The ethics of student loans

WHAT should be done about students who default on study loans? It’s a much more difficult question than it seems. Higher Education Minister Blade Nzimande says graduates owe the government R13.4bn. About 20% of those who have taken loans have not repaid a cent.

The motivation to provide student loans is, of course, a good one. The government is trying to remove financial constraints as a possible barrier to students moving from school to university. The total budget for post-school training student loans has increased from R3.3bn last year to R5.5bn this year.

The problem is that, like so many other government projects, spending the money has happened at a furious rate but recouping the loans has been shoddy. Mr Nzimande’s suggestion is to rope in the South African Revenue Service, but that seems extreme. Since graduate unemployment is about 20%, it is understandable why so many students are struggling.

The whole notion of supporting student loans with taxpayers’ money is fraught. The first problem is that students are already hugely subsidised, so providing additional support seems overly generous. The larger question concerns privilege. Many students will go on to earn the highest salaries in society. They may not be privileged when they start university, but once they succeed, their earnings capacity is hugely enhanced. This happens on the back of the taxpayer and in opposition to greater needs elsewhere. In a sense, supporting tertiary education is a regressive tax.

While these issues are applicable to developed countries, SA’s position is different. The first problem is that we produce too few university graduates — SA’s university participation rate is only about 15%, whereas many developed country participation rates are about 40%.

SA also spends too little on tertiary education. The tertiary education budget this year is R31bn, about 13% of the total education budget. The student loan system tries to resolve two contradictory tendencies: getting more people into university while staying within a constrained budget.

The problem is complicated by a high dropout rate, which renders some of the spending ineffective. But is it reasonable to expect a student who takes a loan but never qualifies and struggles to get a wellpaid job to pay the money back?

There is no easy solution to this, but there is certainly a way of easing the problem: instead of a loan scheme, which is always going to have a high default rate, the government should offer grants — but only for students who pass their first year and only in subjects that are national priorities. That would increase the incentive to succeed and encourage students to focus on engineering, science and business studies, for example.