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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

Media: Sunday Times
2006-05-20

Sunday Times, 4 June 2006

True leadership may mean admitting disunity
 

In this edited extract from the inaugural King Moshoeshoe Memorial Lecture at the University of the Free State, Professor Njabulo S Ndebele explores the leadership challenges facing South Africa

RECENT events have created a sense that we are undergoing a serious crisis of leadership in our new democracy. An increasing number of highly intelligent, sensitive and committed South Africans, across class, racial and cultural spectrums, confess to feeling uncertain and vulnerable as never before since 1994.

When indomitable optimists confess to having a sense of things unhinging, the misery of anxiety spreads. We have the sense that events are spiralling out of control and that no one among the leadership of the country seems to have a definitive handle on things.

There can be nothing more debilitating than a generalised and undefined sense of anxiety in the body politic. It breeds conspiracies and fear.

There is an impression that a very complex society has developed, in the last few years, a rather simple, centralised governance mechanism in the hope that delivery can be better and more quickly driven. The complexity of governance then gets located within a single structure of authority rather than in the devolved structures envisaged in the Constitution, which should interact with one another continuously, and in response to their specific settings, to achieve defined goals. Collapse in a single structure of authority, because there is no robust backup, can be catastrophic.

The autonomy of devolved structures presents itself as an impediment only when visionary cohesion collapses. Where such cohesion is strong, the impediment is only illusory, particularly when it encourages healthy competition, for example, among the provinces, or where a province develops a character that is not necessarily autonomous politically but rather distinctive and a special source of regional pride. Such competition brings vibrancy to the country. It does not necessarily challenge the centre.

Devolved autonomy is vital in the interests of sustainable governance. The failure of various structures to actualise their constitutionally defined roles should not be attributed to the failure of the prescribed governance mechanism. It is too early to say that what we have has not worked. The only viable corrective will be in our ability to be robust in identifying the problems and dealing with them concertedly.

We have never had social cohesion in South Africa — certainly not since the Natives’ Land Act of 1913. What we definitely have had over the decades is a mobilising vision. Could it be that the mobilising vision, mistaken for social cohesion, is cracking under the weight of the reality and extent of social reconstruction, and that the legitimate framework for debating these problems is collapsing? If that is so, are we witnessing a cumulative failure of leadership?

I am making a descriptive rather than an evaluative inquiry. I do not believe that there is any single entity to be blamed. It is simply that we may be a country in search of another line of approach. What will it be?

I would like to suggest two avenues of approach — an inclusive model and a counter-intuitive model of leadership.

In an inclusive approach, leadership is exercised not only by those who have been put in some position of power to steer an organisation or institution. Leadership is what all of us do when we express, sincerely, our deepest feelings and thoughts; when we do our work, whatever it is, with passion and integrity.

Counter-intuitive leadership lies in the ability of leaders to read a problematic situation, assess probable outcomes and then recognise that those outcomes will only compound the problem. Genuine leadership, in this sense, requires going against probability in seeking unexpected outcomes. That’s what happened when we avoided a civil war and ended up with an “unexpected” democracy.

Right now, we may very well hear desperate calls for unity, when the counter-intuitive imperative would be to acknowledge disunity. A declaration of unity where it manifestly does not appear to exist will fail to reassure.

Many within the “broad alliance” might have the view that the mobilising vision of old may have transformed into a strategy of executive steering with a disposition towards an expectation of compliance. No matter how compelling the reasons for that tendency, it may be seen as part of a cumulative process in which popular notions of democratic governance are apparently undermined and devalued; and where public uncertainty in the midst of seeming crisis induces fear which could freeze public thinking at a time when more voices ought to be heard.

Could it be that part of the problem is that we are unable to deal with the notion of opposition? We are horrified that any of us could be seen to have become “the opposition”. The word has been demonised. In reality, it is time we began to anticipate the arrival of a moment when there is no longer a single, overwhelmingly dominant political force as is currently the case. Such is the course of history. The measure of the maturity of the current political environment will be in how it can create conditions that anticipate that moment rather than seek to prevent it. We see here once more the essential creativity of the counter-intuitive imperative.

This is the formidable challenge of a popular post-apartheid political movement. Can it conceptually anticipate a future when it is no longer overwhelmingly in control, in the form in which it is currently, and resist, counter-intuitively, the temptation to prevent such an eventuality? Successfully resisting such an option would enable its current vision and its ultimate legacy to our country to manifest in different articulations, which then contend for social influence. In this way, the vision never really dies; it simply evolves into higher, more complex forms of itself. Consider the metaphor of flying ants replicating the ant community by establishing new ones.

We may certainly experience the meaning of comradeship differently, where we will now have “comrades on the other side”.

Any political movement that imagines itself as a perpetual entity should look at the compelling evidence of history. Few movements have survived those defining moments when they should have been more elastic, and that because they were not, did not live to see the next day.

I believe we may have reached a moment not fundamentally different from the sobering, yet uplifting and vision-making, nation-building realities that led to Kempton Park in the early ’90s. The difference between then and now is that the black majority is not facing white compatriots across the negotiating table. Rather, it is facing itself: perhaps really for the first time since 1994. Could we apply to ourselves the same degree of inventiveness and rigorous negotiation we displayed leading up to the adoption or our Constitution?

This is not a time for repeating old platitudes. It is the time, once more, for vision.

In the total scheme of things, the outcome could be as disastrous as it could be formative and uplifting, setting in place the conditions for a true renaissance that could be sustained for generations to come.

Ndebele is Vice-Chancellor of the University of Cape Town and author of the novel The Cry of Winnie Mandela

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