Commission of Inquiry Into Higher Education Report

REPORT OF THE COMMISSION OF ENQUIRY INTO HIGHER EDUCATION
AND TRAINING TO THE PRESIDENT OF THE REPUBLIC OF SOUTH

AFRICA
1 Introduction ....................................................................................................... 9
1.1 The start of the #Feesmustfall protest: the demands and the outcome
............................................................................................................ 9
1.2 The students demands .................................................................... 16
1.3 The consequences of the protest and determined increases ........... 20
2 The Mandate of the Commission .................................................................. 26
3 Higher Education and Training: Purpose, Policy and Historical

Development and Funding............................................................................. 32
3.1 The purpose of higher education ...................................................... 32

3.2 Higher education policy .................................................................... 34
3.3 The National Development Plan (NDP) ............................................ 36
3.4 The White Paper for Post-School Education and Training (PSET)
(2013) ............................................................................................... 38
3.5 Early policy decisions on university funding ..................................... 39
3.6 Public or private benefit .................................................................... 42
3.7 Defining higher education and training for the purposes of the
Commission ...................................................................................... 57
3.8 Post-school education and training (PSET): developing and
maintaining the sector ...................................................................... 64
3.9 The PSET system ............................................................................. 66
3.10 The PSET sector .............................................................................. 67
3.11 The college sector ............................................................................ 67
3.12 TVET funding needs ......................................................................... 71
3.13 The university sector ........................................................................ 78
3.14 University funding ............................................................................. 79
3.15 Private higher education and training ............................................. 100
3.16 Conclusion ...................................................................................... 104
4 Fee-free in the Context of Higher Education and Training ..................... 105
5 Feasible ....................................................................................................... 107
6 Legal Considerations, including the Constitution..................................... 107
6.1 The constitutional obligation in relation to higher education and

training ............................................................................................ 107
1
6.2 The Constitution of the Republic of South Africa, Act 108 of 1996 . 110
6.3 Expression of the Constitution in government and ANC policy ...... 116
6.4 ANC policy decisions, 2007 to 2012 ............................................... 119
6.5 Fee-free Working Group ................................................................. 122
7 International Obligations ............................................................................. 125
8 Steps taken to Realise the Right to Accessible / Free Higher Education 134
9 Testimony on free education ....................................................................... 137
9.1 An overview of the testimony on free education ............................. 138

9.2 Government and statutory bodies testimonies .............................. 140
9.3 Students and student organisations ............................................... 148
9.4 Higher education institutions .......................................................... 164
9.4.1 Universities ....................................................................... 164
9.4.2 TVETS .............................................................................. 186
9.4.3 Private providers ............................................................... 190
9.4.4 Civil society groups, research bodies and individuals ...... 193
10 The Cost of Education: The Research Report on the Costing and

Financing of the White Paper on Post-School Education and Training:
September 2016 ............................................................................................ 206
11 National Student Financial Aid Scheme (NSFAS) ..................................... 210
11.1 NSFAS legislative and regulatory framework ................................. 210

11.2 Rules .............................................................................................. 213
11.3 Rules applicable to unversities ....................................................... 213
11.4 Means test to assess financial eligibility ......................................... 215
11.5 Implications of the NSFAS cap ....................................................... 217
11.6 Topslicing ....................................................................................... 217
11.7 Shortcomings of NSFAS ................................................................. 219
11.8 The NSFAS Student Centred Model .............................................. 220
11.9 Rules for NSFAS funding to TVET Students .................................. 225
11.10 Rules regulating other NSFAS sources of funding ......................... 226
11.11 Views regarding the NSFAS system .............................................. 227
11.12 Testimony by NSFAS ..................................................................... 232
11.13 Testimony to the Commission on NSFAS ...................................... 235
11.14 Governance and administration of NSFAS ..................................... 236
11.15 University financial aid offices ........................................................ 237
11.16 Means testing ................................................................................. 238
11.17 Insufficient funding .......................................................................... 239
2
11.18 Student success ............................................................................. 241
11.19 Collection of loans .......................................................................... 242
11.20 Loans and black tax ........................................................................ 244
11.21 Conclusion ...................................................................................... 245
12 Prioritisation of Higher Education and Training ........................................ 246
13 The Balancing Process ................................................................................ 248
14 The Historical National Budget and Future Financial Outlook................. 248
15 Government Funding on Higher Education and Training as a Percentage

of GDP............................................................................................................ 259
16 State Subsidy in Line with Consumer Price Index (CPI) v the Higher
Education Price Index (HEPI) ...................................................................... 262
17 Enrolments Outpace the Subsidy ............................................................... 263
18 The Appropriateness of Using GDP as a Measure to Assess the Level of

Government Funding ................................................................................... 263
19 Government Spending on Higher Education and Training as a Percentage

of State Budget ............................................................................................. 265
20 Improvements in the Budget ....................................................................... 268
21 Funding of Institutions in the Post School Education and Training Sector

(PSET) ............................................................................................................ 271
21.1 Introduction ..................................................................................... 271

21.2 Regulatory framework .................................................................... 272
21.3 The Ministerial Committee for the Review of the Funding of
Universities ..................................................................................... 275
21.4 Income sources of public higher education institutions .................. 279
21.5 First stream ..................................................................................... 279
21.6 Second stream ............................................................................... 285
21.7 Considerations when setting fees. .................................................. 286
21.8 Third stream ................................................................................... 290
21.9 Availability of third stream funding across all institutions ................ 291
22 Funding Framework for Government ......................................................... 292
22.1 Analysis .......................................................................................... 292

22.2 Critique of the funding formula ....................................................... 294
22.3 Steering mechanisms ..................................................................... 295
22.4 Processes underway ...................................................................... 296
3
23 Student Housing ........................................................................................... 299
23.1 Introduction ..................................................................................... 299

23.2 Overview of student accommodation in the PSET sector .............. 299
23.2.1 Universities ....................................................................... 299
23.2.2 TVETs ............................................................................... 303
23.2.3 Findings of the Committee ................................................ 304
23.3 Experiences of students ................................................................. 308
24 Outsourcing .................................................................................................. 314
25 Libraries......................................................................................................... 319
26 TVET Colleges............................................................................................... 323
26.1 Regulatory framework .................................................................... 323

