to repay his school debt. By the end of his four-year period of study,  David (name changed ) had borrowed a total of $56,000 from Republic Bank. Getting the loan was easy, he says, it’s paying back that’s hard. The banks usually give students a one-year moratorium, or grace period, after graduation before payments on their loans become due. Payments of approximately $1,500 per month, or 25% of David’s salary of $6,000, started being deducted every month at the end of his grace period. Luckily, he landed a job with a decent salary after graduation. Many other UWI graduates are forced to take jobs that start below $3,000, even with degrees under their belts. David, who has a young son, explains, “If you’re single, it’s comfortable but if you have commitments, it’s tough.” He tries to offset the accumulation of interest by making larger payments when he can but on the whole, repayment has proven to be quite burdensome. David, however, did not make use of the facility offered by the banks whereby payments can be made towards the interest during the term of study. This facility is very impractical, he contends, because most students don’t work while they’re studying and have no means of getting the additional income to pay. David does not attribute his woes solely to the bank, arguing that UWI has some culpability due to its high fees. Karen Lee (name also changed), another graduate who borrowed $40,000, also through Republic Bank, complains that students who don’t pay on time are continually harrassed by the bank. This young graduate, who makes a payment of $1,300 a month on a $5,000 salary, tries to pay on time. She knows of another student who found herself in the predicament of being unable to pay, however, and who subsequently received numerous phone calls and letters from the bank. Karen also found Republic’s policy of forwarding her file to the Tunapuna and UWI branches inconvenient. Making matters worse, once a student has graduated, interest on a student loan can no longer be claimed when filing taxes.

That’s bad news for Karen. According to her own calculations, she will pay over $9,000 in interest alone this year. “Interest rates are too high,” she argues. “The bank should give students special consideration.” Richard Singh (name changed) qualified for a Cess Loan at Scotiabank for the last two years of his enrolment at UWI, his principal amounting to $11,000. After leaving school, he was required to make payments of $700 a month towards the loan, almost one half of his first job’s salary of $1,500. Two years ago he was led to believe that he had paid off the loan completely. The bank has since told him that he has an outstanding balance. “Right now they call every two weeks and I’m just trying to get them off my back but I really don’t have the luxury of time to wrangle with them.” Richard says that he was never informed that he could start paying off the interest while still in school. He confesses though that he “never really looked at the terms of the loan” because his family never really had choices. “We took what we could get,” admits Richard. “When people take loans they don’t fully appreciate the impact of it until it is due. At a time you should be establishing yourself and starting to build your life you have to spend your salary on payments.” Another student who obtained a Student Revolving Loan at First Citizens Bank (FCB)  and started payments in 2002 says, “It would be so nice if we didn’t have to take loans in the first place because of the high rates, but they do come in handy in meeting our needs. My experience wasn’t too bad at all.” Her payments account for 25% of her salary. She also has a car loan and utility bills to pay, among other commitments. The banks offer a small range of specialised options regarding student loans. Most offer the University Students’ Guarantee Loan, also called the UWI Student Loan, and the Student Revolving Loan.

An experienced Credit Officer at FCB explained the UWI Student Loan (USL) has replaced Cess Loans. The student needs to be full-time and have a guarantor to qualify. An acceptance letter needs to be accompanied by a UWI document stating the tuition cost. The guarantor needs to have a salary slip, a job letter and must fill out a form stating assets and liabilities. Family income must not exceed $150,000 a year. Naturally there is no minimum income stipulated, only the condition that assets and liabilities would be weighed. The bank shoulders  90% of costs for the year and the student is responsible for 10%, which is brought into the bank and then forwarded with the rest to UWI. In cases where Dollar for Dollar is accessed, the bank provides 40% of the total fee, the student provides 10% and the rest is provided through the Dollar for Dollar programme. This proces is repeated for each subsequent year and is especially crucial in cases where the tuition is very high. For medical students, for example, a second guarantor may be needed if the original guarantor’s net worth goes down. “This loan is backed by the government but the bank does all the work,” says the bank official.

It is a demand loan which means that at any time the bank can demand that the full amount owed be paid, a solution at times employed for delinquent cases. Scotia Trust, the trustees of the SGL scheme, may even resort to taking legal action against both student and guarantor. The figure at the concessional rate of just over 8%. Unfortunately for the borrower, though, this rate jumps to the prime rate as soon as the grace period of one year is up. At this point the loan is converted into an instalment loan and the borrower begins to pay on principal, interest already accrued as well as the new interest accumulating at a higher rate. To implement the new terms, the bank meets both the student and the guarantor who must again present documents: payslip, job letter and identification. If the borrower can provide security in the form of a fixed deposit or some other viable, appropriate asset, a rate of interest below the prime rate but still higher than the initial rate may be negotiated. Republic Bank’s UWI student loan mirrors this process, being part of the same government initiative. According to one official at Republic Bank, prior and future interest on these loans accumulate on a simple interest basis rather than being compounded. They also offer instalment loans at a fixed rate of 9.5% to 9.25%

Students hoping to attend other tertiary education institutions may access regular instalment loans. Acccording to FCB, RBTT and Scotiabank, the interest rate varies between 5% and 12%. Deciding factors include the amount of collateral, the borrower’s ability to repay and whether the borrower is an existing customer. RBTT also offers a Higher Education Loan Plan which is applicable to both local and foreign study. It is a demand loan which can run for up to 11 years. There is no grace period. Payments are due as soon as funds are disbursed.
There is, additionally, a minor amount of insurance coverage associated with the loan. Finally, the guarantor should not be 70 before the loan is repaid. Student Revolving Loans (SRL) are also open to all government tertiary education institutions except Cipriani Labour College, and accrue interest at a low rate of 4.5%. They are limited to nationals who wish to study within TT. Those wishing to study abroad must plumb other sources. This plan, which is administered through FCB, is not applicable to studies in law, agriculture, education and the humanities. This SRL plan is targetted to those of the lower income brackets, with family income not to exceed $96,000. The maximum amount which can be borrowed on an SRL is $80,000 but this also makes provision for a book allowance and living expenses allowance. A six-month grace period is granted after the student has left the learning institution before the loan must be repaid.