OPINION

The university funding crisis

Belinda Bozzoli writes on how the crisis developed, and what needs to be done to correct it

Submission to the Commission of Inquiry into Higher Education and Training (the Fees Commission)

Belinda Bozzoli, MP (Shadow Minister of Higher Education and Training)

Wesley Timm (Researcher)

4th July 2016

Executive Summary

1. The fees crisis in Universities today is the result of the financial neglect of the system, particularly in the 15 years of high growth since 2000. The financial shortfalls in the system have led to unsustainable annual fee increases, as well as high failure rates. Both have reinforced Treasury’s reluctance to put more money into Universities. This reluctance needs to end.

2. Much of this is to do with government’s “massification” approach, which has led universities to take in more students than they can handle or afford. Many of these students are left to flounder within underfunded institutions and on less personal funding than they need. Overstretching the limited resources of universities has diminished the quality of instruction and research and exacerbated an already high dropout rate.

3. Though NSFAS has received funding increases, especially recently, it is still insufficiently funded. Worse still, the system is inefficient and grants are spread too thinly, often making it more likely that students will drop-out or fail and leave without a qualification, but with student debt and shattered dreams.

4. Finding the funding for growth in both NSFAS funding and University subsidies will be difficult, but it must be done. Even in the face of scarcity, South Africa has options to better spend its resources and better govern its institutions.

5. Simple fee-free education for all would exempt those who can afford fees from paying them and put unnecessary pressure upon the fiscus. Finding ways of ensuring that we have properly funded University education for the poor is where our energies should be placed.

Recommendations: 

We recommend the following steps for the future management of the University funding system:

a. Protect against rampant fee increases while improving the quality of education by restoring state subsidies to Universities to an appropriate level;

b. Fund NSFAS at a higher level, using more nuanced criteria, to provide adequate support for the poor and “Missing Middle”.

c. Continue to collect fees from all who can afford them

d. Stabilise University student numbers so as to permit stabilisation of funding

e. Revise the subsidy formula to discourage Universities from admitting more students than they can handle; and to focus on the quality of their graduates rather than the quantity of their first years.

f. Expand NSFAS criteria to include students from the “Missing Middle” immediately so that all applicants from households with an annual income of up to R500 000 have a fair chance to apply for student financial aid;

g. Introduce a tiered system of loans/grants so that those in the “Missing Middle” who can afford to pay a portion of their expenses receive proportional assistance

h. Ensure that no university student who successfully obtains an award under NSFAS receives less than his or her full cost of study, residence costs, and adequate food and books stipend (subject to the tiered system);

6. Simplify and streamline the NSFAS process to minimize administrative costs and prevent surpluses

7. Significant efforts should be made to increase third steam income as a source of finance but it cannot realistically be considered the route to meeting current shortfalls.

i. Explore a variety of alternative funding sources, including:

- Setting up partnerships with the private sector, and the banking sector in particular, to increase access to loans, improve the efficiency of collections and widen the pool of funds available.

- Reducing the number of prestige items in the national budget and redirecting the funds towards University education

- Developing a more efficient debt-collection system within NSFAS

- Ensuring that more students obtain loans than bursaries from NSFAS to protect funding for future generations.

Introduction

This submission is made on behalf of the Democratic Alliance to the Commission of Inquiry into Fee Free Higher Education (the Commission) in response to a call for submissions published on 29 April 2016.

The submission examines:

- The state of the current system

- How the University economy works

- What is meant by “fee free” higher education

- The likely cost of simple fee-free higher education

- The likely cost of comprehensively funded quality higher education

- Using limited resources to maximise access to quality higher education for the poor: essential steps towards a solution

- The likely costs of the recommendations

Our Recommendations are summarized in the Executive Summary above.

Our submission focusses almost exclusively on the University sector. That is where the demand for fee-free education is greatest. We understand that Technical Vocational Education and Training Colleges (TVETs) are vitally important for South Africa’s developmental needs but we believe that the problems there are of a different order and type and require separate analysis. 

University funding is controversial in many societies today. “Too much” financial support for them does not suit populist or right wing governments in particular – in the former case, they are seen as elitist institutions, and in the latter case they are viewed, quite incorrectly, as an extension of bloated welfare systems. Under the ANC-led government we fall into the former category, with President Zuma himself berating the University sector for being “too expensive”, and disparaging what he once called the “clever blacks” who emerge from it. The Finance and Fiscal Commission has not helped by its designation of basic education as a “public good”, but higher education as a “private good”.

These are retrogressive ways of regarding higher education. While off course all education is a “private good” in the sense that it allows thousands of young people to reach their potential and realise their aspirations, all education, including higher education, is also patently a “public good”. Its public purpose is served by the fact that it is a fundamental ingredient of development and economic stability in any contemporary political economy. Despite claims to the contrary, much of what is done in Universities can be linked directly to immediate skills needs. Universities produce the professionals – the doctors, accountants, engineers, lawyers, judges, architects, nurses, economists, actuaries, surveyors, teachers, social workers, dentists, pharmacists, psychologists, biologists and chemists - without whom a modern society could not survive. But they have another purpose: at their best, Universities are also crucibles of creativity – the sine qua non of the post-industrial world.

Without high quality Universities, the thousands of competent graduates they should be producing, and the rich research they engage in, society itself cannot progress.

The state of our current University system

In South Africa, a country seeking above all to develop beyond the state of poverty and inequality it finds itself in today, large segments of the University sector are in very bad shape. Universities are grossly underfunded, racked with protests, sometimes poorly managed and often neglected by government.

Of these problems the most important is that Universities are inadequately funded. The violent protests and subsequent call for “fee free education” are symptoms of this.

It may seem that Universities have become something of a financial bottomless pit. At the end of 2015, substantial protests occurred on most campuses. Government measures taken to address the problems raised by these protests – the provision of billions of Rands in additional funding to reduce registration fees, relieve debt and increase NSFAS - failed to halt the unrest, and Universities were confronted by militant students demanding financial relief at the beginning of the new academic year. By May it was confirmed that nearly half a billion Rands of damage had been done to Universities, and all indications are that similar protests will occur later in 2016.

Of course the amounts needed by Universities for their proper functioning, sustainability, growth and improvement are finite. But they are also frighteningly large, as we shall see below. While the government has shown (after real threats to it emerged last year) that it at last understands that funding levels for these vital institutions need to improve, an air of denialism about the real scale of the shortfall continues to prevail.

The supplementary grants made to NSFAS and Universities, totalling R16.3bn over three years and announced late last year, have been presented to the public as solutions to the problems of the sector. But they fall short of what is required. They are not solutions to the deep, long-term problems of the sector. It remains to be seen whether, as a result of the findings of this Commission, the government has the appetite for serious proposals rather than Band-Aids.

Our Higher Education sector is actually not large by international standards. According to World Bank data our enrolment ratio, known as the participation rate, stood then at 19.7%[1] – up from 15% in 1994. We have a long way still to go - the average for middle income countries is 27%, and it is far higher for wealthy countries.

However, this increase in the participation rate, which entailed an increase in student numbers in Universities and TVET colleges combined of more than a million new students over a period of 20 years, was underfunded. Short-sightedly, the government expanded the system but kept subsidy growth below inflation. As numbers went up, subsidies went down in real terms. As classes got bigger, numbers of academics remained stagnant. And as poor students were encouraged to attend in ever larger numbers, financial support for them grew, but insufficiently fast[2].

In 2010 the World Bank warned of the risks of the approach of expansion without adequate funding. It found that in a context of “inadequate public financing and resource diversification, admitting increasing numbers of students results in a deterioration in quality” and that, with diminishing resources and increasing student numbers, “Universities find it increasingly difficult to maintain adequate student-teacher ratios, lecture halls are overcrowded, buildings fall into disrepair, teaching equipment is not replace, investment in research and in training new instructors is insufficient, and many lecturers are obliged to supplement their income by offering their services in the private sector”.