26.2 Funding model ................................................................................ 325
26.3 Ministerial Committee on the Review of the Funding Frameworks of
TVET Colleges and CET Colleges ................................................. 327
26.4 Challenges in the TVET sector ....................................................... 329
27 Decrease in Subsidies and Increase in NSFAS Allocation ....................... 335
27.1 The factual position ........................................................................ 336

27.1.1 The declining state subsidy to universities ....................... 336
27.1.2 The block grant ................................................................. 337
27.1.3 Eroding factors.................................................................. 337
27.1.4 The disparity between the subsidy (less NSFAS) and student
growth ............................................................................... 339
27.1.5 The effect of the declining subsidy ................................... 342
27.1.6 Are subsidies regressive?................................................. 343
28 Rationale for the Increase in the NSFAS Allocation.................................. 344
29 Student Success ........................................................................................... 350
29.1 Introduction ..................................................................................... 350

29.2 The NDP ......................................................................................... 350
29.3 The 2012 Green Paper ................................................................... 351
29.4 The Medium Term Strategic Framework (MTSF) ........................... 351
30 The Working Group on the Feasibility of Providing Fee Free Higher

Education to the Poor .................................................................................. 353
30.1 The 2013 White Paper .................................................................... 353

30.2 Student support .............................................................................. 354
30.3 The University Capacity Development Programme (UCDP) .......... 355
4
30.4 Other interventions ......................................................................... 358
31 Alternatives to Address Accessibility ........................................................ 359
31.1 Introduction ..................................................................................... 359

31.2 Definition of open learning .............................................................. 360
31.3 International trends ......................................................................... 362
31.3.1 Expanded access through open learning ........................ 363
31.3.2 Developments in information and communication
technologies...................................................................... 364
31.3.3 Learning content management systems ........................... 364
31.3.4 Use of open educational resources .................................. 364
31.3.5 Blended learning ............................................................... 365
31.3.6 Massive Open Online Courses ......................................... 365
31.3.7 New Types of open Institutions......................................... 365
31.3.8 Cross-institutional collaboration ........................................ 366
31.3.9 Emphasis on active learning approaches ......................... 366
31.3.10 Digital badges ................................................................... 366
31.3.11 Popularity of non-formal and informal learning ................. 367
31.3.12 Mobile technologies .......................................................... 367
31.4 Legislative Framework .................................................................... 367
31.5 Implementation ............................................................................... 373
32 Funding of Open Learning ........................................................................... 375
32.1 Submissions to the Commission .................................................... 377

32.2 Student funding .............................................................................. 382
32.2.1 The historical position ....................................................... 382
32.2.2 Tuition fees as a percentage of university income............ 384
32.2.3 Different increases in student funding across institutions . 385
32.2.4 Further sources of student funding ................................... 387
32.2.5 National Research Foundation (NRF) .............................. 392
32.2.6 Sources of NRF funds ...................................................... 394
32.2.7 Inherent limitations to NRF funds ..................................... 395
32.2.8 Eduloan/FUNDI................................................................. 397
32.2.9 Loans ................................................................................ 398
32.2.10 FUNDI bursaries ............................................................... 400
32.2.11 Other commercial student loans ....................................... 400
32.2.12 BASA bursaries ................................................................ 402
32.2.13 BASA loans....................................................................... 403
32.3 Historic Debt ................................................................................... 406
32.4 Funding models .............................................................................. 407
32.5 Alternative Sources of Funding ...................................................... 408
32.5.1 Public Investment Corporation.......................................... 409
32.5.2 Funds held by the PIC ...................................................... 410
32.5.3 PIC funding sources ......................................................... 411
32.5.4 PIC investment in student accommodation ...................... 415
32.5.5 PIC contribution to loan financing ..................................... 416
5
32.6 Government Employees Pension Fund .......................................... 417
32.6.1 Limitations on the use of unclaimed funds........................ 419
32.6.2 Funds under management................................................ 421
32.7 Unemployment Insurance Fund ..................................................... 422
32.7.1 UIFs financial position ...................................................... 424
32.7.2 UIFs investment portfolio ................................................. 425
32.7.3 UIFs investment in education........................................... 427
32.7.4 Constraints to using UIF funds ......................................... 427
32.8 The Skills Development Levy ......................................................... 431
32.8.1 Financial position .............................................................. 434
32.9 The National Skills Fund ................................................................. 435
32.9.1 Funding of the No Fee Increase ....................................... 436
32.10 Increased taxation .......................................................................... 438
32.10.1 Proposed increase in direct taxes..................................... 439
32.10.2 Increasing indirect tax ....................................................... 441
32.11 Social impact bonds ....................................................................... 442
32.12 BBBEE ............................................................................................ 443
32.13 Thuto ke Lesedi .............................................................................. 444
32.14 Corruption and other inefficiencies ................................................. 447
33 Fee Regulation .............................................................................................. 448
33.1 Introduction ..................................................................................... 448

33.2 What is fee regulation? ................................................................... 449
33.3.1 Ministers request for advice ............................................. 450
33.3.2 The work of the Council on Higher Education .................. 451
33.3.3 The CHEs advice ............................................................. 452
33.4 Implications for Institutional Autonomy ........................................... 459
34 Student Funding Systems ........................................................................... 464
34.1 Online university ............................................................................. 464

34.2 Principles, priorities and challenges ............................................... 466
34.3 Differential fee ................................................................................ 471
34.4 ISFAP proposal (Ikusasa Student Financial Aid Programme) ........ 479
34.4.1 The means test ................................................................. 481
34.4.2 The mix of loans and grants (gap year) ............................ 483
34.4.3 The inclusion of private sector money .............................. 484
34.4.4 CSI money ........................................................................ 485
34.4.5 Social impact bonds.......................................................... 486
34.4.6 BBBEE .............................................................................. 486
6
34.4.7 The full costing of the ISFAP model and the assumptions /
modelling undertaken ....................................................... 486
34.5 Fee-free for all ................................................................................ 494
34.6 Graduate tax ................................................................................... 502
34.7 Income-contingent loans ................................................................ 508
35 The ICL Scheme Proposed by Professor Fioramonti................................ 512
35.1 Conclusion ...................................................................................... 525
36 Selection of a Model That Best Answers the Test of Feasibility .............. 526
36.1 Introduction ..................................................................................... 526

36.2 The cost of providing ICL funding to university and college students
........................................................................................................ 536
37 Recommendations........................................................................................ 540
37.1 Funding the sector .......................................................................... 540

