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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

CR Swart Memorial Lecture: Mr Cecil le Fleur
2006-08-08

Khoe and San call for government to speed up policy dialogue with indigenous communities  

 Mr Cecil le Fleur, leader of the National Khoe-San Consultative Conference and member of the executive management of the National Khoe-San Council, has called for a national policy on indigenous peoples to protect the human rights and special needs of indigenous people in South Africa.

 Mr Le Fleur delivered the 38th CR Swart Memorial Lecture on the Khoe and San at the University of the Free State (UFS).  He commended the UFS for its serious approach to the Khoe and San and for initiating initiatives such as a research project on the Griqua in which various aspects linked to language, -culture, -history, - leadership, their role in the South African community (past and present) and the conservation of their historical cultural heritages will be covered.   

 “The policy dialogue with indigenous communities initiated by government in 1999 and supported by the International Labour Organisation (ILO), has been exceedingly slow, owing to political and bureaucratic problems,” said Mr Le Fleur.

 According to Mr Le Fleur the slow pace is also impacting negatively on the United Nations’ efforts to expand the international standards and mechanisms for human rights so as to include the special needs of indigenous peoples.

 “The successful adoption of a South African policy would probably have a major impact on the human rights culture of Africa and, more specifically, on the UN system,” he said.

 “South Africa has a powerful moral authority internationally and is willing to use this authority in multilateral forums. At this stage, however, South Africa’s Department of Foreign Affairs (DFA) may not take an official position on UN instruments and declarations pertaining to indigenous issues, until the Cabinet has resolved its own domestic policy position,” he said. 

 According to Mr le Fleur it therefore came as a great surprise when the DFA brought out a positive vote in the UN for the adoption of the "Draft Declaration on the Rights of indigenous Peoples" in June this year, even before the completion of the policy process. 

 Policy consolidation in South Africa is the primary key to creating a new policy climate in Africa in order to protect the rights of indigenous peoples.  “The existing constitution of the Republic of South Africa is one of the most liberal on the continent, and embraces the concept of redress of past discrimination.  It already includes a clause (Section 6) making provision for the protection of language rights for Khoe and San peoples - the fist peoples of southern Africa,” he said. 

 “If South Africa can effectively integrate this ‘third generation’ of collective rights within an existing democratic constitution, this will send a clear message to Africa and the world that indigenous rights are a necessary component of human and civil rights in modern democracies,” he said.

 Mr Le Fleur proposed an institutional framework based on set principles that would satisfy the needs and aspirations of the Griqua and other first indigenous peoples in South Africa.  “The proposed framework was based on the notion of vulnerability as a result of colonialism and apartheid, which stripped us of our indigenous identity, cultural identity and pride as people.  This injustice can hardly be addressed within the existing mechanisms provided by the current text of the Constitution,” he said.

 Mr Le Fleur also proposed that the principles of unique first-nation status, as recognised in international law, should be applied in the construction of the framework of the constitutional accommodation for the Khoe and San. 

 Mr Le Fleur further proposed that the Khoe and San’s indigenous status in constitutional terms must be separate from the constitutional acknowledgement of their status as a cultural community, as envisaged in sections 185 and 186 of the Constitution of 1996.

 According to Mr Le Fleur, the suggested mechanism should make provision for structures such as:

  •  A statutory representative council for First Indigenous Peoples of South Africa at a national level;
  • a separate Joint Standing Committee on Indigenous and Traditional Affairs, in both the National Assembly and the National Council of Provinces on which the Khoe and San can be represented;
  • a representative structure for the Khoe and San in the legislature of each relevant province; and
  • ex officio membership in the relevant structures of local government.

Media release
Issued by: Lacea Loader
Media Representative
Tel:   (051) 401-2584
Cell:  083 645 2454
E-mail:  loaderl.stg@mail.uovs.ac.za 
24 August 2006


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