The World Bank also noted five years before the #FeesMustFall protests began that “At worst, adequate funding may lead to student protests and strikes”,[3]

The Bank’s report was used as a basis for the conclusions of the Ministerial Committee for the Review of Funding of Universities in their 2013 Report (University Funding Report).[4] The recommendations arising from this Report were unequivocal:

Government should increase spending on higher education. It is evident that expenditure on higher education is too low, especially in light of the desire to move towards a knowledge economy. If participation rates of, in particular, African and coloured students need to be improved, more funding will have to be allocated to the public university system.[5]

The Department regularly boasts about increasing enrollment numbers. Indeed it has at times forced such increases upon Universities. According to the Universities funding review, for example, “Various universities are also put under extreme pressure to enroll more students than planned for, especially in instances where the NSC results improve drastically for a particular year and where more students qualify for university entry.”[6]

But such increases are of little value to society if enrolment is outstripping funding, and drop-out and failure rates continue at monumental levels.[7] While funding levels have remained at just above inflation, mass increases in enrolments, which have at times reached as much as 25% per annum, are unsustainable.[8] The funding report emphasized this: “Enrolment planning and the concurrent funding should also serve the purpose of preventing the university system from growing too rapidly without the necessary funding, to ensure a quality teaching and learning experience for students and to lead to the further strengthening of the efficiency of the system in terms of student success and throughput rates”.[9]

Rectifying a decades-long legacy of neglect costs far more than the sum of the costs would have been over time. The two main areas of deficiency – University subsidies and student capacity to pay – have now accumulated to nearly impossible levels.

The Commission will require courage to confront the levels of need. University subsidies would not appear to be first on the agenda for a Commission whose mandate is to look at fee issues. But the two cannot be separated. Universities in financial difficulty need to charge higher fees to help pay their fixed costs; and in cutting costs they inevitably damage quality. Both of these affect students in fundamental ways.

Many people in Universities are despairing, however, at the prospect that even if solutions are proposed by the Commission, they will not be properly implemented or they will not be implemented in time to prevent further damaging disruption to this important sector. Academic and non-academic staff alike fear future retrenchments, infrastructural deterioration, cuts in library and IT services and perpetual disruption by unhappy students. Soup kitchens and other free food options are increasingly being implemented by Universities for students who can’t even afford to eat, while student indebtedness has reached impossible levels.

The Commission of Enquiry needs to address these larger questions as it considers the matter of fees, for the larger crisis will continue unless it is taken in hand. Whatever the Commission’s findings, we need to ask whether it will be taken seriously, or whether it will suffer the same fate as the National Development Plan recommendations on Universities, few of which have been implemented, or the much vaunted Ramaphosa report into the same subject, tabled in Parliament in 2013, which has been almost entirely ignored by Treasury, and the working group on Fee Free Higher Education, which was never tabled in Parliament at all?

We hope and trust this will not be the case.

Treasury’s objection: drop-outs and failures

It has been suggested that it has been Treasury’s reluctance to adequately fund Universities that has underlain the approach of “massification without adequate funding” approach. It is said that this reluctance stems from the high failure and drop-out rates found in our Universities. And South Africa has, by international standards, a very high dropout rate in particular among its undergraduate students. One study of throughput rates for students who began in 2006 and 2007 showed that the total dropout rate in South Africa is 42.2% for three year degrees, 45.4% for four year degrees, and 57.1% for three year diplomas at contact universities.[10] The dropout rates were far higher at UNISA, a distance learning institution, at 86%, 83.9% and 95.4% respectively.[11] Another study using 2010 figures, showed that the cumulative drop-out rate was approximately 50%.[12]

Dropout rates in OECD Countries are, by comparison, about 30%. This means they are producing a far greater number of graduates for their investments in the area.[13]

There are a host of systemic problems which contribute to this high dropout rate. The major one is South Africa’s dismally performing basic education system. The University Funding Review noted that South Africa’s education system “perform[ed] sub-optimally” and left students “under-prepared for university education”.[14] Fixing the basic education system is thus key to lowering dropout levels at university.

So Universities are placed in an untenable position. They are saddled with having to both compensate for the poor schooling system and to produce graduates and research of a high standard with speed and efficiency. To compensate for the educational deficiencies in the students they admit Universities are expected to mount, manage and pay for First Year Experience courses, Language courses, Foundation Programmes, mentoring programmes, tutorial support, tailored e-learning initiatives, extended curricula and many others. Government has identified such programmes as a key to improving pass rates at universities.[15]

But these programmes are not given any additional funding by the state. They are funded from university income. And the fall in university subsidies has inevitably led to a fall in funding for them, leaving the dismal dropout rate intact. Low or falling subsidies directly and negatively affect the dropout rate.

Many of the dropouts are also NSFAS recipients.[16] Where NSFAS grants are inadequate, leaving student fees, accommodation, transport and food poorly provided for, the affected very poorest students have no proper accommodation, miss classes when they can’t afford transport, or skip meals. All of this increases the likelihood that they will drop out. NSFAS CEO Sizwe Nxasana recently stated that the NSFAS student dropout rate was as high as 60%.[17] This represents billions of Rands of spending, and is a fundamental failure in the higher education system. It also represents lost years, student debt, and crushed dreams for South Africa’s increasingly disaffected and impatient youth, particularly the poor.

When Universities find it impossible to achieve all of the immense tasks expected of them, and a high failure and dropout rate results, instead of funding increasing to assist them, the funding is in real terms decreased, as they are deemed to be inefficient and bad at their jobs.

The approach of Treasury, therefore, is like that of a business which finds that its outlets are failing and then reduces funding for salaries, branding, infrastructure, stock and communications, and then is puzzled when the staff strike, the outlets fail and the reputation of the business sinks.

How the University economy works

Throughout the world today public Universities are funded from three forms of income – the “shared funding” model. These are

- state subsidies, i.e. funds from the Treasury, directed through the Department of Higher Education and Training. These are based upon a formula.

- student fees, i.e. fees paid by either students themselves, or non-government donors and companies, who pay the fees on behalf of the students

- and so-called “third stream income” – i.e. income derived from grants, contracts and donations from foreign governments (such as the US National Institutes of Health or the EU), private and philanthropic sources.

These three sources of funding work in tandem to create the economic foundations of any University system and what happens in one area will affect what happens in the others.

The issue of student fees cannot be examined alone and needs to be seen in the context of the other income streams.

Because University costs tend to be more or less fixed and inflexible the balance between these three sources of income needs to be maintained while University income steadily expands to cope with growth. Thus at least 60% of fixed costs are for wages and salaries (far more in the poorer Universities), while other major fixed-cost items include electricity, municipal rates, costs of running residences, cleaning and internationally priced book, laboratory, IT and digital subscription costs. Every single one of these costs has shot up at rates exceeding inflation over the past ten years.

Outsourcing of non-core functions has been one way in which Universities have attempted to save on fixed costs, but the student protests themselves have effectively brought this to an end. It is estimated that the ending of outsourcing will add a further R2–3billion per annum to University costs.

Student fees have been almost the only sustainable source of new income into Universities to make it possible to pay their way, thus altering the balance between the various sources of income. And when this balance is distorted in this way during a period of rapid growth, the system undergoes dramatic changes which can have serious knock-on effects.