37.2 Quality ............................................................................................ 543
37.3 Size and shape ............................................................................... 544
37.4 Student accommodation ................................................................. 546
37.5 Online and blended learning as a form of cost reduction in education
........................................................................................................ 547
37.6 Funding for CET students ............................................................... 548
37.7 Costing the proposals for funding university and TVET students ... 548
37.8 Funding for TVET students ............................................................. 549
37.9 Funding for university students ....................................................... 551
37.10 Postgraduate students .................................................................... 555
37.11 Historic debt .................................................................................... 556
37.12 NSFAS ............................................................................................ 557
37.13 Funding for the TVET sector .......................................................... 558
37.14 Funding for the university sector .................................................... 559
37.15 Other sources of funding for the PSET sector as a whole .............. 559
37.16 ISFAP as an alternative .................................................................. 561
Annexure A : Reconciling Efficiency, Access, Fairness and Equality: The case for
income-contingent student loans with universal eligibility...................... 562
Annexure B : Governance innovation for funding tertiary education in South

Africa: The case for a public private partnership in the management of
income contingent loans ............................................................................. 593
Annexure C : Unemployment Insurance Fund: Assessment of the Financial

Impact of the Amendment Bill of 2015........................................................ 611
7
Annexure D : Brief from the Commission to the Actuarial Society of South Africa
and Report titled Cost of Different Scenarios for the Funding of Higher
Education and Training ............................................................................... 691
Annexure E : Letter from the Banking Association of South Africa to the

Commission dated 26 May 2017.................................................................. 747
8
1 INTRODUCTION1
1.1 THE START OF THE #FEESMUSTFALL PROTEST: THE DEMANDS
AND THE OUTCOME
1. In 2015, the South African higher education sector was shaken by
protests across the country. What distinguished the 2015 protests from
those experienced periodically over the decade before, was that the hub
of these protests was at the historically-white universities. The majority
of the protests experienced since 2000 were focused at the historically-
black universities, where issues including fees, access to the National
Student Financial Aid Scheme (NSFAS), student accommodation needs
and other related issues were the cause of frequent, but uncoordinated
protest.
2. In 2015, protests began on 9 March at the University of Cape Town. The
main concern of these protests was a lack of institutional transformation,
and the focal point was the prominent statue of Cecil John Rhodes on
campus. The #Rhodesmustfall movement achieved its short-term aim of
having the statue removed, but deeper tension remained. 2 At the
University of Stellenbosch, a similar movement, called Open
Stellenbosch, emerged to counter the lack of transformation at that
institution, and one of their focal points was the language issue. The
1
There are many accounts of the student protests of 2015-16. In this chapter we provide one
version with no pretensions to meticulous accuracy.
2
https://www.theguardian.com/uk-news/2016/mar/16/the-real-meaning-of-rhodes-must-fall.
9
movement consisted predominantly of black students and academics
who resisted the slow rate of transformation.3
3. In his testimony to the Commission, the Minister of Higher Education and
Training, Dr. Blade Nzimande, explained that tensions on university
campuses continued during 2015, even after these initial protests
subsided.4 There was renewed concern regarding university fees, and in
September 2015 Universities South Africa (USAf), the forum for
university Vice-Chancellors, and the University Council Chairs Forum
(UCCF) wrote a letter to President Zuma requesting a meeting to discuss
the crisis at universities. Minister Nzimande explained that:
USAf and UCCF were particularly concerned about potential violence on

campuses at the start of the 2016 academic year, and the large number
of NSFAS qualifying students who were un- or underfunded due to the
NSFAS shortfall, and who would be financially excluded in the new year
unless a solution was found. The Minister was alerted to the letter by the
Presidency. It was only after contacting the Chair of USAf that USAf
formally informed the Minister of the request.
The meeting was held on 6 October 2015 between his Excellency

President Jacob Zuma; Minister of Higher Education and Training, Dr.
Blade Nzimande MP; various Ministers and Deputy Ministers; and
representatives from Universities South Africa (USAf) and University
Council Chairs Forum (UCCF). The meeting discussed key issues facing
universities, including student financial aid, the politicisation of university
campuses and transformation of higher education, brought into sharp
3
https://www.dailymaverick.co.za/article/2015-04-28-op-ed-open-stellenbosch-tackling-
language-and-exclusion-at-stellenbosch-university/#.WRLj4E2wfIU.
4
Minister of Higher Education and Trainings Input for Presidential Commission, 13 October
2016.
10
focus by various new student movements, e.g. Rhodes must fall, Open
Stellenbosch.
4. Emanating from this meeting, a Presidential Task Team was established
to look at measures to mitigate possible student protests and unrest at
the start of the 2016 academic year. This meeting took place a week
before the second higher education summit on transformation was due
to commence on 15 October 2015.
5. On the same day (6 October), protest action was initiated at the
University of the Witwatersrand under the banner Wits Fees Must Fall.
The number of students who gathered at the gates to the University in
the early hours of the morning was small, but later as they marched
across the campus other sympathetic students and academics joined
their ranks. At the height, about 5 000 joined the protest. Shaeera Kalla
(2015 Wits SRC President) explained that they were upset after losing
the vote on student fees at the Wits council meeting, and rejected the
reasons provided for the agreed increase. However, the protests only
gained momentum a week later.5
6. In his testimony, the Minister explained further that,
At the summit, it became clear that the climate was ripe for protest when
the University of the Witwatersrand (Wits) announced a fee increase of
10.5%, coinciding with the first day of the Summit. The #FeesMustFall
campaign took the country by storm, spreading first to other more
5
Malcom Ray, Free Fall. Why South African universities are in a race against time (Bookstrom:
2016), pp.362-4.
11
privileged institutions (University of Cape Town, Stellenbosch University,
Rhodes University) and then on to other institutions across the country.
Following the protests over the fee increases announced at Wits, the
Minister attempted to broker a solution between universities (represented
by the executive committees of Universities South Africa (USAf) and the
University Chairs of Council Forum (UCCF), students (represented by the
South African Union of Students (SAUS)), and Staff Unions. At the
meeting, it was agreed that fees should increase by no more than 6%;
this was seen as a reasonable compromise and stakeholders were
requested to go back and negotiate at the institutional level to find a
solution within that framework.
Students immediately rejected this proposal, protests escalated across

