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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

Bloemfontein's quality of tap water compares very favourably with bottled water
2009-08-04

The quality of the drinking water of five suburbs in Bloemfontein is at least as good as or better than bottled water. This is the result of a standard and chemical bacterial analysis done by the University of the Free State’s (UFS) Centre for Environmental Management in collaboration with the Institute for Groundwater Studies (IGS).

Five samples were taken from tap water sources in the suburbs of Universitas, Brandwag, Bain’s Vlei, Langenhoven Park and Bayswater and 15 samples were taken of different brands of still and unflavoured bottled water. The samples were analysed at the laboratory of the IGS, while the interpretation of the analysis was done by the Centre for Environmental Management.

“We wanted to evaluate the difference in quality for human consumption between tap water and that of the different brands of bottled water,” said Prof. Maitland Seaman, Head of the Centre for Environmental Management.

“With the exception of two samples produced by multinational companies at their plants in South Africa, the different brands of bottled water used for the study were produced by South African companies, including a local small-scale Bloemfontein producer,” said Prof. Seaman.

According to the labels, the sources of the water vary from pure spring water, to partial reverse osmosis (as an aid to standardise salt, i.e. mineral, content), to only reverse osmosis (to remove salts). (Reverse osmosis is a process in which water is forced under pressure through a pipe with minute pores through which water passes but no – or very low concentrations of – salts pass.)

According to Prof. Seaman, the analysis revealed some interesting findings, such as:

• It is generally accepted that drinking water should have an acceptable level of salt content, as the body needs salts. Most mineral contents were relatively higher in the tap water samples than the bottled water samples and were very much within the acceptable range of drinkable water quality. One of the bottled samples, however, had a very low mineral content, as the water was produced by reverse osmosis, as stated on the bottle. While reverse osmosis is used by various producers, most producers use it as an aid, not as a single method to remove nearly all the salts. Drinking only such water over a prolonged period may probably have a negative effect on the human physiology.

• The pH values of the tap water samples (8,12–8,40) were found to be slightly higher (slightly alkaline), like in all south-eastern Free State rivers (from where the water is sourced) than the pH of most of the bottled water samples, most of which are sourced and/or treated in other areas. Two brands of bottled water were found to have relatively low pH levels (both 4,5, i.e. acidic) as indicated on their bottles and as confirmed by the IGS analysis. The health implication of this range of pH is not significant.

• The analysis showed differences in the mineral content given on the labels of most of the water bottles compared to that found by IGS analysis. The possibility of seasonal fluctuation in content, depending on various factors, is expected and most of the bottling companies also indicate this on their labels. What was a rather interesting finding was that two pairs of bottled water brands claimed exactly the same mineral content but appeared under different brand names and were also priced differently. In each case, one of the pair was a well-known house brand, and the other obviously the original producer. In one of these paired cases, the house brand stated that the water was spring water, while the other (identical) “original” brand stated that it was spring water treated by reverse osmosis and oxygen-enriched.

• Nitrate (NO3) levels were uniformly low except in one bottled sample, suggesting a low (non-threatening) level of organic pollution in the source water. Otherwise, none of the water showed any sign of pollution.

• The bacterial analysis confirmed the absence of any traces of coliforms or E.coli in any of the samples, as was also indicated by the bottling companies. This is very reassuring. What is not known is how all these waters were sterilised, which could be anything from irradiation to chlorine or ozone treatment.

• The price of the different brands of bottled water, each containing 500 ml of still water, ranged between R3,99 and R8,99, with R5,03 being the average price. A comparison between the least expensive and the most expensive bottles of water indicated no significant difference in quality. In fact, discrepancies were observed in the most expensive bottle in that the amount of Calcium (Ca) claimed to be present in it was found to be significantly different from what the analysis indicated (29,6 mg/l versus 0,92 mg/l). The alkalinity (CaCO3 mg/l) indicated on the bottle was also found to differ considerably (83 mg/l versus 9,4 mg/l). The concentration of Total Dissolved Salts (TDS) was not given on the product.

“The preference for bottled water as compared to Bloemfontein’s tap water from a qualitative perspective as well as the price discrepancy is unjustifiable. The environmental footprint of bottled water is also large. Sourcing, treating, bottling, packaging and transporting, to mention but a few of the steps involved in the processing of bottled water, entail a huge carbon footprint, as well as a large water footprint, because it also requires water for treating and rinsing to process bottled water,” said Prof. Seaman.

Media Release
Lacea Loader
Deputy Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za  
3 August 2009

 

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