The South African University system experienced a serious distortion in these income sources over the past twenty years of quite dramatic growth as follows:[18]

Source of income

Proportion in 1994

Proportion in 2000

Proportion in 2014

Government subsidies

50%

49%

40%

Student fees

20%

24%

31%

Third stream income

30%

27%

29%


The root of the distortion lies with the clear, widely acknowledged decline in the real value of University subsidies over the period, particularly since 2000. 2000-2014, and the concomitant rise in fees to compensate for this, given the fixed cost nature of the University. Indeed even the Department acknowledged that:

The underlying cause of the annual increases in university fees is insufficient funding of full-time equivalent enrolments by the state. This, together with higher education inflation which is higher than general levels of inflation, has resulted in institutions needing to balance their books by increasing student fees.”[19]

In situations where public Universities thrive, the state funding is the anchor of it all, with other sources of income providing a supplement. Together with fees, subsidies normally support the core costs of staff at competitive salaries and in sufficient numbers to keep class sizes reasonable; core funding for learning resources, IT facilities, libraries, collections, and field sites; funds to enable the University to pursue research at an appropriate level, (depending on the type of University); sufficient funding to keep what fees it does charge at a reasonable level, adequate support to students who cannot pay fees; and funds to develop and renew infrastructure.

In South Africa over these years, state subsidies underwent a steady decline from R20,000 per student head to R17,000 per student head in real terms. The proportion of overall funding fell from 50% to 40%, a very dramatic fall indeed.[20]

To make up for the decline, pressure was consequently put upon fees, which rose (as a proportion of income) from 24% to 31%, an increase of nearly 30%.

This explains today’s explosive focus on fees. Fees are indeed the flashpoint of the whole system. Declining subsidies have meant fee increases to compensate, and to prevent unsustainability in the University economy, in which fixed costs rarely stick to inflationary levels even when the system is not expanding.

Add rapid expansion and a falling rand to this, together with stagnation in the broader economy, rising unemployment and increasing poverty, and you have an unstoppable force – student incapacity to pay rising fees – meeting an immovable object – more or less fixed University budgets desperate for a source of funds to pay for the essentials. The system had to crack.

In recent years, after a slump between 1994 and 2000, Universities were able to raise a greater proportion of third stream funding, leading some, including government, to somewhat naively believe that third stream income will prove the solution to the fall in subsidy and concomitant rise in fees. And it is true that after a post-1994 fall, this income did increase slightly after 2000, from a proportion of 27% to 29%. However, even with this slight increase, in fact the proportion of third stream income has not changed fundamentally through the entire period. In spite of the herculean effort in some Universities to increase the contribution of third stream income, as a percentage of total income it has never grown significantly above the rate of growth of the system as a whole. And its proportion has never risen above 32%.[21] Third stream income does not, cannot, and is very unlikely to, fill the gap left by declining state subsidies.

We need to ask why this is.

Third stream income has a multiplicity of purposes. It supplies support for infrastructure; it can help elevate the research efforts of the University to far higher levels; and it can include donations directed towards Universities’ civic presence, or their “good works” - depending upon the inclinations of the donors. But even the most successful fund-raising Universities have found this type of funding unreliable, tied to specific projects with short-term outcomes, or tending to shrink in times of economic recession.

Most important of all, third stream income does not cover basic costs.

Other than through their taxes, no outside funder will pay for the fixed costs which form the vast majority of University expenses: academic or administrative salaries for example, or the electricity, student accommodation, catering, security, student transport, maintenance, rates, subscriptions and IT bills Universities are responsible for, or indeed their many other costs. Donor funding is often vanity funding. It is project-based, time bound and fickle. It favours “add-ons”.

Furthermore, third stream income is in itself expensive. US Universities calculate that for each Dollar raised, a University is liable for a further 70 Cents in overheads. Sometimes the overheads even exceed the raised amount. While governments elsewhere pledge to assist Universities with covering these overheads as an incentive to them to raise further third stream income, this is not the case in South Africa. Here, the more third stream income is raised, the more the core subsidy income is put under pressure to pay for overheads relating to it.

Third stream grants also tend to go to universities with well-developed research infrastructure and well-resourced academic staff. This means that historically advantaged institutions are likely to disproportionately benefit from increased third stream income. Donors might swing towards the poorer Universities if the infrastructure and quality is improved. But this will require substantial investments through state subsidies. Third stream funders is likely to flow more freely where the state also invests.

Third stream income is crucial to the funding of HEIs, particularly with respect to research, and should be expanded where possible. We support continued efforts by Universities to increase their third stream funding where possible. But the system will be forced to continue to rely on state subsidies to make sure fees are kept down. Third stream income is no panacea.

This is not to say that the universities and, indeed NSFAS and the state itself, should not explore partnerships with the private sector, particularly to increase access to NSFAS loans. Indeed, we recommend that they do. But the backbone of university funding must be state subsidies.

To add to the problems in Universities, Government’s increasingly managerialist, controlling and centralising impulses have pushed Universities extremely hard on a number of fronts. In particular, the technocratic “formula” used by government to allocate funds between Universities has, in this situation of financial scarcity, driven Universities to become more factory-like and less attractive to the best academic staff.

In addition, Government funding has, over the period, provided very little or no support for infrastructure development or even proper maintenance, leading to the decline and decay of buildings, a datedness to key teaching and research infrastructure, and a lowering of morale (this has to some extent been rectified in recent years, but the backlog remains huge).

Besides increasing fees and seeking more third stream income Universities have also tried to deal with these pressures in a situation of falling income by increasing class sizes to unacceptable levels to save on employing more staff and to meet the demands of the “formula”. This has led to resentment amongst academics and further pressure on the drop-out rate amongst students, as the large classes make it impossible for students in need to be given the attention they deserve. We recommend that this formula be reassessed.

Using limited resources better

It is undeniable that South Africa’s economy has performed poorly in recent years. The feeble GDP growth rate of less than a per cent has made achieving the NDP goals, which envisaged a growth rate of 5% and above, extremely unlikely. This means fewer resources to fund South Africa’s many priorities, including higher education. The main solution to this is to stabilize and stimulate South Africa’s economy, increasing wealth, creating jobs, expanding the tax-payer base and thus increasing government revenues. However, this goes beyond this scope of this discussion document.

However where financial resources have been poorly managed by government we recommend that the Commission consider how to more effectively manage these resources.

Current budget priorities

The DA analysed the 2016/17 budget earlier this year and identified R9.5 billion in savings that could be made. The DA formally proposed amendments to the budget to reallocate these savings to other priorities. R2.73 billion was proposed specifically to fund higher education. These amendments were rejected by the ANC in Parliament. We believe that government has the ability to allocate more funding to higher education than it currently does, but is not willing to do so.

We recommend that, in future, government prioritize higher education over prestige funding such as presidential jets, the BRICS bank and unnecessary VIP protection, among other unnecessary expenses.

Underspending and surpluses

NSFAS consistently reports underspending and surpluses. In 2015/16, it had a revised estimated surplus of R2.68 billion. It expects that this figure will not decline, but rise in the coming years.[22] By 2018/19 it is expected that this surplus will expand to over R3.1 billion.[23] This is deeply concerning considering how cash strapped the system is.

NSFAS itself has noted “inefficiencies” in its own scheme which has “become bigger and more complex to administer”.[24] This is not a new problem however and was noted as problematic in NSFAS Review published six years ago. The report noted that many funds were going unspent each year and that NSFAS stakeholders had expressed frustration that “they are bound either by NSFAS rules or by inefficiency that does not allow for the optimum use of funds”.[25] In particular the Department of Social Development, which claimed that it had been able to administer the funds far more efficiently when the latter department had administered the bursaries.[26] These inefficiencies in the NSFAS system are not inherent to the administration of loans.

The NSFAS Review made several proposals to improve the administration of the NSFAS system but there seems to have been little progress if any in curbing delays in allocations or unspent funding. It is concerning that financial statements indicate that underspending will continue unabated. There thus appears to be no will or plan to make better use of these resources. We recommend that the Committee determine what is responsible for this persistent failure and make recommendations to address them immediately.

SETAs have also posted billions of Rands in surpluses. the 2015/6 figure is R2.59 billion. Surpluses of this size and larger are expected to continue in the coming financial years.[27] The Commission should consider whether surpluses from the SETAs can and should be directed towards the TVET Colleges, releasing NSFAS funding used there for University students.