the system, and students renewed their demand that #Feesmustfall and
that there should be a 0% increment across all universities.6
7. On Wednesday 21 October 2015, protests reached a new height as
students and workers joined together in protest at Parliament in Cape
Town, with protests bringing together demands for free education and the
insourcing of workers. Parliament that day was scheduled to hear the
Finance Minister, Nhlanhla Nene, deliver his medium-term budget
speech. Students were demanding that more money be allocated to
higher education. Police, armed with stun grenades and tear gas,
gathered to try and block students from accessing the area. Students and
workers managed to reach the Parliament precinct, with calls for Fees
must fall and End outsourcing. Students demanded that Nzimande
address them. The Economic Freedom Front (EFF) delayed Nenes
speech inside Parliament, demanding that the issue of fee increases
6
2016.
12
should be debated. Students managed to enter Parliaments grounds and
police responded with stun grenades and tear gas. After Nenes speech,
Nzimande tried to address the angry crowd, but was faced with calls for
his resignation. The protest resulted in the arrest of 23 protestors and
injury to others. This only led to further protests at campuses across the
country.7
8. Minister Nzimande explained to the Commission that,
On 23 October 2015, the President called a meeting of all student and

university leaders, as well as some members of his Cabinet and senior
government officials to discuss the situation, try to find some common
ground and enable academic programmes and university examinations
to go ahead. At the meeting, SRCs and student formations were
represented as well as university Vice-Chancellors and Chairs of Council.
Preceding the meeting, the Vice-Chancellors and Chairs of Council met

to caucus on their position. Government did not meet prior to the meeting
to caucus. At the meeting, the President provided ample time for all
students to speak. They had varying positions from a 0% increment, to
no fees at all; ending outsourcing; decolonising the curriculum and so on.
Following the students input, the President requested that university
leaders respond. The Chair of USAf (Professor Adam Habib) stood up,
informed the meeting that UCCF and USAf had caucused before the
meeting, and had a proposal to put on the table for discussion. He then
proposed specifically:
- There should be an agreement on a 0% fee increment for the 2016

