Student loan plan shot down
The state is too heavily indebted to back the advances and the role of Sars is problematic
Critics of the Heher commission’s report on tertiary education funding reform say the proposals rely unrealistically on the goodwill of private banks. The report does not address key issues such as the interest rates the banks will charge under his proposal, which would make them the single funding mechanism for university education, they say.
It simply states that the average interest rates charged now by the banks are between prime (currently 10.25% for secured loans, which are backed by a guarantee) and prime plus at 6% for unsecured loans.
Judge Jonathan Heher admitted in an interview with the Mail & Guardian that his proposal relies to some extent on the goodwill of the banks. He said interest rates were purposely left out of the report because these will have to be negotiated with the banks “on the basis that the banks have a social responsibility and that they were under no risk whatsoever”.
Heher has proposed an incomecontingent loan scheme, in which banks provide government-guaranteed loans, which would mean the banks would not be at risk should students default, and the South African Revenue Service (Sars) would act as a loan collection agent. Graduates would only begin to repay the loan when they reach a certain income threshold. But if a graduate never reaches the threshold, the state must make good on the loan.
Heher says the rates need to be “favourable” so that repayments, which increase with income, are not a “burden”.
Lesedi’s Khaya Sithole, a chartered account who developed his own funding model, says the difficulty with partnering with the banks is that, historically, banks and corporate South Africa, which focus on profit, have not endeared themselves to students.
“With a public/private partnership, there’s a question of the right balance. Private enterprises have a profit imperative, so whether these are excessive or fair becomes the issue,” Sithole said.
Advocacy group Equal Education has rejected Heher’s loan scheme, saying the state already has an enormous debt because of dysfunctional state-owned entities. The nonprofit also asks how the state can guarantee loans if it cannot afford free higher education.
“This was the time for making tough decisions about SAA and other projects that explicitly waste public funds,” the advocacy group said in a statement. “Yet the state [is called] to hand over its inefficiencies to the banks. Playing the role of the guarantor is not governance; it is laziness and it opens up the most vulnerable members of society to predatory lending and insurmountable debt.”
Khulekani Mathe, the Banking Association of South Africa’s (Basa) head of financial inclusion, said banks are financial credit providers and the rates they charge for loans are regulated by the National Credit Act. “To talk about predatory lending is not a true reflection of the work that [the] industry does.”
He said Basa could not say whether the banks would be open to giving students a favourable rate until the income-contingent loan proposal has been analysed. But the expectation that the government and the banks should write the rules on how the model should be implemented is one of the report’s big weaknesses.
“The problem with the way traditional banking works is that, whenever people extend a loan within the current architecture, they ask for collateral and security. It’s not really clear whether banks are in a position to change the way they currently advance loans, and the commission should have at least given some guidelines,” Sithole says.
But the bank’s participation is not the only problem; Sars’s role has also raised concerns.
Equal Education said it is worried that Sars, “as a state body, which is accountable to the public, would be acting in the interests of private profit-making corporations”.
Sithole says the problem is Sars is the only body in the country with the infrastructure that can identify people in terms of income and track them down.
The National Student Financial Aid Scheme, the current state-run funding body that distributes and collects student loans, has failed to recover most of the money it has lent.
The future of the Heher report is unclear. President Jacob Zuma said he would make a pronouncement on the report once the interministerial committee on higher education funding and the presidential fiscal committee has processed it.
Mathe said, when that happens, Basa would like to sit down with the relevant authorities and work out the details. “It doesn’t work for anybody to not do that. A new academic year is going to start and we may be inundated with students who are under the impression that the scheme is operational when in fact it is far from [it],” he said.