What is a Student Loan?
A student loan, also called an education loan, is a sum of money borrowed to finance one’s studies. This is typically used to cover the tuition and other school fees of a college education, which tends to be more expensive than early schooling.
With the costs of obtaining an education in the country skyrocketing, the need for families to secure cash to finance their children’s studies has become more critical than ever. So, for anyone looking for a reliable way to pay off tuition and other school fees, a student loan is a viable option.
However, because this is a loan, it must still be paid back in monthly installments over a predetermined period of time, plus interest. The time period for the loan repayment varies depending on the loan’s terms and the lending institution.
What are they good for?
Student loans assist students and families who are currently experiencing issues with liquidity due to a variety of factors, such as lack of funds due to sudden unemployment, unapproved scholarship applications, or unexpected and substantial expenses. This provides them with cash relief to pay for education-related fees, such as tuition, computer or laptop to be used for online classes, books and allowances, allowing them to continue with their studies unhampered.
Educational loans are usually only allowed for undergraduate or graduate degrees, with a fixed maximum loan amount, depending on the lending institution. As such, if you’re struggling with any school-related fees, you can consider availing an educational loan to pay off your dues.
When Should You Get a Student Loan?
Student loans are ideal for anyone in need of money to finance their schooling. This may mean needing money to pay for tuition, shoulder school-related expenses, or consistently have a living allowance. If you’re looking for a loan that can sustain your studies for the next four or five years, a student loan may be your best bet. This also applies if you’re a struggling parent looking for another means to pay for your child’s tuition.
Consider that it will be challenging to balance the responsibility of repaying the loan, with your responsibilities as a student. Therefore, it’s ideal not to juggle multiple loans at a time. Applying directly for a student loan with a reasonable maximum amount can address this problem. But, of course, it’s still a difficult situation for any student to pay off a loan while being prudent with their studies. Therefore, loans must be seen as a last-resort option for anyone struggling to pay for their educational finances. Instead, there are many things you can consider before taking out a student loan.
What to Consider Before Taking a Student Loan
Having a loan, especially as a student, is an enormous undertaking and responsibility. Hence, we encourage prospective borrowers should discern thoroughly the benefits and costs of obtaining a loan to finance their studies, since being unable to repay the loan will have numerous legal ramifications. Here are some thoughts to consider when deciding whether it is essential to take on a student loan:
Capability of repayment
One of the most important considerations would be your capability to repay a loan. As you know, loans have to be paid off at a fixed rate every month. Being unable to do so may result in termination of the loan and extra debt towards your lender, which can ultimately delay your studies.
Before applying for a loan, look at the various factors that affect the monthly payments for each student loan offered by different institutions. For example, student loans with longer repayment periods will have lower monthly payments, even if the total amount paid out will be higher than one with a shorter repayment period for the same amount of loan.
Lenders also offer varied interest rates. You should thoroughly research the interest rates being offered and compute the expected monthly repayment amount given the length of the loan and the interest. Lending institutions also vary on when the repayment schedule begins. Some institutions require immediate repayment of the loan; others allow students to repay once they graduate (and can obtain a job).
Need for money
Remember that taking on a loan saddles you with financial responsibility for the duration of the loan, or even longer. Thus, as a borrower, you may first consider exhausting all other avenues to cover the cost of your education first before considering taking a loan. Some of these include:
Obtaining a scholarship
Getting a scholarship is the easiest way to finance undergraduate studies for the gifted but financially challenged. Aspiring scholars can apply to government-funded scholarships or for the scholarships granted by certain universities. In addition, most universities in the country offer scholarships for a particular portion of their student body, so make sure to watch out for that.
Having a scholarship covers the costs of education in the same way as a student loan does, but it does not require repayment of the scholarship amount. Instead, you will be expected to maintain a certain level of academic standing to remain eligible for the scholarship. This is often reviewed after every semester or every school year. The terms and conditions vary for each institution.
Still, students presented with the opportunity to obtain a scholarship should always consider it as it is much less financially encumbering than having an outstanding loan.