academic year, which would give time for longer term issues to be dealt;
7
Ray, Free Fall, pp. 368-71; http://ewn.co.za/2015/10/23/Countdown-to-Union-Buildings-march.
13
- That the President should consider setting up a Presidential
Commission to look into the whole issue of effectively funding higher
education.
Students agreed to the terms. The President then gave the Minister of
Higher Education and Training, and the Minister of Science and
Technology an opportunity to comment. Minister Nzimande accepted the
decision. Minister Pandor raised a major concern over how this would be
funded. The Deputy Chair of USAf (Professor Derek Swartz) indicated
that in line with previous discussions with the Minister of Higher
Education and Training, universities who had good balance sheets would
assist with raising the funds required, and that government would not be
expected to cover all the costs themselves.8
9. On the same day, two days after the protests in Parliament and one day
after protests at Luthuli House, thousands of students marched on the
Union Buildings. Students came from across Gauteng, and were joined
by school learners. Students expected that the President would make an
announcement to them on the outcomes of the meeting. This did not
happen. Certain students were incensed at the Presidents silence and
tried to push through the barricades. Police responded with tear gas and
rubber bullets. Fires were started and a battle between police and
students ensued, with a police van being overturned and students being
forced out of the grounds of the Union Buildings.9
8
2016.
9
http://ewn.co.za/2015/10/23/Countdown-to-Union-Buildings-march;
http://citizen.co.za/news/news-national/833006/wits-and-uj-students-head-to-union-buildings-
for-march/; https://mg.co.za/article/2015-10-23-sas-students-take-on-union-buildings;
https://www.dailymaverick.co.za/article/2015-10-25-well-always-have-paris-south-africas-may-
68-moment#.WRLfnk2wfIU.
14
10. In his testimony to the Commission, Minister Nzimande said that the zero
percent increase was not a Government decision, but that it was rather
the universities that put forward the proposal and that the collective
meeting agreed on it. The President announced the decision.
11. The Minister added further that the Presidential Task Team, which was
due to report at the end of November 2015, was asked to quantify the
cost of the zero per cent increase. The Task Team found that the cost for
2016 was R2.330 billion. Furthermore, the shortfall for unfunded and
under-funded NSFAS students in the system for the 2013 to 2015
academic years was R2.543 billion. It was recommended that
government find a way to cover these costs in the short-term.10
12. The start of the 2016 academic year witnessed renewed protest.
Demands escalated beyond the call for free education and came to
include the scrapping all student debt; an end to the outsourcing of
service workers at universities; curriculum transformation; the availability
of decent and affordable student accommodation for university students;
and an end to rape culture on university campuses. 11 The issue of
transformation came to the fore again, and protests about the language
of instruction reared at some institutions. By this time, it was clear that
student discontent stretched beyond a single-issue, and that even the
students had different priorities and aims. Protests led to violence and
10
2016.
11
DHET, Presentation and submission to the Commission, 10 August 2016.
15
the destruction of property on some campuses, and the estimated cost
of damage to property between October 2015 and June 2016 stood at
R500 million.12
13. Calm was restored until 19 September 2016, when Minister Nzimande,
announced that fee-increases for 2017 would be decided by university
councils, but would not exceed 8%. He also provided for a 0% increase
for all those from families with a household income of less than R600 000
per annum.13 Protests resulted in further damage to university property
across the country, with many institutions closing down as a result.
Examinations were cancelled or postponed. Some institutions decided to
complete the academic year online.
1.2 THE STUDENTS DEMANDS
14. The South African Union of Students (SAUS) is made up of Student
Representative Council (SRC) Presidents from most of the universities in
South Africa. In their submission to the Commission, the students from
the University of Venda explained that they had decided not to affiliate to
SAUS for 2016 as they would rather engage with university management
12
Ibid.
13
https://mg.co.za/article/2016-09-19-blade-nzimande-says-fees-can-go-up-but-not-beyond-8;
http://www.enca.com/south-africa/catch-it-live-minister-nzimande-announces-higher-education-
fees-adjustments.
16
than strike, and they felt that their circumstances differed from the
experience of other universities.14
15. SAUS made both a submission and presentation to the Commission to
clarify their view on the demand for free education.15 They explained that
they believe that free education will help to achieve social justice and
transformation. They argued that charging fees is against the spirit of the
Freedom Charter of 1955, and that the vast majority of South Africans
support the demand for free education and identify with the aspirations
of the Freedom Charter. However, SAUS accepts that free education,
where finances are no longer a barrier to access, is a long-term vision,
and that a phased model is most likely required. Free education for the
poor is the first step towards a progressive higher education system.
SAUS explained that empowering the poor is the starting step to
alleviating class struggles.
16. Regarding the missing middle, SAUS explained that these are not
middle-class students, but rather working-class students who are too rich
for NSFAS, and too poor to pay fees: too poor to be rich, and too rich to
be poor. They described them as the children of teachers, of policemen,
of civil servants and others.
14
University of Venda presentation to the Commission, 24 August 2016.
15
SAUS submission and presentation to the Commission, 10 August 2016.
17
17. SAUS explained further that the fight is not just for free education, but for
decolonized free and quality education a total overhaul of the current
system that is inherently exploitative and exclusionary. Exclusion is not
only on financial grounds, but also on academic and emotional levels.
Thus, a restructuring is needed to ensure student success.
18. SAUS was of the opinion that institutions have allowed education and
learning to be commodified, meaning that people get the education that
they can AFFORD, not the education that they deserve. It has become
a marketable service which the student pays for, rather than an academic
project. According to them, the focus has shifted towards accumulating
credits at a certain cost, rather than on teaching and learning. SAUS also
criticised the TVET system as students cannot find work after completing
a course, and described private institutions as the epitome of the
commodification of education.
19. In summary, SAUS explained that the demand is for the decolonisation
of the education system; the de-commodification of higher education;
curriculum review; broader transformation of the sector; the eradication
of structural issues and the defeating of institutional autonomy; together
with free quality education for the missing middle and the poor.16
16
Ibid.
18
20. The South African Students Congress (SASCO) also made a submission
17
and presentation to the Commission. SASCO commented that
commercialization of higher education, which essentially advocates for
the management and governing of institutions of higher learning in ways
identical to the manner in which business corporations are managed, has
reversed some of the tactical victories we have made in the post 1994
period. They also referred to the Freedom Charter and to the missing-
middle, explaining that capable students from working class and lower
middle-class families should also be subsidised with their families
providing a household contribution to their studies in proportion to their
ability to pay.
21. SASCO articulated the demand for free education to include tuition,
accommodation, food, books, other essential study materials or learning
resources and travel that are the full cost of study fees. It referred to the
NSFAS review, which stated that Free university education for the poor
can directly assist in tackling the problem of the growing numbers of
youth who are not in education, employment or training, and reducing the
high levels of dropout from universities, thus strengthening the higher
education system as a whole.
22. SASCO re-iterated SAUSs call for the de-commodification of education,
explaining that Free, accessible and relevant education is a means for
social development, personal empowerment and the advancement of
17
SASCO submission and presentation to the Commission, 22 August 2016.
19
well-being, as well as economic development of nations. It provides for
teaching, learning, research and community engagement which leads to
production and reproduction of knowledge and cultural capital. As such,
SASCO supports the complete eradication of tuition fees as a step
towards dismantling the market, which would also lead to collaboration
between students and institutions, rather than competition. SASCO
criticised the ranking of institutions in this regard. SASCO concluded that
for fees to be removed, a funding model would be required that gave
