Student Funding, Past, Present, Future
The context
On December 16, 2017, the then President, Jacob Zuma, declared that the government would provide free higher education and training for poor and working-class undergraduate students. His announcement, that this would start in 2018 for first year students at public universties and be phased in over a period of five years, differed from the recommendations made the month before by the Heher Commission. That Commission had recommended that all undergradate and postgraduate students be funded through a cost-sharing model of government-guaranteed, income contingent loans (ICL) sourced from commercial banks.
Going forward, poor and working-class students would refer to students from households with a combined annual income of up to R350,000. President Zuma said these students would be funded through government grants, not loans.
100% Grants introduced
This meant that National Student Financial Aid Scheme (NSFAS) packages that had already been allocated to enrolled students falling in this category would be converted from loans to 100% grants. Starting in 2018, this would include full subsidisation of tuition fees, all study material, meals, accommodation and transport. Subsidies to universities would go from 0.68% to 1% of gross domestic product over the next five years – as had been recommended by the Heher Commission.
As a result, many universities carry significant amounts of historic student debt. And there are deep concerns about the sustainability of the provision of “fully subsidised free higher education and training for poor and working-class South Africans”, and the inadequate provision for students in the “missing middle” category. These concerns therefore received attention during the session titled Student Funding, past, present and future.
Critical need for policy stability
Dr Thandi Lewin, Chief Director:Governance and Management Support at the Department of Higher Education and Training kicked off the session and acknowledged that the past few years had been a time of “great flux and instability” where the policy shift was “massive and came overnight.” But, she said: “Student funding is quite simply one of the most important and fundamental necessities for both accessing higher education and getting through successfully.”
Dr Lewin added: “We are keen to achieve policy stability; a policy that is rational and makes sense, a policy that is fair, ethical, proper and implementable.” She said every aspect of student funding has to be addressed including who gets it, how the needs of the missing middle are met, how to deal with issues such as accommodation, meals and transport. Thus she posted a question: “Can we get to a funding regime with all partners for all students who need it and not just through NSFAS?
“Cohort studies have shown that NSFAS students perform above the average of those students in the general university population, despite not having full cover funding.”
Caption: We need stable policy that is rational, fair, ethical and implementable,” said Dr Thandi Lewin, Chief Director: Governance and Management Support at the DHET.
Dr Lewin said that since #FeesMustFall in 2015, her department had been working with USAf “to keep fees at affordable levels. We are discussing a host of issues: what should the full cost of study look like; should there be fee adjustment grants?”
The biggest focus in the last 18 months, she said, had been on the implementation of the new student funding model. “Funding to a student is linked to an institution – NSFAS has one job to do: to pay money to students; to ensure the right students get money at the right time – when they need it.”
Alternative funding sources needed
In his presentation, Professor Philippe Burger, Economics Professor and Acting Dean of the Faculty of Economic and Management Sciences at the University of the Free State, gave a realistic and comprehensive assessment of the feasibility of student funding. Government finances, he said, were under severe pressure and it was likely that there would be “a real reduction in subsidies and NSFAS. We need to consider alternative funding for students not eligible for NSFAS, something that would ideally open the door for an income contingent loan scheme.”
Income contingent loans as one alternative
But, he added, there were potential problems for such a system. “For a start, private funding is needed. This should be part of the Public-Private Growth Initiative requiring a sectoral master-plan between government, higher education institutions and the private sector.” Prof Burger outlined some of the factors undermining a successful income contingent loan scheme.
“The question we have to ask is who will finance these ICLs? The Government’s can’t; the dismal state of its finances is the rationale for considering the creation of an ICL scheme in the first place.” Public-private partnerships (PPP) were needed, Prof Burger suggested, further presenting various models for consideration:
Caption: Professor Philippe Burger, Economics Professor and Acting Dean of the Faculty of Economic and Management Sciences at the University of the Free State.
- Banks could directly lend to students with government underwriting the loans, using either the banks’ loan repayment system or SARS to collect repayments.
- PPP Special Purpose Vehicle (SPV): this could be a fund managed by its own (private) administration, or by NSFAS.
- PPP SPV created with funds raised from Banks, Public Investment Corporation (and Government Employees Pension Fund), pension funds, and government selling Higher Education Bonus Obligations/Bonds.
- Given that loan repayment is linked to income level, SARS would be the ideal institution to collect installments and pay them over to the SPV.
He however cautioned: “Given the absence of collateral (like with standard student loans), government will have to underwrite the scheme. Can it? It will also have to cross-subsidise low interest rates. Can it? The lead time till loans start yielding a return is long. Will government be able to compensate private investors for this long wait? Total repayments might fall short of total loans over the full life cycle of loans. This will render overall returns negative. Can government fill the gap?”
In the meantime, he proposed these three ways to reduce NSFAS payments:
- Cap the amount paid for tuition and self-fund if tuition is more. This would affect universities with higher tuition fees.
- Introduce additional criteria (for example, preference being given to particular fields, capping bursaries to other fields which would result in an overall cap.)
- Leave the threshold at R350 000, thus reducing the real value of the threshold.
“All these steps to reduce NSFAS’s implicit liability leave more students to find alternative finance, either fully or partially. As a result, these students join the ranks of students from missing middle households.”
ISFAP as another alternative student funding option
In 2019, the Department of Trade and Industry (DTI) published revisions to the BBBEE Codes of Good Practice. Changes were made to Code 300, which specifically deals with Skills Development expenditure. Four points were allocated as an incentive to employers to encourage concerted contributions to bursaries for black students at all higher education institutions. Introducing the 4 weighting points is proving to be a game changer for alleviating the plight of South Africa’s missing middle as more companies looking to improve their BEE scorecards will benefit from this. The “missing middle” constitutes 40% of youth who do not meet the NSFAS criteria and therefore have no access to the R111.2 billion allocated by government for free education.