Students who are not taking on a whole load of subject units can utilize their free time in a part-time job. While the salary is not incredibly high for part-time jobs, this remains a viable option for those who only need funds for their everyday expenses, allowance, or other school necessities like books and miscellaneous fees.
Various jobs do not require a college degree, such as those in the service sector. Alternatively, you can check out tutoring or other freelancing gigs, which can provide you extra money while you’re studying. This can also provide you with relevant job experience, giving you an edge once you graduate from college.
Asking money from friends and relatives
In the Philippines, it can be embarrassing or “nakakahiya” to ask for help from relatives in financing your education. However, during times of great need, you can still try to turn to your well-off friends and relatives who may be amenable to assist in completing your studies.
This will prevent the immense financial responsibilities that come with taking a loan. You can also consider this a scholarship or sponsorship of some sort, which you can repay later once you a job of your own. However, be wary that this might put a strain on your relationship, especially if your relatives encounter an emergency of their own and are then in need of money themselves.
Finally, if you have thought about it thoroughly and decided that taking on a student loan is really necessary to complete your studies, make sure that you only take on the loan amount you need. Ideally, keep the loan amount as small as possible so that it will be easier to repay; being a full-time student, you should not have to worry too much about the loan so you can focus on your studies
Having a plan to pay for the tuition fees and taking a loan only for everyday expenses is ideal. However, if the loan amount needed to pay for tuition is exceptionally high, you might be forced to consider transferring to a cheaper school or university.
Types of Student Loans in the Philippines
Thinking of securing a student loan, but not sure where to look?
There are two primary sources of student loans in the country. You can either apply for a student loan program under the government or check out private student loans in the Philippines. These differ in terms, repayment conditions, and the maximum amount they offer to each prospective applicant. Let’s briefly discuss each one:
Private student loans
There are also private institutions that offer student loans to their applicants, like BUKAS. Usually, private loans have higher interest rates than government loans but have less stringent requirements.
Government student loans
The government has dedicated resources to assist young Filipinos in completing their college education. They have a host of low-interest rate student loan offerings that students can avail; for example there is the Unified Student Financial Assistance System for Tertiary Education (UniFAST). They are the government agency in charge of implementing RA 10931 (Universal Access to Quality Tertiary Education Act). In this act, students can avail of a student loan to finance their undergraduate or graduate studies or review expenses for licensure examinations administered by the Professional Regulation Commission (PRC).
Additionally, the government offers student loans via the Social Security System’s (SSS) Educational Loan Assistance Loan Program and through LandBank—one of the government-owned banks in the country.
SSS member-contributors can avail of the SSS Educational Assistance Loan Program (EALP), a student loan offered by the SSS. Note that only one EALP beneficiary is allowed per member-borrower; the beneficiary can be the member-borrower themselves or their siblings (including half-brother/sister). In addition, if the member-borrower is married, they can have up to two beneficiaries, which can be any of the following: the member themself, the legal spouse, or children.
Meanwhile, LandBank recently launched a loan program specifically catered to families reeling from the adverse economic effects of the COVID-19 pandemic. This program aims to assist parents and guardians in covering the student’s tuition costs.
Applying for Student Loans
Once you have decided to take on a student loan, the next thing to know is how to apply. Eligibility requirements for different lending institutions vary, so it’s best to check the actual requirements your lender of choice is requiring. Once you have prepared all the needed documents and proven that you are eligible, it is now time to consider which loan to apply for.
Available student loans for aspiring borrowers can be either from government agencies or private companies, depending on which you can qualify for. Let’s check this out in more detail:
Government-sanctioned student loans
RA10931 under UniFAST
- Maximum loan amount: 60,000 pesos per academic year
- Loan repayment period: Twelve (12) months
- Interest rate: 0% if repaid within 12 months
The first loan we’re looking at is a government-mandated loan for tertiary or college education. Filipino undergraduate, graduate, medicine, and law students enrolled in public and private universities in the Philippines are eligible to apply for this loan.
