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09 April 2021 | Story Prof Francis Petersen and Prof Philippe Burger | Photo istock

With a COVID-hit, shrinking economy and a mounting public debt burden, the Minister of Finance, Mr Tito Mboweni, announced a tight budget in February 2021. This budget also constrained its allocation to the Department of Higher Education and Training (DHET).

Within the DHET budget, the allocation to the National Student Financial Aid Scheme (NSFAS) was set to increase from R34,8 billion in the 2020/21 fiscal year to R36,4 billion in 2023/24 – a cumulative increase in nominal terms of 4,6% over the three-year period. This allocation covers NSFAS bursaries to university students and students at technical and vocational education and training (TVET) colleges. 

However, the National Treasury’s Budget Review projected inflation at 3,9%, 4,2% and 4,4% in the three fiscal years from 2021/22 to 2023/24. This means that the consumer price level over the three years is expected to cumulatively increase by 13%, well in excess of the 4,6% increase that the government has budgeted for NSFAS. In addition, the government also expected the number of NSFAS students to increase.

Reallocation of the DHET budget

Predictably, student organisations countrywide have expressed their dissatisfaction, which led to protests and campus shutdowns in March 2021. Tragically, a bystander in the protests, Mthokozisi Ntumba, died during police action in Braamfontein. 

Following the protests, the Minister of Higher Education, Innovation and Technology, Dr Blade Nzimande, announced a reallocation of the DHET budget, as approved by Cabinet. A further R6,3 billion has been allocated to NSFAS. A total of R2,5 billion of this reallocation came from a reduction in the general allocation for universities, R3,3 billion from the National Skills Fund, and a further R500 million from the TVET colleges’ new accommodation construction budget.
The provision of university subsidies was already a concern before this reallocation, with the subsidy per student in real terms in the DHET budget set to drop cumulatively by as much as 7% over the period 2020/21 to 2023/24.
In addition to the subsidy and bursary pressures, student organisations are also demanding the full write-off of student debt. Outstanding student debt at South African universities stands just shy of R14 billion. Much of this debt burden is carried by students from so-called missing-middle households, defined as households with an income of between R350 000 and R600 000 per year.  

The current funding model is not financially and fiscally sustainable

With mounting financial pressure, it is clear that the current model of student funding in South Africa is not financially and fiscally sustainable. The deteriorating fiscal condition also makes it unlikely that the government will be able to fully finance the missing middle. Minister Nzimande has indicated that a National Task Team, involving various stakeholders, will be established to address the student funding challenge in a sustainable manner.

The National Task Team will have to revisit the recommendations made by the Heher Commission in 2016. The commission recommended the implementation of an income-contingent student loan scheme. With an income-contingent loan, the student will obtain a loan to cover all or part of his or her tuition, accommodation, books, living costs, and transport. 

Once a student has finished studying and started working, loan repayment can start, but it only commences when the income exceeds a set threshold. The amount paid per month is also linked to the ex-student’s income level. The loan repayment period can be capped, for instance, at 25 or 30 years. Whatever is not repaid after that, is written off.
Such a loan scheme could augment a revised NSFAS bursary scheme, and instead of the hard R350 000 family income cut-off currently applied for NSFAS bursaries, it could be implemented with a sliding family income scale that allows for a combination of bursary and loan financing. Thus, poorer students will receive a bigger or full bursary, reducing their need for a loan, while better-off missing-middle students will need to obtain a partial or full loan. 

Will students be able to afford the debt burden they incur with such loans? In 2019, BusinessTech conducted a survey among eight large South African universities to ascertain the range of tuition fees that students face per year in BA, BCom, BSc, LLB, and BEng degrees. 

Annual tuition fees ranged from R32 560 to R68 135. In 2020 and 2021, universities applied an increase of 5,4% and 4,7% in tuition fees, respectively, which lifts the range to R35 931 and R75 190 in 2021. Setting the allowance for transport, living costs, books, and personal care equal to the 2021 NSFAS allowance of up to R30 600 and assuming accommodation costs of R35 000 for ten months, means the total tuition fees and other costs will range between R101 531 and R140 790 per year. 

If this was the cost for the first year of study, allowing for further tuition fee increases of 4,7% per year for a second (2022) and third (2023) year, and 4% inflation for all other costs, the total cost over three years with a degree obtained at the end of 2023, will range between R317 716 and R441 113, to be repaid over 10 to 30 years. Note that this cost is the same order of magnitude as the current retail price of R376 500 for a Corolla 1.2T Xs, a mid-size family car typically bought by middle-class (including graduate) families. The car, though, is repaid over just five years.