Poor NSFAS loan repayments

NSFAS disbursed nearly R50 billion between 1991 and 2014[28] and another approximately R9.5 billion[29] in 2015. It will disburse over R10 billion this year.

Yet, between 2004 and 2014, only R4.63 billion was recovered.[30] More concerning is that despite government promises to improve them, collections have in fact been on a steep downward trend since they reached a peak in 2011 at R542 million, dropping lower than 2006 levels in 2014 to R338.8 million.

Loan Recoveries from university students

Year

Recoveries

2004

R220 545 442.05

2005

R278 714 907.68

2006

R349 022 435.50

2007

R411 926 786.36

2008

R465 276 006.06

2009

R534 057 447.55

2010

R533 800 000.00

2011

R542 097 105.00

2012

R538 748 823.00

2013

R422 808 476.00

2014

R338 820 613.00


These diminishing collections are cause for concern. The NSFAS scheme is meant, primarily, to be a loan scheme and collections are an important source of its revenue. No doubt, a partial reason for low repayments will be the high dropout rate of NSFAS students – students are unlikely to be able to pay back their NSFAS loans if they have not received a qualification. These shortcomings in NSFAS collections need to be urgently addressed.

A very large number of NSFAS grants are bursaries and not loans. In 2013, almost R2.6 billion was disbursed in bursaries instead loans, and a further R1.1 billion was converted from loans into bursaries. What amounts to the gradual alteration of NSFAS from a loan to a bursary scheme needs to be reassessed. Graduates are more likely to be in a position to contribute to the system with repayments, and their contributions are essential to supporting the next generation of NSFAS students. 

What is “fee-free” Higher Education?

There is no agreed-upon definition of “fee free” higher education in the public discourse on the subject. But we wish to emphasise the rather obvious point that being a student is about far more than simply fees. The full cost of studying is far higher than the cost of tuition. Many rural students as well as students from towns which have no University in them leave home in order to study and their full expenses have to be paid somehow. Most families in the poorest brackets have little if any funds to spare to pay for this.

The National Student Financial Aid Scheme (NSFAS) has acknowledged this. When full NSFAS grants are given they include the fees themselves, plus a living allowance, which pays a substantial amount towards the costs of residence or other accommodation, food, transport, books and other items. The original vision of NSFAS was an extremely enlightened one, and it would be unfortunate if this vision was lost in the relentless focus on fees alone.

It is unclear whether, following the NSFAS example, “fee-free” means

a. “no costs at all” – i.e. that the state should pay all of the fees plus all of the full costs of being a student, for all students; or

b. what the words strictly say: that the state should pay the fees of all students, but the other costs should be found elsewhere.

The blurring of these two meanings adds to the many misunderstandings and confusions around the matter. For example, many countries with “fee free” education are quoted as examples for South Africa to follow – Brazil, Sweden, Germany, Norway, Scotland and the like. But in none of these countries are full cost grants included in the “fee free” package. In fact, Swedish students do not pay fees; but the loans they take out to cover their living costs are so large, because of the high cost of living, that they end with debt almost as high as those of US students in the end.[31] In that respect the South African system is, at least for students who obtain NSFAS grants, arguably more generous than the Swedish one. A simple call for “fee free” education will not address the full range of financial problems experienced by students, especially in a country where family poverty is rife.

In this document we make the distinction between the two by discussing “fees” and “living expenses” as distinct cost items and acknowledge the complexity of the issue by discussing both. We also seek to build on the strengths of the NSFAS model as it currently stands, rather than to displace it.

Here we sketch out three illustrative scenarios relevant to the “fee free” debate, in order to illustrate the different interpretations that might be given to the matter.

All three Scenarios are based upon the year 2016, with the assumption of there being a rounded figure of 1million students.

- Scenario 1 – “Simple, universal fee-free University education” - reflects how University funding might look if everything were to be kept steady except the matter of fees – i.e. if pure “fee free” higher education were to be introduced but no other changes were made

- Scenario 2 – “Full cost, quality University education” - takes the opposite view: it reflects how University funding might look if we assume the fullest possible interpretation of ‘fee free” to mean that every single unfunded aspect of higher education, including fees, were to be fully covered.

- Scenario 3 – “Sustainable in-depth coverage for the poor” sketches an alternative to the first and second, which addresses serious problems to be found in each. It maximises the benefit to poor students, and also addresses long-term sustainability and feasibility.

Scenario 1: Simple, universal fee-free University education:

In all countries where “fee free” higher education exists, the costs to the Universities are paid for by the tax payer. In Germany, the taxpayers in the individual states of the federation pay for the costs of the fees of the Universities in those states. In Sweden, Scotland and elsewhere the costs come from the central fiscus.

It is difficult to estimate precisely how much income universities receive from fees. However, bearing in mind that university subsidies are approximately R27.96 billion this year,[32] and that they make up about 40% of university revenue; and that fees constitute approximately 30% of income,[33] we can estimate that universities will receive approximately R21 billion per annum from fees in 2016.

If university study were free, the R21bn currently paid into Universities from fees would have to be taken from the central budget, given that provinces have no responsibility for Higher Education.

Some is already paid for by the taxpayer - this figure includes the approximately R7bn worth of fees paid through NSFAS.[34] Thus students who can afford to pay their fees, or who have them paid by companies, donors and other entities not paid for by the taxpayer, contribute approximately R14 billion to university revenue.

Universal fee-free higher education would mean that even those who can afford it need not pay fees. Accordingly, the money the better-off would have spent on fees will go back into their pockets. The fiscus will have to replace these funds itself.

Thus, taxpayers will unnecessarily lose approximately R14bn a year currently taken from those who can afford it or whose fees are paid by Universities themselves, donors or companies, if fee free higher education were to be introduced.

The consequent strain on the fiscus is both unnecessary and risky. One study of Scottish fee-free higher education indicates precisely this problem - strains on the fiscus have meant that the poorer students dependent on cost-of-living grants and loans have had their funding reduced.[35] In fact, argues the author of the study, Lucy Hunter Blackburn, it has been the wealthier students who have benefited most and poorer students the least from the absence of fees.

It is our submission that universal fee-free higher education would constitute a subsidy for the better-off and would deprive the fiscus of funds which could better be spent on the poor.

Universal fee-free higher education has never been considered a feasible or desirable goal in any major South African consensus. The Constitution does not guarantee free education, particularly tertiary education. It guarantees access to basic education and progressive realization of access to tertiary education.[36] The guarantee of access to basic education places a positive duty on the state duty to ensure no person is obstructed in pursuing their basic education, even if they are poor.[37] The state fulfils this positive obligation by funding fee-free schools, and thus providing fee-free basic education to the poor. However, those who can afford it continue to pay school fees. Likewise, the state has a positive duty to ensure access to higher education, including for those who can’t afford it, though in the case of higher education, and unlike basic education, this right is specifically subject to progressive realization.[38]

The case law reveals that, while these rights equate to an obligation on the state to provide free education for those who cannot otherwise afford it (subject to progressive realization at tertiary level), this does not equate to a right to free education for all.

Indeed, even the Freedom Charter, while calling for free education for all children, specifically states that “Higher education and technical training shall be opened to all by means of state allowances and scholarships awarded on the basis of merit”.

South Africa is not a wealthy country. We do not have the resources of a state such as Germany, which, in 2014, had a GDP per capita of over US$47 774, compared to South Africa’s approximate GDP per capita of US$6 484.[39] We also have one of the most unequal societies in the world, a result of apartheid era economic exclusion of the black majority, as well as poor government stewardship of the economy in recent years.

Universal fee-free education might, in fact, deepen inequality in South Africa and reduce the funding available to provide for the poor.

In short, in our economically strained environment, those who can afford tertiary education should pay for it.