financial security and autonomy without unhealthy competition for
funding.18
1.3 THE CONSEQUENCES OF THE PROTEST AND DETERMINED
INCREASES
23. The #FeesMustFall protests and the subsequent decisions about funding
have had a major impact on the post-school education sector. The effects
have varied across the system, but have been felt by all. One of the
consequences of the protests was the establishment of a Presidential
Commission of Inquiry into higher education and training (higher
education) on 14 January 2016. The terms of reference included making
recommendations on the feasibility of making higher education and
training fee-free in South Africa.
18
Ibid.
20
24. The financial impact of the protests was profound. For students, it meant
no fee increase for 2016 and either a reduced or no fee increase for 2017,
depending on the students income bracket. All students, no matter their
household income, benefited from the 2016 decision.
25. For the government, R16.2 billion was reprioritised into university
baseline funding and NSFAS from across government for the MTEF (to
fund unfunded poor students through NSFAS and the effect of the 0%
fee increase in 2016 and its carry through effect over 3 years).19 The
NSFAS allocation for historic debt was R2.543bn; and additional funding
for students to continue was R2.039bn. This resulted in an additional
funding allocation of R9.2bn for NSFAS over the MTEF period.20 This will
be an ongoing cost into the foreseeable future. The cost of the 2017
government funding of zero percent for all those from households with an
income of less than R600 000 is yet to be determined, as the number of
students falling into this category is unknown. It is expected that about
75% of students will need to be covered.21 While funding for NSFAS has
been increased, there is still a shortage to cover all qualifying students.
26. For the universities, it meant increased financial strain. Many institutions
were already under severe financial pressure as a result of costs
increasing at above inflation rates and student numbers rising quickly,
19
20
NSFAS presentation to the Commission, 15 November 2016.
21
2016.
21
meaning that subsidy increases were too low. For instance, Rhodes
University indicated that it was not bankrupt, but cash-strapped. 22
Furthermore, a number of institutions indicated that they projected a
budget deficit as a result of the zero percent increase, which would have
deepened with a second zero percent increase in 2017.23 All historically-
disadvantaged institutions and some smaller institutions, such as Rhodes
University, declared that they will not contribute to the effect of the zero
per cent increase. UCT, Wits, Pretoria, Stellenbosch all contributed on a
Rand-to-Rand basis together with the DHET to absorb the effects of the
zero percent increase, totaling a R395 million contribution from
universities to lessen the impact of the no-fee increase decision.24 Nelson
Mandela Metropolitan University (NMMU) reported to the Commission a
loss of R15.6 million after the DHET subsidy for the loss. The 2016 zero
percent increase will impact on these institutions for many years to come,
as any possible future fee increases, will be on a reduced fee base.
Furthermore, institutions faced the further burden of historic student debt
and non-payment of fees. Institutions explained to the Commission that
debt was a problem for their sustainability, and that in the wake of the
protests, fewer students were paying their fees.25 High levels of debt are
also indicative of the fact that many students couldnt afford these fees.
22
Rhodes University presentation to the Commission, 2 September 2016.
23
For example: Walter Sisulu University presentation and submission to the Commission, 1
September 2016; North-West University presentation to the Commission, 12 August; Tshwane
University of Technology presentation to the Commission, 21 October 2016; Nelson Mandela
Metropolitan University presentation and submission to the Commission, 2 September 2016.
24
Correspondence with DHET, 11 May 2017.
25
For example: Walter Sisulu University presentation and submission to the Commission, 1
September 2016; Rhodes University presentation to the Commission, 2 September 2016;
North-West University presentation to the Commission, 12 August; Tshwane University of
Technology presentation to the Commission, 21 October 2016; Nelson Mandela Metropolitan
University presentation and submission to the Commission, 2 September 2016.
22
NMMU indicated that another challenge for 2016 was debt relief to
academically deserving students. A number of institutions indicated that
they had created bursaries for deserving poor students, or provided
NSFAS top-up money, and that this was a form of cross-subsidisation
between students from different economic backgrounds.
27. USAf, in their submission to the Commission stated that At the same
time, South Africas higher education system faces some of the most
telling challenges in its recent history with widespread concerns about
the instability it experiences, in particular in terms of its funding. It has
always been assumed that its primary roles are to address the national
social justice agenda, on the one hand, and to contribute to the creation
of high-level human resources and knowledge for the economy and for
the national socio-political project. To make progress in achieving these
the sector has to be properly funded.26
28. Added to this, many universities agreed to the insourcing of workers as
part of the negotiations to end the protests. USAf explained to the
Commission that full insourcing was expected to cost the sector
somewhere between an additional R0.5 to R2 billion per annum. This
would include salary supplements to meet agreed minimum wages of
between R5 000 and R10 000 per month. NMMU indicated that this was
an immediate additional cost of R34.5 million.27 USAf added that it was
26
Universities South Africa submission to the Commission.
27
Nelson Mandela Metropolitan University presentation and submission to the Commission, 2
September 2016.
23
hoped that there would be efficiency gains in terms of productivity and
reducing profiteering; and that some institutions didnt foresee any cost
increases.28
29. Damages to infrastructure as a result of the first wave of protests (2015
until April 2016) were estimated at between R500 and R600 million.29
Figures for the second-wave of protests would likely be higher as a
number of buildings were burnt, including part of a law library at UKZN.30
30. There was also a cost to the academic project as class time was lost and
some examinations were postponed or even cancelled. There was
considerable concern about how this would impact on final year students
and the knock-on effect for hospitals and health care institutions awaiting
their new intake of graduate interns. Various institutions indicated
austerity measures including a freeze on all administrative posts (with
academic posts possibly to follow); a reduction in library budgets and
reductions in investment for long term projects or in maintenance
budgets. These measures impact further on the academic project.
31. For the TVET sector, there was a perceived negative overall impact. The
TVET students were not involved in the protests, despite serious
underfunding in that sector. According to the submission by SAFETSA,
28
Universities South Africa presentation to the Commission, 20 October 2016.
29
2016; https://businesstech.co.za/news/government/138169/damage-to-sa-universities-hits-r600-
million-and-counting/.
30
https://mg.co.za/article/2016-09-07-ukzns-src-condemns-burning-of-law-library-at-howard-
college.
24
the TVET sector experienced budget cuts as a result of the protests; this
affected the administration of colleges, but also the students directly as
bursary allocations were reduced. This problem also related to the fact
that NSFAS is under-funded to support all qualifying students. SAFETSA
indicated that they strongly believe that the call for free education should
be inclusive of poor students in the entire sector, which includes the
TVETS, but that free education should only be introduced as far as is
viable.31 Furthermore, they explained that their view is that it would not
be correct to sacrifice the poor masses of our people in the TVET sector
to protect the yet to be found middle. The original context of FMF is
aligned to the higher education component of the post-school sector, but
decisions taken and policies drawn may have implications for the
Technical Vocational Education and Training (TVET) sub-sector.32
32. According to the Technical and Vocational Education Training Colleges
Governors Council (TVETC Governors Council), the sector was
underfunded by almost R4.7 billion in 2016. Underfunding was also noted
by the DHET, and will be discussed in more detail later. The Council
indicated that the sector was not compensated, like the university sector,
for the no-fee increase in 2016. They were also excluded from the R2.6
billion for student debt relief, despite the fact that the sector writes off
large sums in bad debt annually. Due to underfunding; bad debt; and no
31
SAFETSA presentation to the Commission, 29 September 2016.
32
Ibid.
25
compensation for no-fee increases, the TVET sector is under severe
financial pressure. 33
2 THE MANDATE OF THE COMMISSION
33. The Commission of Enquiry into Higher Education and Training was
appointed by the President on 14 January 2016 with the following terms
of reference:
Whereas the President of the Republic of South Africa Mr. JG Zuma on

