SOS to the private sector
What to do about student funding and higher education in South Africa?
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 R36.4bn 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.
Predictably, student organisations countrywide have expressed their dissatisfaction, which led to protests and campus shut-downs 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 R6.3bn has been allocated to NSFAS. A total of R2.5bn of this reallocation came from a reduction in the general allocation for universities, R3.3bn 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 R14bn.
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.
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.
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.
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 R36bn 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.
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 until 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.