Scenario 2: Full-cost, quality University education

The simplistic solution of universal fee-free education is not only likely to increase inequality. It in fact does not address the real root causes of the crisis in higher education today, which lie in a whole range of areas and institutions. With the widest possible canvas, here we sketch out how it would look were the state to attempt to rectify all the multiple deficiencies in University and student funding, so that a genuine, full-cost high quality higher education system could begin to develop. The problems that would need to be addressed are:

- Inadequacies in NSFAS funding even for the poorest students

NSFAS has proved unable to provide proper funding in three areas of concern:

o The full complement of the many students from the poorest families who are entirely eligible for NSFAS as they fall below the NSFAS income threshold of R120 000 per annum, cannot be funded simply because there is insufficient funding. In 2015 53 987 of these, the very poorest students, remained unfunded.[40]

o Even those students who are funded (NSFAS is targeting 205 000 in 2016) do not receive sufficient to cover the full cost of their studies. While the average full cost of University study in South Africa is currently approximately R76 257, the average award from NSFAS in 2015 was R40 827,[41] just over half the amount needed.

o Students from the so-called ‘Missing Middle’ are not funded at all. These are students whose financial plight has increasingly become visible. They come from families with an income greater than R120 000 per annum, and who are not therefore eligible for NSFAS. But at the same time their families do not earn enough to be eligible for a bank loan. They end up with little or no support and often constitute the most desperate students of all.

How much would it cost to end these deficiencies?

There is no settled definition for the maximum family income of the Missing Middle. NSFAS has previously identified it as R400 000 per year.[42] More recently, the figure of R500 000 has been mentioned.[43] We also do not know how many students there are in this bracket.

Given these complexities, it is not surprising that There are no precise figures on what is required to extend funding to all eligible students plus the “Missing Middle”.

In a written reply to a Parliamentary question in 2015,[44] however, the Department indicated that it would require an additional R51 billion over three years to extend funding to many more students. Although we know that this only includes a portion of the “Missing Middle”, specifically those coming from families with an income of less than R217 000 per annum, we propose that we use this figure as a basis for this Scenario. This would amount to an additional R17 billion per year, though, bearing in mind the estimates limitations above, this probably a conservative estimate.

- The history of declining subsidies – causing ever-increasing fees and a fall in quality

The Department estimated in 2015 that it was short of R19.7 billion per annum for baseline university subsidies, excluding the National Student Financial Aid Scheme, with an annual increment for inflating and enrolment growth to meet the NDP targets. That would have been an increase of approximately 75% on the 2015/16 budget of R26.3 billion. In 2016/17, university subsidies increased at 6.31%, barely above inflation. It is thus safe to assume that university subsidies are still approximately R20 billion short per annum to meet the NDP goals.

- Infrastructural deficits leading to student dissatisfaction

In 2011, the Department estimated that there was a shortage of 195 815 beds, and that construction costs per bed would be R240 000.[45] According to a recent Parliamentary reply, the bed shortage is now approximately 200 000. What progress there has been has not matched the increase in student numbers.[46] The Department estimated that it would cost government approximately R109.6 billion over 15 years to construct sufficient residences to end the shortage. Bearing in mind inflation, this figure is more likely to be approximately R142.56 billion today; that is about R9.5bn a year exclusively assigned to residence construction to overcome the shortage, not immediately, but by 2030 – fortuitously the year in which the NDP’s goals are meant to be accomplished.

Approximate Annual Additional Costs of a Full-cost Solution

Rbn p.a.

Fee-free education for all (as per Scenario 1)

14

Additional funds to NSFAS (partial) (as per Department estimate)

17

Restoring subsidies to meet NDP goals, prevent cycle of fee-increases and protect quality (as per Department estimate)

20

Infrastructural funding to address shortage of beds (as per Department estimate)

9.5

TOTAL

R60.5bn p. a.


To provide fee-free education, full costs of study for those who need it, increased subsidy to properly support universities and to end the cycle of fee-increases to supplement subsidies, proper levels of quality as well as sufficient accommodation by 2030 would cost a cumulative total of at the very least an additional R60.5 billion per year.

The Universities’ budget (which includes NSFAS funding from the Department) alone would have to increase to about 255% its current size, from R39.5 billion to R100bn, for this to be achieved.

This figure does not include funding the entire “missing middle”, as well as other priorities in the department, especially TVETs. (And this does not address the shortages in research and postgraduate funding which themselves require special attention).

These are, of course, rough estimates, and the Commission will make its own estimates using more detailed information than is currently available to us.

It is clear that the state does not have funding close to what is required to achieve universal, free, full cost quality tertiary education. It will not have these resources until national revenue grows significantly.

Scenario 3: Sustainable, in-depth coverage for the poor

The solutions to the problems presented by the student movements of 2015-16 are unlikely to be simple, or to entail the quick fix of enlarging the budget by a smaller or larger amount. The simple fee-free solution is, we would argue, not desirable, and would not address the range of problems faced by the majority of students. And an expensive broad-based full-cost solution is not feasible in the current economic climate.

Instead, we propose a raft of actions, to be undertaken over a period of at least five years. We base them upon the following principles:

- The system should focus on the numbers of high quality graduates it produces rather than the numbers it takes in; this will ensure that the system will obtain the greatest possible benefit from each Rand spent

- The poorest students need the most comprehensive financial support, which should be diluted as little as possible

- The “missing middle” students should receive support, but it should be proportional to their financial standing

- Better-off students should not receive government financial support for fees or other expenses, as they would either be able to pay for their studies themselves or be eligible for bank loans

- University subsidies should move gradually towards the level of 50% of costs to a) support quality education and b) minimize the fee-increase cycle we are currently experiencing.

A) NSFAS should maximise the number of high quality graduates it supports – output rather than input should gradually become its focus

We should be measuring our successes not by the number of students we squeeze into a buckling system, only to abandon them when they drop out or fail, but by the number of graduates we produce from a system of quality. Our high failure and drop-out rate is an indication that we are not making optimum use of our scarce financial resources.

Producing more graduates also means greater income for government and thus more resources to fund the poor through NSFAS. Not only do graduates provide the skills the economy needs to prosper, these graduates are more likely to find a job, pay taxes and pay their NSFAS loan back, bringing a double return into the system to support the poor. A NSFAS student who drops out may not be able to make these payments for many years, if ever. This is concerning when, if NSFAS’s CEO is to believed, 60% of NSFAS students drop out.

The current government has until now taken “massification” as its route to managing Universities. We suggest that the limits of massification have been reached for the moment. Until further growth in the system can be funded, we believe it far better to focus on quality of education, rather than raw quantity of enrolments; on graduation rather than admission. Forcing Universities to accept as many enrolments as possible, whether their systems and budgets can manage them or not, is no longer feasible or acceptable and damages the student and the institution.

Further growth in the sector in the immediate future should take place in the TVET Colleges and not the Universities, at least until the budgets available for Universities can be radically increased.

We suggest that universities should be encouraged to make their admission criteria for degrees more selective.[47] At present, the extremely high drop out and failure rate of students indicates that many students who are being admitted to university have not been prepared for University education by the Basic Education system. This leads to frustration, wasted time and wasted money for students and their families. who might have, instead of entering a degree, been directed to improve their matric results or pursuing alternative higher education, training or employment. Many protesting students whose anger is most palpable and whose desperation is most severe, are of course those who are underfunded; but they are often also those who are not coping with University and who have, essentially, been set up to fail.

NSFAS itself should, we suggest, set up an enquiry into how best to incorporate an element of merit in allocation criteria at least for the immediate future.

All other things being equal, a student who performed better in matric is more likely to succeed at University. This means that the scarce resource is more likely to yield returns, both for the individual student and the state – the recipient of the award is more likely to pass, obtain his or her qualification, secure employment and pay back the loan (as well as pay taxes). This in turn will unlock greater revenue for NSFAS and thus allow greater numbers of loans to be awarded in the future. It seems logical, therefore, that where there are insufficient bursaries, those qualifying students who are most likely to succeed at university should be prioritised.

