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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

Environmental management – the answer to a sustainable green economy
2014-11-03



From the left are: Tshepo Moremi (Deputy Director-General), Mamotena Puleni (Personal Assistant to the Deputy Director-General) and Prof Maitland Seaman (Head of Department: Centre for Environmental Management).

Photo: Ifa Tshishonge

As part of celebrating 20 years of existence, the Centre for Environmental Management at the University of the Free State (UFS) hosted a public lecture themed, ‘The Future of Environmental Management’. Mr Tshepo Moremi, Deputy Director-General of the Department of Environmental Affairs and Tourism (Free State), portfolio Environment, Conservation and Tourism, delivered this lecture.

Mr Moremi said, “The environmental performance of South Africa must be seen in the context of our history and the country’s transition. South Africa has taken the lead in being a responsible global citizen, and we also participate in international projects in this field.”

South Africa hosts one of the richest biodiversities in the world. However, the country’s economy is still very energy - and carbon intensive.

“According to the World Health Organisation, approximately 16% of all deaths and one-third of diseases in children under the age of five years are environmentally related. Inadequate sanitation and indoor pollution are key factors,” Mr Moremi said.

“Academic institutions like the UFS and the government need to take the role of equipping citizens with skills and training so that we can overcome the challenges and seize opportunities related to the environment.

“Financing mechanisms for projects related to environmental sustainability were introduced in 2011. However, we still lack skilled capacity to run these projects smoothly and to use international and national funding strategically.

“Looking forward and responding to our challenges, it is vital that we transform our economy to be an international competitor and job-creation hub, and to be sustainably climate resilient, as outlined by the National Development Plan. Minimum standards will also be put in place to regulate emissions and monitor air quality. The sustainability of society’s well-being is important to the long-term role of environmental management in boosting our socio-economic status as a nation,” Mr Moremi said.

He emphasised that it must not only be about conserving and preserving. “Our people should benefit economically and socially,” he said.

Mr Moremi encouraged the audience to defend ideas that protect our non-speaking natural resources. “Let’s all do what we can and rise to this advocacy challenge,” he added. He also expressed his gratitude towards the university for honouring him during such a celebration and for working together in advocating for environmental issues.

The Centre for Environmental Management also hosted a strategic colloquium, discussing issues such as demography, resources, climate, water, environmental management, academic pursuance, as well as curriculum and the role of professional registration which may have an influence on the nature of its programmes.

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