23 October 2015 conducted meetings with the vice chancellors,
Chairpersons of the Universities Councils, Presidents of the Student
Representative Councils and the representatives of Student
Organisations national wide to discuss grave concerns with regard to fee
increases and funding of higher learning;
And whereas the President agreed that the government would lead a
process that will look at broader issues affecting the funding of higher
education, cognisant of other endeavours in this regard;
Now therefore a commission of enquiry (the commission) is hereby

appointed in terms of section 84(2)(f) of the Constitution of the Republic
of South Africa 1996.
The Commission shall enquire into, make findings, report on and make
recommendations on the following:
The feasibility of making higher education and training (higher education)

fee-free in South Africa, having regard to:
33
TVET Governors' presentation to the Commission, 30 August 2016.
26
1.1 the Constitution of the Republic of South Africa, all relevant higher
and basic education legislation, all findings and recommendations of the
various presidential and ministerial task teams as well as all relevant
educational policies, reports and guidelines;
1.2 the multiple facets of financial sustainability, analysing and assessing

the role of government together with its agencies, students, institutions,
business sector and employers in funding higher education and training;
and
1.3 the institutional independence and autonomy which should occur vis-
-vis the financial funding model.
34. The initial proclamation required the commission to complete its work
within a period of eight months and to submit its final report to the
President within two months of completing that work. At the request of
the commission the working period was extended by the President until
30 June 2017 with the report due within two months of completion of the
work.
35. The delay in the commencement of work led to the request for the
extension. There arose, from the outset, logistical problems of finding an
appropriate venue for public hearings and appointing evidence leaders
and administrative staff, matters in which the commission members were
not engaged or consulted. As a result, public representations were called
for only in May 2016 and the Commissioners met with the evidence
leaders on 19 May 2016 for the first time. In this context, it should be
borne in mind that neither the Commissioners nor the evidence leaders
professed any prior expertise in the structure and administration of higher
27
education or its funding. The field to be investigated required in-depth
understanding of universities, technical and vocational training
institutions, community colleges and the extensive and diverse provision
of higher education by and within the private sector. It also included the
nature and extent of state funding here and abroad, and an
understanding of its challenges and the reasons for its successes and
failures. As will also appear hereinafter, numerous attempts had been
made at governmental level and by private institutions to investigate all
aspects of the provision of higher education and its funding, the product
of which was usually a lengthy, complex technical report which may or
may not have approved the findings and recommendations in earlier
reports. The commission was fortunate in securing the services of
Professor Themba Mosia, Chairperson of the Council on Higher
Education and Vice-Principal: Student Affairs of the University of Pretoria
and Dr. Genevieve Simpson, Senior Manager: Research at the Council
on Higher Education. They acted as expert advisers to the evidence
leaders and, later, to the commissioners. Their participation was
invaluable.
36. The evidence leaders appointed were:
36.1. Advocate Kameshni Pillay SC;
36.2. Advocate Mandla Zulu;
28
36.3. Advocate Matsileng Lekoane; and
36.4. Advocate Tshefilwe Mabuda.
(Adv. Zulu left the Commission early. In May 2017, he was cruelly killed
in a criminal attack.) Our thanks go to all the evidence leaders for their
unremitting labours and their contribution to this report. Thanks is also
due to all the support staff and particularly to the Secretary of the
Commission Ms. Gugu Ncongwane.
37. The Commission, guided by the evidence leaders, thought it necessary
to develop a programme for the commission that would serve the
following purposes:
37.1. Educating the commission into all matters that would bear on
the performance of its mandate.
37.2. Producing views (in writing and by evidence) from the widest
range of interested members of the public, students,
academics, governmental agencies and private sector
38. Initially about 180 written representations were received. These were
afterwards supplemented by witnesses sourced by the evidence leaders
or requested by the Commissioners. In all about 160 witnesses appeared
in person before the commission, several on repeated occasions. The
29
Commissioners were at all times interested in innovative proposals that
could sensibly contribute to the provision of funds for higher education.
39. The programme of work drawn up for the commission (in the form of
working sets) was as follows:
39.1. An overview by stakeholders of the terms of reference of the
Commission;
39.2. Post-school education and training in South Africa;
39.3. The funding of institutions of higher education and training and
understanding their operational costs;
39.4. The nature, accessibility and effectiveness of student funding
by government, the private sector and foreign aid;
39.5. The meaning and content of fee-free" higher education and
training;
39.6. Alternative sources of funding;
39.7. The social, economic and financial implications of fee-free
education and training;
30
39.8. The feasibility of providing fee-free higher education and
training and the extent of such provisions.
40. Application of the programme gave rise to certain clear advantages and
disadvantages. On the positive side, the Commission was presented with
the breadth of knowledge, experience and opinion which individual
witnesses and investigators and even departmental task teams could not
match. The negative aspects were delay (largely attributable to the
volume of evidence) and the concomitant irritations of repetition and
small relevance to the direct terms of the mandate. It can be mentioned
that a number of representors, having encountered the shortcomings of
the whole spectrum of the system, offered the commission the
opportunity of considering and recommending solutions devised by them.
These are only referred to in this report where the commission regards
them as bearing on the feasibility of providing fee-free education.
41. We think it would be helpful first to discuss certain elements of the
Commissions mandate that do not speak for themselves. Many of these
elements will be expanded upon when the context justifies such
expansion.
31
3 HIGHER EDUCATION AND TRAINING: PURPOSE, POLICY AND
HISTORICAL DEVELOPMENT AND FUNDING
42. The expression higher education and training" is not one that occurs in
the Constitution. In section 29 a distinction is drawn between basic
education including adult basic education and further education".
3.1 THE PURPOSE OF HIGHER EDUCATION34
43. In different times and places, the purpose of higher education and its
impact on society are interpreted differently. In some cases, there is a
greater focus on the way higher education develops an individual through
scholarship; and in others a greater focus on the skills that higher
education provides, which leads to subsequent job opportunities.
Similarly, the societal impact can move from a focus on the
characteristics of those with a higher education, to the developmental
impact of higher education and innovation on the economy. In this
chapter, the current (or post-apartheid) South African understanding of
the purpose of higher or further education will be explored, together with
the impact such an interpretation has on the way in which it should be
funded. Particular attention will be given to whether further/ higher
education is interpreted as a public good or as a mixture between a public
and private good. Various policy documents clearly articulate the
34
Throughout this report the expression higher education will be used in a sense inclusive of
technical training unless the context otherwise indicates.
32
governments position on the purpose of higher education, and an
analysis of these, together with evidence from various presentations and
submissions to the Commission, will form the basis of this discussion.
44. The University of Mpumalanga in their presentation to the Commission
argued that The roles of higher education are numerous and varied.
Higher education will contribute to the creation of high-level human
resources and knowledge for the economy and for the national social-
economic project. Higher education will also promote the achievement of
some of the goals of the Constitution including the achievement of
equality and the advancement of human rights and freedoms. However,
Higher Education must reach far beyond the creation of skilled human
resources for the economy and will include the promotion of socially
conscious, critically thinking graduates who will find innovative answers
to old and new questions.35
45. The Council on Higher Education (CHE) explained that: The first
consideration is the need to have a shared understanding of the purpose
or purposes of higher education. Cognisant of the fact that higher
education leads individuals to greater opportunities and that it also