To do so, here are the requirements:
- Three (3) copies of the completed SLPTE-ST Application Form
- Photocopy of Certificate of School Registration of the applicant
- Income Tax Return of the applicant, if employed or other proof of family income (e.g Certificate of Employment, Payslips, Audited Financial Statements)
- Income Tax Return or other proof of family income of the co-maker
- Photocopy of School ID of the applicant
- Photocopy of the Government issued ID of the co-maker
- Two (2) copies of a 1×1 picture of the applicant and co-maker
SSS Educational Assistance Loan Program
- Maximum loan amount: 20,000 Php per semester/trimester/quarter term, or full amount tuition/miscellaneous fees, whichever is lower, for degree courses; maximum of 10,000 Php per semester/trimester or full amount of tuition/miscellaneous fees, whichever is lower, for vocational or technical courses.
- Interest rate: 6% for half of the loan (which is funded by SSS), and 0% for the other half (which is government-funded)
Note that this loan is only accessible for SSS member-contributors who can meet the following requirements:
- Have an actual monthly salary that is not more than 25,000 pesos per month
- Has a last SSS monthly salary credit is 15,000 pesos or lower
- Has paid at least 12 monthly contributions
- Has paid the monthly contribution for at least 1 of the past 3 months
- Not a delinquent in his/her outstanding SSS housing loan or salary loan (if applicable)
Additionally, SSS requires the following documents for aspiring applicants:
- Filled up and signed the SSS Educational Loan application form. Note: There is a portion in the loan application form that the school needs to fill out and sign.
- Member-borrower’s SSS ID or 2 valid IDs
- Photocopy of your SSS ID or 2 valid IDs
- Assessment or billing statement from the school
- Xerox copy of the stamped SSS E1 form of your child, spouse or sibling. (The beneficiary- child or sibling needs to get his/her own SSS no.)
- Proof that your actual monthly income is not more than 25,000 pesos. The Proof of Income can be one of these documents:
- Pay Slip (original and xerox), if employed
- Pay envelope (original and xerox), if employed
- Certification of Income from Employer, if employed
- Latest BIR-stamped ITR, if self-employed
- Your notarized Affidavit of Income, stating that your actual monthly salary is not more than 25,000 pesos, if self-employed or voluntary
Landbank I-STUDY Program
- Maximum loan amount: 300,000 per borrower
- Interest rate: 5 percent per annum
It offers a relatively higher amount than other government loans, but at a higher interest. Parents and guardians/benefactors who are qualified under the admission and retention requirements of an academic institution recognized or accredited by the Department of Education (DepEd), Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), are all qualified to apply.
Additionally, eligible parents and guardians/benefactors should have an established repayment capacity, credit history and good credit standing.
Note that eligible students cannot be current beneficiaries of the Universal Access for Quality Tertiary Education Act of 2017 (Republic Act 10931).
Finally, any scholarship program or privilege granted to honor students should be of good moral character certified by the school.
To apply for this loan, take note of the following requirements:
- Accomplished loan application form
- Borrower’s valid ID
- Borrower’s proof of income
- For employed borrowers: Certificate of employment, latest three-month payslips, and latest ITR
- For self-employed: Business permit and latest ITR
- Proof of billing address and payment record from at least two utility/service companies:
- For incoming students: Enrollment form/admission slip with school ID
- For continuing students: Latest enrollment or registration form
- Form 138/Certified True Copy of Grades for the previous semester attended
- Certificate of Good Moral Character issued by the school
- Schedule of payment of school fees and other enrollment-related expenses for the semester or school year
While still fairly low, Landbank’s I-STUDY program’s interest rate is higher than the government agency options. For example, SSS EALP has an effective interest rate of 3% per annum, while the SLP under RA 10931 incurs no interest rate if paid within 12 months.
Private student loans in the Philippines
The leading provider for a private student loan in the Philippines would be BUKAS. Here’s what you need to know when applying for their loan:
BUKAS Tuition Installment Plan
- Maximum loan amount: Up to 100% of your tuition, laboratory fees, miscellaneous fees, and other enrollment fees
- Interest rate: 1.5% per month (18% per annum)
Bukas is an education financing company registered under SEC that offers safe and secure tuition installment plans with fast approval. Only students enrolled under one of their partner schools are eligible to apply.
