All undergraduate and postgraduate student fees should be funded through a model in which commercial banks would issue government-guaranteed loans to students that are payable upon their graduation.
This funding model – referred to as the “income contingent loan system” or ICL – is part of the findings of a long-overdue report by the commission of inquiry into free higher education and training headed by retired judge Jonathan Heher, who was assisted by advocate Gregory Ally and Leah Thabisile Khumalo.
The inquiry examined the feasibility of making higher education and training fees free in SA after widespread protests at universities across SA that initially began in 2015.
Students, academics and industry players have called for free tertiary education that would be funded through the diversion of public resources from other government sectors and the introduction of additional tax, especially on top income earners. However, the Heher Commission has called for a financial aid system that is “more efficient, more sustainable, more user-friendly, and more equitable.”
The 752-page report, released by President Jacob Zuma on Monday, found that the ICL system would be for students attending private and public universities and colleges, regardless of their background.
Should students fail to reach the required income threshold after graduating in order to repay the loan, then government bares the secondary liability of the loan.
“The commission recommends that commercial banks issue government guaranteed loans to the students that are payable by the student upon graduation and attainment of a specific income threshold,” the report said.
The Davis Tax Committee, headed by Judge Denis Davis, has proposed a similar model. The committee, which released reports on various aspects of tax administration on Monday, proposed a system of government-backed student loans to decrease or eliminate financial exclusion from higher education. This would see government collaborate with financial institutions to administer loans to students.
Unlike conventional loans, which could fuel a debt trap among millions of students, a repayment method proportional to future earnings guarantees (the ICL system) is widely viewed as fair given that some students will end up paying more than they have loaned, thus subsidising those whose jobs are not remunerated well enough. This model is already adopted in Australia, New Zealand and England.
The collection and recovery of the government-guaranteed loans will be undertaken by the South African Revenue Service.
“The state can guarantee the loan or, better still, purchase the loan, so that the student becomes a debtor in its books… No student is obliged to repay a loan unless and until his or her income reaches a specified level. If the loan is not repaid within a specified number of years, the balance can be written off.”
If the government opposes the commission’s ICL system, it should then consider the model of Ikusasa Student Financial Aid Programme, a funding model launched in 2017 with a selection of universities. ISFAP adopts a hybrid model involving public grants, bank loans, and donations to provide support financial support to students, particularly the so-called “missing middle”, who cannot afford the costs of tertiary education and don’t qualify for loans. ISFAP has attracted financial support from private institutions, which have donated over R138 million.
The Herher Commission has recommended that the National Student Financial Aid Scheme (Nsfas), which currently funds university students, be replaced by the ICL system. Instead, Nsfas would be retained for the provision of funding at institutions including Technical Vocational Education and Training, known as TVET colleges, as this sector is facing severe financial pressure, which “impacts on the quality and innovation of the sector, and on the student experience.”
The commission also recommends that government increase its expenditure on higher education and training to at least 1% of GDP (in line with comparable economies), consider the introduction of a university fee capping mechanism, application and registration fees to be scrapped across the board, and that government adopt an affordable plan to develop more student accommodation.
The findings contradict Zuma’s unconfirmed and populist plan of pushing a free-higher education policy for students coming from families earning a combined annual income of not more than R350 000. To implement this, the Mail & Guardian has suggested that Zuma is considering a range of budget cuts that could include slashing social grants and curtailing the roll out of social housing for the most vulnerable citizens. The Presidency has denied this.
Zuma’s free education policy would cost R40 billion to an already constrained fiscus and put the National Treasury’s budgeting process under significant strain. If Zuma pushes his policy, it would undermine the Treasury’s role in keeping a lid on government spending, wasteful expenditure and finding sustainable ways to grow the economy.
Zuma has been sitting on the Heher report since receiving it on August 30 and has defied calls to release it from university institutions, opposition parties, and even the axed Minister of Higher Education Blade Nzimande. The delays in releasing the report have frustrated students and management of university institutions. At the time, Zuma said he was studying the report’s contents and consulting the relevant ministers, excluding Nzimande, who was fired by Zuma in his cabinet reshuffle in October.
On Monday, Zuma said he had decided to release the Herher Commission report prior to the conclusion of government’s work in processing it so that the public could have an opportunity to study the report. He said the inter-ministerial committee, led by Minister in the Presidency Jeff Radebe, and the presidential fiscal committee, led by Minister of Finance Malusi Gigaba, were still processing the report.
“I will make a pronouncement on the report once the ministers have concluded their work,” said Zuma.