The Ikusasa Student Financial Aid Programme (ISFAP) is an organisation that helps close this gap. Its Chairman, Mr Sizwe Nxasana, told delegates at the USAf conference that ISFAP funded students who formed the “missing middle”, and who were enrolled for scarce-skills degrees in financial science, technology, engineering and medical sectors.
“Our objective is to provide access to university education by giving students grants for their full costs of study coupled with comprehensive support to curb drop-out,” Mr Nxasana said. “It’s a complete package that addresses the skills shortage in the country.” He added that ISFAP was funding students for a first degree, but not a second. “We fund up to doctoral level, ensuring that poor background students can specialise or continue with postgraduate studies to become academics, professors, researchers etc.”
Mr Nxasana said this was not “just about financial aid; it is also about student success, making sure South Africa gets skills needed to grow our economy. The production of knowledge is very important. We want to produce people who can meaningfully contribute to our economy,”
Caption: The ISFAP Chairman, Mr Sizwe Nxasana.
Mr Nxasana said. ISFAP provided wrap-around support, also hiring managers who oversee the lives of those on campus. “We ensure that all areas – psychological, social, living/accommodation, learning – are covered.” ISFAP was South Africa’s largest funding aid body after NSFAS.
Mr Nxasana said that depending on donations and corporate social investment funds was limiting. “To fund the missing middle we need R28 million a year and you can’t achieve that through donations alone,” he said. ISFAP, funds 1700 students, operates in 11 tertiary institutions around the country and has achieved a 92% pass rate since its inception.
Discussions
Professor Adam Habib, Vice Chancellor and Principal of the University of the Witwatersrand, made a suggestion during the question and answer session that followed the presentations. “We at the universities are faced with two big problems. The first is the missing middle. We have over 400 000 to reach. The question is how quickly can we find ways to reach them? The missing middle was the real problem of #feesmustfall.” He added: “An extremely important question we have to ask ourselves is this: How do we manage the politics around the students who qualify for NSFAS. Should we not seriously think of saying, for example, that students at Walter Sisulu University, and at the campuses located in Mthatha, East London, Butterworth and Komani in the Eastern Cape get a straight, full subsidy?”
Prof Burger responded: “To introduce a system where there are some fee-free institutions would have a negative impact. There would be a stigma attached to a fully fee-free institution.” He added that what was needed instead was one financing scheme… “Let’s say, a subsidy. Fees would be smaller. You would have a progressive fee structure – if you come from poor family – fee one; a less poor family, fee two, and so on”. Prof Burger said that private sector funding was crucial and an undertaking from government would be required, stipulating what they would fund and what they would underwrite.
Prof Tyrone Pretorius, Vice Chancellor and Principal of the University of the Western Cape said: “There are huge differences between institutions. It is my bugbear that nothing is being done about those. The Minister says don’t leave the historically disadvantaged institutions behind but what is being done to ensure this?” He added: “Of course, the total cost of funding benefits more institutions with high-end fees than the HDIs who are left behind. When will the Department address this differential?”
Caption: “It is my grave concern that nothing is being done about the differential fees between universities,” said Prof Tyrone Pretorius, Vice Chancellor and Principal of the University of the Western Cape.
Dr Lewin responded: “We are caught between the politics and the implementation. If we look at allocation we have to factor in that government has the upcoming National Health Insurance scheme to fund and social services…As government we have to do some thinking about how best to spend the money. We also have to factor in who gets to university, who gets through university; how to balance an excellent university education for middle class kids with those from previously disadvantaged institutions. The expectation of students and their families are often unrealistic. There is a widening gap between expectations and what we can provide as the government.”We also have to factor in who gets to university, who gets through university; how to balance an excellent university education for middle class kids with those from previously disadvantaged institutions. The expectation of students and their families are often unrealistic. There is a widening gap between expectations and what we can provide as the government.”
Dr Lewin added that there were socio-political issues around “how we change the discourse”. She said that fee regulation discussions were happening. “It will be tough because, as you point out, there are huge differentials.”
As a response to Prof Burger’s suggestion that banks could directly lend to students with government underwriting the loans, using either the banks’ loan repayment system or SARS to collect repayments, ISFAP’s Nxasana said: “All banks have a licence; if SARS needs to change the Act to make this possible, then that should be done. Government needs the political will to do it. New legislation is needed to regulate how institutions issue loans.”
Dr Sizwe Mabizela, Rhodes University Vice Chancellor commented: “We say that government deals with policy, NSFAS provides funding. But we all know that the situation is more complex than that. NSFAS students often have to repatriate money home to support their families. Mr Sizwe Nxasana agreed: “ISFAP sees that too – where students send their money home. This is a broader issue that needs to be discussed. When we built the ISFAP system, we made it scalable and included a tracking system. That comes at a cost. Say we raise R100 000 – up to 80% goes to students. The rest goes to administrative support.” Nxasana was reiterating that students’ need for funding far exceeds what existing funding instruments can currently provide.
We need a national conversation
In conclusion of this session, USAf’s CEO, Professor Ahmed Bawa, said “We need a national conversation, one in which we look at different models. I think we will all agree that we need a long term solution; we need policy stability. We don’t want a solution that lasts for 3 or 4 years. We want something that is more sustainable and will see us through the next 20 years or more. The question we need to ask ourselves is: Who will convene those conversations? It is obvious that we have to do things together.”
Caption: We need stable policy that is rational, fair, ethical and implementable,” said Dr Thandi Lewin, Chief Director: Governance and Management Support at the DHET.
Written by Charmain Naidoo, an independent writer commissioned by Universities South Africa.