A need for public-private partnership

Given the limits on government finance, even to fund all income-contingent loans, there is a need for significant private sector involvement (banks, pension funds) in funding the loan scheme. If 300 000 students each incur a loan averaging R120 000 per year, the cost would be R36 billion per year (and at a GDP of R5 trillion, be 0,7% of GDP), an amount that is surely feasible when combining government and private sector resources. Universities are institutions that affect social change and are drivers of economic growth. Hence, both the public and private sectors are key beneficiaries of the output of universities, and therefore a solution towards sustainable student finance will need to involve an appropriate public-private partnership.  

Such a public-private partnership can include a sliding scale of interest paid on the income-contingent loans, based on the student’s household income, coupled with a partial or full underwriting of the loan by government.

Commercial banks can administer the loan scheme, as they already have well-developed financial vetting systems and expertise. To reduce the risk of non-repayment, and because the loan repayment is linked to a worker’s income level, the South African Revenue Service can collect instalments and pay it over to the loan scheme.

There are, however, a number of factors that can undermine the successful implementation of an income-contingent loan scheme. These include the lack of collateral and the long lead time till repayment starts, the need to subsidise low interest rates, and lastly, the risk of low total repayments. All these will require that the government spends money to ensure the participation of banks and other funders. 

The private sector, though, needs to realise that even though a student loan system inevitably involves risk, it is in the interest of the long-term growth and profitability of the private sector to fund such loans. It is also important for government to realise that higher education is both a private and public good, and that contributing a component to student finance is an investment, and not merely an expenditure.

Prof Francis Petersen is Rector and Vice-Chancellor of the University of the Free State and  Prof Philippe Burger is Professor of Economics and Pro-Vice-Chancellor: Poverty, Inequality and Economic Development at the University of the Free State

News Archive

Government to benefit from training of interpreters
2009-03-31

 
Pictured, from the left, are: Prof Theo du Plessis (Director: Unit for Language Management, UFS), Ms Mokone Nthongoa (HOD: Sport, FS Department of Sport, Arts and Culture), Mr Khotso Sesele (MEC: FS Department of Sport, Arts and Culture) and Prof Engela Pretorius (Vice Dean: Faculty of the Humanities, UFS).
Photo: Mangaliso Radebe
Government to benefit from training of interpreters

The fourth phase of a project to train eight conference interpreters and 30 community interpreters to assist government departments at service delivery points in the Free State was launched this week.

The project is part of the Multilingualism Information Development Programme which brings together the Free State provincial government, the Province of Antwerp and the University of Antwerp in Belgium and the University of the Free State (UFS).

Speaking at the launch of the fourth phase of the project, the MEC for Sport, Arts and Culture in the Free State, Mr Khotso Sesele, said: “The fact that we have been through the first three stages of this project, and are now launching its fourth phase, is indicative of the magnificent progress that has been made. This is a sign that through partnerships we can achieve more.”

The MIDP IV consists of two pillars, namely a practical and a research component. Its aim is to generate interpreting capacity within the provincial Department of Sport, Arts and Culture. The focus is on training an interpreting team over three years which can be employed within a governmental context at various service points.

“As we approach the 2009 FIFA Confederation Cup and the 2010 FIFA World Cup tournaments, it will be important for our communities to be able to interact with millions of foreign nationals who will be in our country from different world destinations during and beyond these two important soccer events,” said the MEC.

“The focus on interpreter training by this fourth phase of MIDP is thus an important factor in ensuring better communication during and beyond these important soccer spectacles that will take place in our country.”
The focus of the first three phases of the MIDP was on the main official languages of the province. This fourth phase, which started in 2008, will run until 2010 and its focus is on the Xhariep District Municipality.

“The provision of interpreting services and its further extension to district municipalities will provide the necessary interpreting skills to our communities that will enhance better interaction amongst ourselves,” said Mr Sesele.

He said the fact that indigenous languages have been “elevated from their marginalised status to being languages of business and commerce” is an important milestone that must be cherished.

This fourth phase of MIDP will also incorporate sign language as part of its focus on interpreting services.

“In our quest to ensure a multilingual dispensation in our province, we need not neglect to remember people with disabilities,” he said. “This is a matter of principle that does not require debate.”

“We should thus ensure the realisation of the goal of MIDP IV which is to ensure smooth communication interaction within the wider public, including the deaf community.”

“This is a wonderful project,” said Ms Mathabo Monaheng, one of the students in the MIDP. “As a sign language interpreter trainee this project will empower me with the necessary skills to be able to make a meaningful contribution to the deaf community in terms of communication.”

The MIDP is funded by the Province of Antwerp and successfully implemented by the Unit for Language Management at the UFS.

Media Release
Issued by: Mangaliso Radebe
Assistant Director: Media Liaison
Tel: 051 401 2828
Cell: 078 460 3320
E-mail: radebemt.stg@ufs.ac.za  
31 March 2009

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