- School ID
- Tuition/Assessment form issued by the school
- Guardian’s/Guarantor’s valid ID, proof of residence, and proof of income
In exchange for faster approval and virtually no limit to the loanable amount, Bukas charges a much higher interest rate compared to other student loans. For instance, for a 100,000 Php loan, a borrower will have to pay 18,000 Php for interest on top of the principal—a major dent in the pocket for someone already strapped for cash to finance their studies.
This is something to keep in mind because students may be surprised to see how much interest their student loan will incur when borrowing from a private company.
Are Student Loans Worth Applying for?
Student loans are definitely an option you can take if you’re looking for money to help finance your studies. In that case, it’s worth looking into if you have no other alternatives to secure the funds needed for your educational needs.
However, student loans require commitment, and it may be challenging to balance this on top of your schooling demands.
Pros and Cons of applying for a Student loan
- Accessible and offers relatively lower interest rates compared to other loans you can apply for
- Gives option for repayment after graduating from college
- Can be applied for by parents and students alike
- Can be difficult to juggle along with studies
- Different maximum amounts and loan tenures for different lending institutions
Frequently asked questions
Why choose a student loan rather than a different one?
A student loan is a specialized kind of loan designed to help finance and pay for educational expenses, including tuition fees, allowance, and other school expenses.
Applying for a student loan ensures that you will only be able to use the money for the right reason, which is to finance your studies. It limits the amount you can borrow and ensures that you’re only using the money for its intended purpose.
Additionally, student loans require pretty straightforward reasons. Unlike personal loans, which can be used for a variety of reasons (and, therefore, need more evaluation), student loans are usually applied for out of necessity. As such, lending institutions may be more open to your application.
Can I avail of a student loan if I follow a different school calendar?
Some educational loans in the Philippines cover expenses each term and semester, so these options can work for you if your school calendar is different than usual – for instance, if you only have one semester remaining for the school year.
You can still check out each loan for students mentioned above, and apply for the one that suits your needs the most.
How can I borrow responsibly to pay for college?
Student loans usually have a maximum amount set for each borrower. Make sure to only borrow what is needed, so that you only use the money you need to pay for your college fees.
What can I do to pay for my student loans responsibly?
If you’re relying on student loans to pay for all of your school fees, you certainly have to remember to repay your dues on time.
On that note, you may consider the following tips:
1. Schedule your monthly payments ahead of time.
Monthly payments for educational loans in the Philippines normally fall on the same date each month. As such, it’s wise to set an alarm or write down the date on your planner, so you don’t forget to pay each month.
In addition, it might also be a good idea to schedule your payments in advance. For instance, if your loan repayment schedule is on the 30th, you can opt to make it a habit to pay by the 25th or even earlier.
If you have a debit card that can be set to send your payment each month, that will also be a great way to ensure you’re able to pay your dues ahead of time.
2. Find another source of income to pay off your loan.
To avoid incurring interest and having to pay more, it’s a good practice to pay off the full loan amount each month. As such, you may find yourself needing to look for extra funds to pay off your loan.
Don’t be afraid to look for part-time work or gigs to earn a bit of extra income, of course without sacrificing your studies. This way, even during emergencies, you can have money to pay off your loan without any problem.
3. Only spend on what is necessary for your studies.
When you have a lot of money in your hands, it can be easy to spend them right away, without knowing where they went.
To remedy this, you can track your budget to ensure you’re only spending on what’s necessary for your studies. As much as possible, make sure you don’t deplete your allowance, or even get from your savings to buy costly things that won’t be necessary for your academics.
Of course, there is no harm in treating yourself to good food or other wants every now and then, but there’s also a need to balance this with being responsible with your money.
Getting a loan for students can be a difficult commitment, so this is a decision you have to think about carefully beforehand. Of course, if there are other avenues you can try or exhaust, you should definitely try them out first. After all, there is no shame in trying, and there’s still much you can gain.
However, if you don’t have any other option but to loan, don’t be ashamed. Getting a quality education can definitely be costly, especially when economic opportunities are hard to come by in the country. Nonetheless, obtaining college education will certainly be worth it!
Student loans can be a heavy commitment, but they’ll surely pay off after you graduate and secure work for your own.