How this can be introduced requires thought. One of the criteria for NSFAS support that already exists is that a student must be successfully admitted to a programme at a University. These admissions are dependent on merit based criteria, particularly but not only on the basis of matric results. A system could be designed with NSFAS and the Universities working together to select those qualifying students who perform best in respect of these merit based criteria to identify priority candidates for NSFAS grants. Would the introduction of a merit component affect the capacity of NSFAS to support historically disadvantaged students? We do not believe so.

Since current disadvantage will continue to be used, along with merit, to select students, and since current disadvantage correlates very highly with historical disadvantage. The existing pattern of awards is very unlikely to change. This must, of course, be monitored to ensure any such system redresses historical inequalities.

NSFAS allocations in 2014/15 by Race[48]

Race

Number of students

%

African

168 351

90.4

Coloured

8 139

4.3

Indian

1 527

1

White

5 255

2.8

Other*

2 833

1.5

Total

186 105

100%


NSFAS issues a variety of loans on the basis of scarce skills, particularly from funds given to it to administer by other national departments or the National Skills Fund. But these are in the minority: the vast majority of NSFAS grants are not awarded on the basis of prioritized scare skills.

A focus on scarce skills does not have to be adopted for 100% of the loans. There could be a split between scarce-skills-based and general degrees. The National Research Foundation has a long-standing and considered policy on this matter which could be emulated.

We note that the Report of the Ministerial Committee on Review of the National Student Financial Aid Scheme (NSFAS Review) said that the DHET needed to evaluate whether the few existing scarce skills awards were in fact achieving their stated objectives.[49] It is not clear whether this evaluation was done and what the results of this evaluation were. If it has not been done, we recommend that the Department undertake this evaluative task.

B) NSFAS grants should be more comprehensive rather than less

From its inception NSFAS has strongly recommended that all eligible students should be fully funded at the institution of their choice, with “full funding” meaning as “a loan granted to a person by the NSFAS in order to enable the person to defray the costs connected with his or her education at a designated higher education institution, and those connected with the board and lodging of that person for the purposes of attending the institution[50].

The drafters of the NSFAS Act never intended the NSFAS to grant partial loans at all. In fact, the award of partial grants may be ultra vires and thus unlawful under the Act. Whatever the case may be legally, we submit that partial grants to the poorest of the poor undermine rather than support the objectives of the NSFAS system.

So ideally, the average student should receive the full average cost of study, or R74 823.. This would greatly increase the average NSFAS student’s access to not only adequate fee financing, but also accommodation, transport, textbooks and food, improving their wellbeing and their chances of academic success. An academically successful student will then be more likely to find a job and pay back his or her loan in future, thus contributing towards sustainable funding of NSFAS.

In 2015, NSFAS actually supported 173 885 university students[51] The average university student only received R40 827.

To have fully funded this number of students at the full cost of R76 257 per student in 2016 would have cost R13bn. This is not substantially more than is being made available to university students this year through NSFAS (approximately R12 billion including core funding and the funding boost to underfunded students and not including the debt relief amount).

The full funding of approximately 170 000 students in universities is thus within reach and, with better prioritization of state funds, government can provide the average full cost of study to them. However, this amount is far short of the figure required to achieve:

- the DHET’s goal of 205 000 university students supported;

- support for all 240 092 aspirant university students who qualified for assistance under NSFAS in 2015;

- support for the many as yet uncounted aspirant university students in the Missing Middle who are currently unable to access NSFAS funding as they are considered “too rich”.

We thus recommend that, from 2017/18:

- NSFAS funding be increased to cover the full average costs of study of at least 173 885 University students,

- That no university student who successfully obtains an award under NSFAS receives less than his or her full cost of study, residence costs, and adequate food and books stipend.

C) Expand the NSFAS fund over time to enable it to cover currently unfunded University students from the poorest cohort

Whether the Missing Middle is included or not under NSFAS, there are not enough loans for all deserving students. In 2014/15 289 105 aspirant university students applied to NSFAS. 240 092 qualified under NSFAS criteria (presumably including the criterion that their annual household income was less than R122 000). There were only enough funds available to support 186 105.[52] Of these, 55 287 were only partially funded.[53]

D) Partially fund the “missing middle”

The Missing Middle have until recently included all those whose family income lies between R122 000 and R400 000 a year.[54] More recently, the upper limit has been increased to R500 000 a year. [55] These students do not qualify for financial assistance from NSFAS, but their families cannot afford to pay the full costs of their studies, and the family income is too low to provide surety for a bank loan. They are often amongst the most unsupported and discontented of students. Those at the lower levels of the missing middle are often highly indebted to the University which they attend, and liable to drop out.

There is no clarity in the DHET as to how many aspirant students fall into the Missing Middle.[56] This gap in the Department’s knowledge is unacceptable, particularly bearing in mind that the issue is not new - it was discussed in the 2010 NSFAS Review - yet no attempt to gather the data appears to have been made.

We recommend that the Department establish how many aspirant students fall into the Missing Middle and in what band their household income falls. The easiest way to do this would be to open NSFAS applications to the Missing Middle.

This is not the only reason NSFAS should be opened to the Missing Middle. There appears to be general consensus that the Missing Middle should be entitled to financial assistance in respect of tuition fees. Indeed, only reason NSFAS has not been extended to the Missing Middle is because there are insufficient funds. This is not a valid reason to close the applications to the Missing Middle. Indeed, the NSFAS funds have been insufficient to cover all applicants who currently qualify, yet this does not affect the R122 000 cap. The cap is not, and rightly should not be determined by available funds – the cap should be determined by need and need alone.

We recommend that the cap on NSFAS applications be raised to the level at which realistic bank loans would be available. This figure appears to currently be R500 000 per annum family income, as proposed by NSFAS,[57] or starting in 2017 and reviewed annually. All those who do not have sufficient family income to pay fees and living expenses should have the right to apply to NSFAS.

This does not, of course, resolve the very real problem of scarcity. The department estimated that approximately 100 000 students who currently qualified for NSFAS in 2015 will not receive funding.[58] We cannot know how many additional applications will be added to the total applications received by NSFAS in 2017 if applications are opened to the Missing Middle, but it is likely to be many more. Opening the applications to the Missing Middle does not create new loans or bursaries. Indeed, it will result in more applicants competing for the same number of loans.[59]

However, with incomes between 120,000 and 500,000 it is clear that students who form part of the Missing Middle, would be capable of partially supporting themselves.

We recommend, therefore, that income bands associated with portions of awards, be introduced, and updated regularly. A similar system of bands was proposed in the unimplemented NSFAS Review.[60] A further hypothetical example of such a banded system is given below:

Annual household income

Award

R0 – R150 000

Full cost of study

R150 000 – R350 000

66% of the full cost of study

R350 000 – R500 000

33% of the full cost of study


d) Increase University subsidies to protect lower fee levels and improve quality

We have shown above that if University subsidy levels fall substantially, this undermines quality of education, decreases support to struggling students and ultimately creates a crisis in fees. Universities have no alternative, when their main source of income falls, but to seek other sources and we have shown earlier that third stream income, while it has its role in the University economy, is by its very nature unable to fulfil the gap. When subsidies fall, fees are the only remaining viable source of income for Universities to be able to cover their basic costs.

It is also the case that subsidy levels directly affect the overall quality of the University. Without this crucial, stable, and substantial source of income Universities end up cutting down on costs in vital areas such as academic and other staff salaries, libraries and infrastructure, class sizes are increased, remedial and support programmes for students are reduced and so on.

From both points of view – fees and quality – it is imperative that per head student funding be restored.

We recommend that subsidy levels, in real terms, of the year 2000 provide a minimum starting point, but in the long term, South Africa must seek to fund subsidies at the level contemplated to achieve the NDP goals for higher education.

