Tuition, rent, living and entertainment – with expenses that can reach tens of thousands of shekels a year, it is not cheap to be a student in Israel. If you do not have enough income and have decided to take out a loan, it is important that you check carefully what you are being offered and whether you can get financing cheaper. Instructions
Students, need funding? An article we published recently about loans taken out by students at a biting interest rate and the large debts that quite a few young people accumulate at the beginning of their careers has led to many reactions and inquiries from the system. We decided to give the student public some order in the world of lending and explore for them the various financing options.
It is clear, of course, that in the first place it is better not to get into debt but to find self-financing sources and not to “consume” loans, but reality does not always allow this. So here are the things you should know before you take out a loan.
There are interest-free loans
True, no one is in a hurry to give an interest-free loan, and it is indeed a rare commodity, and yet – this option exists. One of them is the Shekel Foundation (economic peace for all).
The fund was established about seven years ago, and it helps tens of thousands of students across the country pay their tuition through funding arrangements, which allow for low and convenient monthly payments. As a policy, the Shekel Foundation does not charge the student, either directly or indirectly, and is funded by private entities and by the colleges themselves.
The fund has an arrangement with about 60 academic institutions, under which two types of loans can be taken: an interest-free loan to finance tuition in the amount of up to NIS 20,000 and a repayment of up to 60 payments, and a supplementary loan to finance all expenses at a similar amount. 2.1% (Prime + 0.5%).
The student is required to open a loan account at the bank with which there is a loan arrangement (the student does not have to manage his financial affairs in this account). The account is free of charge and can be closed after the loan repayment is completed.
Another option is the Israeli Association for Interest-Free Loans. The association, located in Jerusalem, is a philanthropic association that has been operating in Israel since 1990 with the aim of assisting in interest-free loans to private citizens and small and medium-sized businesses. During 2015, the association distributed 2,537 interest-free loans totaling NIS 80,203,840.
To receive a loan, you are required to be Israeli citizens with a net income of NIS 3,000 to NIS 20,000 per month. A student whose income is lower, who is not working or who is under the age of 22 will be required to sign one parent or another person as an additional companion and two guarantors.
The loans are given in an amount ranging from NIS 30,000 to 20,000,000, depending on the income and the number of people in the family. Students in certain fields of study can receive a loan that cumulatively amounts to up to NIS 60,000. To receive a loan, you must fill out forms at the association’s offices and pay a commission in the amount of NIS 140.
Some banks also offer students who open a student account an interest-free loan in the amount of NIS 15,000-5,000. Usually the refund is up to 24 months.
An interest-free loan from family members is also an option. Although it is not always pleasant and not always acceptable, but in places where it is possible – worth a try.
Check and compare the interest rate
Did you have to take out an interest-bearing loan? As a rule, the interest on the loan is derived from two things, the personal profile of the borrower, namely the assessment of his financial situation and his ability to repay the loan, and the duration of the loan.
The higher the profile, and the customer is financially sound – the lower the interest rate, and vice versa. At the same time, the longer the repayment period, the higher the interest rate. In other words, the starting point for most students is not alarming under this condition, given that most of them do not have a glorious banking history, that their income is low and that they usually have to spread out the loan over a longer period of time.
However, the banks are interested in recruiting the young students to their ranks. From a long-term perspective, they believe that over the years the student will remain in the bank, his salary and assets will increase, his financial activity will expand – and the bank will profit. Therefore, the banks provide benefits in the account that in some cases also include an interest-free loan (in a limited amount), which we mentioned earlier, or a loan at a discounted interest rate.
A discounted loan given by the bank as part of a student benefit can be attractive, however a loan given according to the customer’s personal profile, even if it bears the title of “student loan”, is likely to have a much higher interest rate.
So what do the banks offer?
Tuition layout – Option to spread the tuition payment into 12-6 payments without interest and without linkage.
Loan to finance tuition – Most banks distinguish between a tuition loan and an all-purpose student loan. The tuition loan will usually be cheaper, and the interest rate starts around 2.1% (prime interest rate, used by banks for pricing loans and deposits and currently stands at 1.6%, plus 0.5%), and can climb depending on the borrower profile and loan repayment duration.
All-purpose loan – The loan is offered to cover the student’s living expenses and it usually starts with a slightly higher interest rate.
In both types of loans, there is usually an option for “grace” – deferral of repayment of the loan principal. That is, the student only repays the interest for a few months (a small amount), and in the end he also repays the principal.
It is important to remember that deferral of repayment costs money, and like a wider spread of payments – deferral of principal also involves a significant increase in interest rates.
Also pay attention to all the terms of the loan, including the one that the bank gives without interest or a gift that the bank gives to the student – all of these are usually conditional on one requirement or another beyond opening an account, such as transferring salary, issuing credit card and using it and more. It is important to pay attention to the fine print.
Options outside the bank
Additional loan options are outside the banks – the study fund, the provident fund or the pension fund offer a loan to savers. This is usually a very low interest rate and it starts at a little over 1% in some funds (prime minus 0.5%).