Oran Hall | What longer repayment periods for student loans mean

Beginning in September 2025, new borrowers from the Students Loan Bureau (SLB) will have up to 10 years to repay their loans, an increase from the current five-year and seven-year repayment periods.

This will make tertiary education more accessible and manageable for students and their parents.

There are different types of loans. The Targeted Loan has a limit of $1 million at an interest rate of 7.80 per cent, and a moratorium which includes the period of study plus 14 months, so payments are not required during this time. This gives students time to focus on studying and to find suitable employment. Loans during the repayment period are at a rate of 9.5 per cent.

Pay as You Study Loans for undergraduates who are employed are at 6.0 per cent and Post Graduate Loans are at 9.5 per cent. Students may borrow up to $1 million for each academic year.

The Pay as You Study Loan can be combined with the Targeted Loan facility, but the combined sum cannot exceed $2 million. The Targeted Loan is the facility which has meaning to new students who are focusing entirely on studying.

There are several ways in which the longer repayment period will affect the new borrowers. The monthly payments will be less, borrowers will have greater flexibility and lower default risk, but the interest they will pay over the term of the loan will be more, and repaying the loan over a longer term may affect their ability to commit to other financial obligations during the longer repayment period.

Overall, other planned initiatives of the SLB should also help to make tertiary education a reality.

Extending the repayment period to 10 years from seven or five years means that there will be more monthly payments. This will result in lower monthly payments for the borrower. Lower monthly payments should ease the immediate monthly financial burden on graduates as they try to get their footing in the working world. It should be easier for them to manage their living expenses, settle into their career, and support their families.

Lower monthly payments can reduce the risk of borrowers defaulting on their loans as the payments should be more manageable relative to income at a time when their income is more likely to be at its lowest in their working life.

New graduates may also have the flexibility of pursuing other life goals without being overwhelmed by high loan payments. For example, they may choose to pursue further training or entrepreneurship.

Students can be comforted that the cost of the loans in terms of the interest rate will not increase because of the extended repayment term as the government has stated that interest rates will remain unchanged.

Although extending the time to make the repayments has the effect of making each monthly payment less, the fact that the payments will be made over a longer period will likely have the effect of increasing the amount repaid over the life of the loan if the interest rate remains the same.

This has implications for long-term financial planning. Carrying student debt for a longer period may affect the borrower’s ability to assume big commitments like a mortgage.

Much, of course, will depend on the borrower’s other commitments and earning power at that time. In any event, the immediate relief from lower monthly payments may outweigh these long-term considerations for some borrowers.

Beyond the longer repayment term, improved access and support should enable more people to get tertiary education and raise their chances of earning more, leading to the realisation of higher-level financial goals.

The SLB is considering increasing the loan amounts, and expanding what the loans can be used for, including housing, books, laptops, supplies and meals. With applicants not being required to have guarantors to access loans from the SLB since April 1, 2024, greater opportunities are emerging for individuals with limited means to have access to higher education.

Steps being taken to give borrowers better access to their accounts such that they will be able to view them and pay online should make it easier to service their accounts when that time comes. This should reduce the risk of them not servicing their debts satisfactorily and doing harm to their credit rating.

The 85 per cent increase of the PATH or Programme of Advancement Through Health and Education beneficiaries in 2024/25 relative to 2023/24, in response to the removal of the requirement for a guarantor and the full waiver of application fees, suggests strongly that efforts to ease the conditions for borrowing from the SLB will cause more people to borrow to fund tertiary education and raise their chances of living at a higher standard.

Increasing the loan repayment period for new borrowers is another way of widening the path to the benefits of higher education.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com