Though not specifically referring to per head real subsidies, the University Funding Review in 2013 made it similarly clear that “Government should increase spending levels on higher education. It is evident that expenditure on higher education is too low, especially in the light of the desire to move towards a knowledge economy.” This was identified as a transformation imperative: “If participation rates of, in particular, African and coloured students need to be improved, more funding will have to be allocated to the public university system.[61] This was stated in 2013. In 2016, insufficient subsidies have caused even comparatively wealthy universities such as Wits[62] and UCT[63] to announce austerity measures.

In tough economic times, austerity measures which apply to non-essential operations are to be expected. However, it is extremely concerning that academic staff are among those to be cut.[64] This represents a cut in essential services to students and to research output, in a system where the student-to-teacher ratio is already worryingly out of balance. Such cuts undermine the quality of the education received by the students. Students will receive a lower level of support from the increasingly overstretched staff, and drop out and failure rates will go up.

It is thus clear that government’s subsidy allocation to universities in the 2016/17 financial year is not sufficient. The usual pressures of growing student numbers and diminishing subsidies were worsened by additional cost pressures in the last year:

- While government was able to negotiate a bridging plan for the R2.3 billion funding shortfalls resulting from the fee increase moratorium implemented this year, government called on wealthier universities to contribute R395 million to the plan form internal reprioritization. HDIs were not immune from the reprioritization process, however, as R361 million was reprioritized from the HDI infrastructure development grant. This means that practically, although government arranged a plan to deal with the R2.3 billion funding shortfall, universities, both poor and wealthy, were cumulatively shouldering about R756 million of that

- The costs of damages to universities arising from the #FeesMustFall protests and its offshoots have amounted to almost R460 million. According to the most recent information available, only R107 million has been claimed from insurers, and of that insurers have only been able to pay R28 million. Government has contributed R40.5 million to five HDIs, but notably not to the University of the North West, which sustained R151 million in damages alone, almost entirely in respect of its historically disadvantage campus in Mafikeng.[65]

- Decisions by universities, under pressure, to insource their support staff will also have great financial implications on universities. The system has not fully been implemented yet, but one estimate has been that UCT alone will require R58 million a year to insource workers.[66] It is thus likely that the cost of insourcing all university support staff is likely to be in the several hundreds of millions.

We are now locked into the 2016/17 budget and to a very modest nominal increase of only 6.31% to university subsidies. This is just barely above the 6.2% inflation rate.[67] This is not good news. Government is well aware that inflation in higher education is much higher than the general inflation rate and that it was insufficient subsidies that caused fee increases.[68] Between 2013 and 2015, subsidies increased at an average rate of between 7.18 and 9.13%, yet average fees increase at a rate between 7.1% and 10.51%. An increase of 6.31% is thus clearly insufficient to meet the rising costs of higher education, particularly as this year the fee increase moratorium will mean that income from fees will not increase at all.

Financial year[69]

12/13

13/14

14/15

15/16

16/17

17/18

18/19

Spending on university subsidies (Rbn)[70]

20.9

22.4

24.1

26.3

27.96

31.61

33.5

Change year on year in funding

-

7.18%

7.59%

9.13%

6.31%

13.05%

5.98%

Ave fee increase[71]

-

11.9%

7.1%

10.51%

Frozen

unknown

unknown


A relatively large increase is planned for the 2017/18 financial year at 13.05%. It is unclear why this is the case, and there may be special reasons for it unrelated to the arguments put forward here. This interpretation is made all the more likely in the light of the fact that subsidy increase will shrink to 5.98% in the 2018/19 financial year – below the increase for this year.

We suggest strongly that a more appropriate, and much higher, increase in subsidies be embedded in future budgets.

We thus recommend that:

- Subsidies be urgently, immediately and sustainably increased;

- Subsidies should be in the short term increased to 2000 levels per student head in real terms

- Subsidies should be increased in the long term to meet the financial requirements to meet the NDP goals;

- Enrollment targets should be frozen at current levels to allow the system to stabilize while subsidies grow. In other words, growing subsidies should not be neutralized by equally rapidly growing student numbers.

Conclusion: The funding implications

The three Scenarios are illustrative and not definitive. However, setting them out in this manner does assist us in making broad assessments of the possible ways in which the University system could be stabilized and greater support given to students, as well as what the obstacles and difficulties might be in taking different routes.

The first Scenario illustrates the minimalist “fee free” approach. It entails the simple abolition of fees for all those currently in the system. If all other elements of the system remain constant, it becomes clear that this is not a particularly desirable option. It will cost the taxpayer an additional R14bn, funds which will go straight back into the pockets of better off students or their sponsors, while the levels of NSFAS funding already given to poor students will remain stagnant. The option cannot but increase rather than reduce inequality.

The second Scenario illustrates the maximalist “full cost” approach. It represents the most generous possible approach to University education and would meet the demands of students for fee-free education, raise and extend NSFAS support, protect the sector against financial instability such as we have seen recently; prevent undue fee increases, and extend residence accommodation. But this would be at a cost, simply for University education, of R100bn p.a. at the very least, a 250% increase over the existing budget. And that does not include essential increases in research funding and other infrastructure investments, staff salaries and many other items.

The third Scenario illustrates an approach which emphasises quality, sustainability, differentiation and depth. Its main proposals – extend NSFAS to greater numbers of students in different categories; offer a differentiated system of NSFAS loans depending on family income; raise the levels of funding it offers; slow University expansion; move towards an emphasis on quality rather than quantity of students; and increase subsidies modestly – will expand the numbers of students to receive NSFAS funding, and ensure that those who do receive funding will be properly funded; it will not grant taxpayers’ funds to those who do not need that support; and it will help to stabilize the University economy and start moving it away from the unhealthy dependence on high fee levels. We recommend that the Commission consider this Scenario as illustrative of a comprehensive, enlightened and sustainable solution, without the exorbitant costs entailed in the “full cost” solution. 

 

Illustrative possible costs emerging from each Scenario (Universities only)

Item

Current

Scenario 1: Simple, universal “fee free” for those currently in the system

 Scenario 2: Full cost quality, fee free

Scenario 3: Sustainable, in depth coverage for the poor

No of students supported from all three brackets [72]

Costs:

173 885

173 885

350 000

330 000

R9.63bn (partial costs)

R9.63bn (partial costs)

R26.63bn[73] 

R16.28bn[74] (varied costs depending on bracket)

Subsidy to fund those who can already afford fees

R0

R14bn

R14bn

0

University Subsidy 

R27.96bn

R27.96bn

R48.96bn[75] 

R42bn

Additional special Infrastructure grant - residences

0

0

R9.5bn

0

Total Costs

R37.59bn

R51.59

R99.09

R58.28bn


Scenario 3 represents the path we recommend. Illustrative figures above indicate that it would cost more than the minimalist “fee-free” Scenario, but would provide full or partial NSFAS support for 330,000 students, as well as improving quality of education and research at universities but at a lower cost than the maximalist “full cost” Scenario. The taxpayer will not need to pay R14bn towards fees which could already be paid by better-off students. It will include a boost to subsidies so that their contribution to the University enterprise provides protection against the imbalance which we have seen arising in the past 20 years. Further such increases will assist in future in protecting students and indeed the NSFAS fund, which has in the past become depleted as fees go up dramatically.

Scenario 3 would of course have to be properly realised and costed, and naturally could only be implemented incrementally. However, with a more efficient NSFAS system, more successful loan recovery, and better prioritization from National Treasury, this could gradually be achieved. Once this level is achieved, government can then look to achieve the funding required for option B in the more distant future. 

In the longer term we recommend that the following principles be adopted in forward planning:

- Student numbers should not continue to grow at current rates for the short to medium term, stabilizing around the 1,000,000 mark; most higher education growth should take place in the TVET colleges or private universities for now. Once adequate funding for current needs is met, continued growth towards the 1,250,000 NDP enrollment goal can continue.

- Assuming they are protected by a proper annual increase in subsidies, tuition and residence fees at current prices should grow at no more than the inflation rate plus, at most, half the economic growth rate This will ensure that the burden of fees will not rise in relation to average household incomes.

- Universities should be financially assisted in developing and maintaining fund-raising offices so that third-stream income can grow at a rate above inflation.

- The state subsidy should grow at an annual rate which matches that of “university inflation” as proposed by the CHE and Universities South Africa.

Perhaps the most important recommendation we can make, without which none of the Scenarios above would even be remotely possible, is for the National Treasury to be persuaded that a greater proportion of GDP must be allocated to Universities and students.

Footnotes


[1] Defined as: “Total enrolment in tertiary education (ISCED 5 to 8), regardless of age, expressed as a percentage of the total population of the five-year age group following on from secondary school leaving”; Gross enrolment ratio, tertiary, both sexes (%) World Bank (accessed at <http://data.worldbank.org/indicator/SE.TER.ENRR> on 3 July 2016).

[2] For an overview of these figures see B Bozzoli Behinds the University Funding Crisis October 2015 (accessed at <here> on 3 July 2015).

[3] The World Bank (2010) Financing of Higher Education in Africa, page 22.

[4] Universities Funding Report, page 143.

[5] Universities Funding Report, page 153.

[6] Universities Funding Report, page 160.

[7] See discussion at page 9 below.

[8] See “Did you know?” box on the Department’s Media Room page (accessed at: <here> on 24 June 2016).

[9] Universities Funding Report, page 157.

[10] C Simkins et al “Funding: From South African higher education reviewed: Two Decades of Democracy” in Kagisano no 10 Student Funding March 2016, pages 39 – 114; at page 58. The data was tabulated by Simkins et al, using data sourced from the CHE.

[11] Id.

[12] Universities Funding Report, page 6. 

[13] Simkins et al, page 57.

[14] Universities Funding Report, page 8.

[15] Reply to Parliamentary written question number 343 of 2016.

[16] Id.

[17] Business Day Universities hinder students from accessing funds says NSFAS 13 April 2016 (accessed at: <here > on 24 June 2016).

[18] Table derived from B Bozzoli, ibid; and PWC Funding of public higher education institutions in South Africa (accessed at <here > on 21 June 2016).

[19] Reply to Parliamentary written question 535 of 2015.

[20] We have used student numbers here to make the point rather than Full Time Equivalent students, as many of the basic costs of hosting a student – residences, libraries, space, transport etc - do not vary significantly depending on how many courses they are taking

[21] PWC Funding of public higher education institutions in South Africa (accessed here on 21 June 2016).

[22] HE Budget, page 24.

[23] HE Budget, page 25.

[24] NSFAS Annual Report, 2014/15, page 12.

[25] NSFAS Review, page 53.

[26] NSFAS Review, page 25.

[27] HET Budget, pages 27 – 28.

[28] NSFAS Annual Report 2014/15, page 8.

[29] Reply to Parliamentary written question 216 of 2015.

[30] Id.

[31] M Phillips “The High Price of a Free College Education” The Atlantic, 31 May 2013 (accessed at <here > on 30 June 2016).

[32] 2016 Budget Review, page 5.

[33] PWC Funding of public higher education institutions in South Africa (accessed here on 21 June 2016).

[34] NSFAS Annual Report 2014/15, page 9.

[35] LH Blackburn “Who pays for free higher education? The case of Scotland” Economics of He, 9 December 2013 (accessed at https://economicsofhe.org/2013/12/09/who-pays-for-free-higher-education-the-case-of-scotland/#more-199 on 30 June 2016).

[36] Section 29(1) of the Constitution.

[37] Section 29(1)(a) of the Constitution; Ex parte Gauteng Provincial Legislature: In re Dispute Concerning the Constitutionality of Certain Provisions of the Gauteng School Education Bill of 1995 1996 (3) SA 165 (CC) at para 9.

[38] Section 29(1)(b) of the Constitution; Governing Body of the Juma Musjid Primary school & others v Essay N.O. and others 2011 (8) BCLR 761 (CC) at para 37; see also Government of the Republic of South Africa and Others v Grootboom and Others 2000 (11) BCLR 1169 for the Constitutional Court’s discussion on the progressive realization of rights.

[39] GDP per capita (current US$) World Bank (accessed at <http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=DE-ZA> on 4 July 2016t).

[40] Reply to Parliamentary written question 4180 of 2015.

[41] Reply to Parliamentary written question 311 of 2015.

[42] NSFAS Annual Report 2014/15, page 13.

[43] Business Day Universities hinder students from accessing funds says NSFAS 13 April 2016 (accessed at: <here > on 24 June 2016).

[44] Reply to written question 216 of 2015.

[45] Report on the Ministerial Committee for the Review of the Provision of Student Housing at South African Universities (September 2011) (here - PDF).

[46] Reply to Parliamentary oral question 527.

[47] Simkins et al at page 106..

[48] Written reply to Parliamentary question 4180 of 2015.

[49] NSFAS Review, page 29.

[50] Ref to NSFAS act

[51] These are unaudited figures taken from reply to written question 831 of 2016.

[52] Reply to Parliamentary written question 4180 of 2015.

[53] Reply to Parliamentary written question 128 of 2016.

[54] NSFAS annual report 2014/15 [REF].

[55] Business Day Universities hinder students from accessing funds says NSFAS 13 April 2016 (accessed at: <here> on 24 June 2016).

[56] Reply to Parliamentary written question 515 of 2016.

[57] Business Day Universities hinder students from accessing funds says NSFAS 13 April 2016 (accessed at: <here > on 24 June 2016).

[58] Reply to Parliamentary oral question 74 of 2016.

[59] This is assuming the number of loans stay the same. As I have discussed above, additional loans should not be created until all loans currently offered cover the full costs of a student’s studies. As this is not even currently the case, it is unlikely that new loans will become available until significantly more funding is added to NSFAS.

[60] NSFAS Review, page 105 onwards.

[61] Universities Funding Report, page 153.

[62] Student Funding Explained Wits University, 21 October 2015 (accessed at <here > on 16 June 2016).

[63] VC Desk: Austerity Measures at UCT Max Price, 14 March 2016 (accessed at <http://www.uct.ac.za/dailynews/?id=9627> on 16 June 2016).

[64] N Mtembu “UCT staff face layoffs” Cape Argus 21 May 2016 (accessed at <http://www.iol.co.za/weekend-argus/uct-staff-face-layoffs-2024403> on 24 June 2016).

[65] Reply to Parliamentary written question 1578 of 2016.

[66] B Stanwix “What are the financial implications of insourcing at UCT” GroundUp (accessed at <here/> on 24 June 2016).

[67] Consumer Price Index report, StatsSA, 18 May 2016.(accessed at <http://www.statssa.gov.za/publications/P0141/P0141April2016.pdf> on 24 June 2016).

[68] Reply to Parliamentary oral question 535 of 2015.

[69] 2016 Budget Review, page 66.

[70] Estimates of National Expenditure: Higher Education, page 5 (here).

[71] Reply to Parliamentary oral question 582 of 2015.

[72]It is impossible to estimate how many students will apply for and qualify for NSFAS once it is opened up the Missing Middle. However, based on an investment of R15.15 billion in NSFAS for university students, we estimate that, in a bracketed approach to NSFAS grants, 230 000 students from the lower bracket could be supported, 50 000 students from the middle bracket be supported and 50 000 from the upper bracket be supported (see fn 3 below).

[73] Taken from current funding of R9.63 billion in addition to the R17 billion estimated by government required to fully fund NSFAS.

[74] With 150 000 students in the lower bracket receiving R76 000, 65 000 students in the middle bracket receiving R45 000, and 65 000 in the upper bracket receiving R30 000.