contributes to overall national socio-economic development, the CHE
views higher education as both a private good and a public good, and not
exclusively one or the other. This has a bearing on how it is constituted
and how it is funded. The basic questions to ask are who should benefit
35
University of Mpumalanga, Submission and presentation to the Commission, 22 August 2016.
33
from higher education, and who should fund it? These have become
acutely difficult questions at this political conjuncture; twenty or more
years after the beginning of the democratic dispensation, inequality is still
widely evident in terms of access to higher education and in the share of
benefits that it brings. These are thus profoundly moral questions, and
the answers depend on our vision for the future and what we want to
achieve in terms of higher education.36
3.2 HIGHER EDUCATION POLICY
46. The White Paper (1997) began by considering the important question of
the purpose of higher education, highlighting its significance in
determining policy. It states that the transition to democracy requires that
all existing practices, institutions and values are viewed anew and
rethought in terms of their fitness for the new era and goes on to say that
Higher education plays a central role in the social, cultural and economic
development of modern societies. In South Africa today, the challenge is
to redress past inequalities and to transform the higher education system
to serve a new social order, to meet pressing national needs, and to
respond to new realities and opportunities. It must lay the foundations for
the development of a learning society which can stimulate, direct and
mobilise the creative and intellectual energies of all the people towards
meeting the challenge of reconstruction and development. This section
of the White Paper highlighted the role of higher education in developing
36
CHE, Presentation to the Commission, 22 August 2016.
34
a transformed society, both in economic and philosophical terms. This is
a public benefit for society as a whole. The following section considered
the purposes in more detail, namely to meet the learning needs and
aspirations of individuals through the development of their intellectual
abilities and aptitudes throughout their lives as a vehicle for achieving
equity in the distribution of opportunity and achievement among South
African citizens, focusing on the private benefit to individual recipients of
higher education; secondly to address the development needs of society
and provide the Iabour market, in a knowledge-driven and knowledge-
dependent society, with the ever-changing high-Ievel competencies and
expertise necessary for the growth and prosperity of a modern economy,
focusing on the skills required and delivered by higher education. This
carries both a public (development of the economy) and private (entry
into specialised professions and careers) benefit; as well as a benefit for
the private sector; thirdly, the development of critical citizens, with a
willingness to review and renew prevailing ideas, policies and practices
based on a commitment to the common good, focusing on the
characteristics of a graduate and how this benefits society as a whole.
The final purpose identified is academic scholarship and intellectual
inquiry in all fields of human understanding, through research, learning
and teaching. The Commission aligns itself with this summary of the
purposes of higher education and considers that it applies equally to
technical training.
35
47. In the next section the White Paper highlights that if higher education is
to contribute to the reconstruction and development of South Africa, then
inequities, imbalances and distortions that derive from its past and
present structure must be addressed, and higher education transformed
to meet the challenges of a new non-racial, non-sexist and democratic
society committed to equity, justice and a better life for all. (1.6) As such,
there is a focus on the knowledge economy, human resource
development, and developing skilled graduates.
3.3 THE NATIONAL DEVELOPMENT PLAN (NDP)
48. The NDP, in its chapter on education, starts by clearly identifying the
need for public investment in education, while at the same time
recognising that the benefits of education are both to the individual and
to society. It states that: The single most important investment any
country can make is in its people. Education has intrinsic and
instrumental value in creating societies that are better able to respond to
the challenges of the 21st century. Lifelong learning, continuous
professional development and knowledge production alongside
innovation are central to building the capabilities of individuals and
society as a whole.37
37
NDP, p.296
36
49. In referring to universities, the NDP recognises that they contribute to the
whole learning environment as Teachers in schools, ECD centres and
colleges are trained in universities. 38 In considering the purpose of
higher education, the NDP notes that higher education is the major driver
of information and knowledge systems that contribute to economic
development. However, higher education is also important for good
citizenship and for enriching and diversifying peoples lives.39 It goes on
to state that Universities are key to developing a nation. They play three
main functions in society: Firstly, they educate and train people with high-
level skills for the employment needs of the public and private sectors.
Secondly, universities are the dominant producers of new knowledge,
and they critique information and find new local and global applications
for existing knowledge. South Africa needs knowledge that equips people
for a changing society and economy. Thirdly, given the countrys
apartheid history, higher education provides opportunities for social
mobility. It can strengthen equity, social justice and democracy. In todays
knowledge society, higher education is increasingly important for opening
up peoples opportunities.40 It is, therefore, clear in the NDP that while
highly skilled individuals are key to the economy, higher education also
benefits the individual both through developing their social understanding
and through providing expanded work opportunities. Public and private
benefits to education are described. This interpretation of the purpose of
38
NDP, p.316
39
NDP, p.317
40
NDP, p.318.
37
the university was referred to in a number of presentations; and it is key
to the way in which higher education should be funded.41
3.4 THE WHITE PAPER FOR POST-SCHOOL EDUCATION AND TRAINING
(PSET) (2013)
50. Similarly, the PSET White Paper (WP) highlights the role of further and
higher education in developing skilled individuals who can contribute to
the expansion of the economy, and who can find employment. This is the
dual public and private purpose. It states that National economic
development has been prioritised, and the role of education and training
as a contributor to development has begun to receive much attention.
The National Development Plan (NDP), the New Growth Path and other
key policy documents of government have set out important strategies
and priorities for development, with an emphasis on inclusive growth and
employment generation. It is essential that the post-school education and
training system responds to these, especially with regard to expanding
the pool of skills and knowledge available to the country; achievement of
this goal will enable the expansion of the key economic focus areas and
equip young people to obtain work.42 It goes further to explain that this
functional purpose of further education does not devalue the intrinsic
importance of education. Quality education is an important right, which
plays a vital role in relation to a persons health, quality of life, self-
41
USAf, Submission and presentation to the Commission, 29 August 2016; NMMU, Submission
and presentation to the Commission, 2 September 2016.
42
PSET WP, p.2
38
esteem, and the ability of citizens to be actively engaged and
empowered. This White Paper reasserts these basic values that have
informed the Constitution and which will continue to inspire everyone
involved in education and training. 43 All these statements are equally
valid in 2017.
51. With regard to transforming South African society, the PSET WP notes
that Education has long been recognised as providing a route out of
poverty for individuals, and as a way of promoting equality of opportunity.
The achievement of greater social justice is closely dependent on
equitable access by all sections of the population to quality education.
Just as importantly, widespread and good quality education and training
will allow more rapid economic, social and cultural development for
society as whole. Education will not guarantee economic growth, but
without it economic growth is not possible and society will not fulfil its
potential with regard to social and cultural development. 44 The policy
thus focuses on the importance of access to further and higher education,
as part of societys transformation.
3.5 EARLY POLICY DECISIONS ON UNIVERSITY FUNDING
52. Higher education policy making has also focused on the issue of who
should fund higher education. In 1996, the National Commission on
43
PSET WP, p.3.
44
PSET WP, p.5.
39
Higher Education (NCHE), appointed by then-President Nelson Mandela,
submitted its report: A Framework for Transformation. This extensive
report considered all aspects of higher education, as well as policy
articulated by the African National Congress (ANC) during the struggle.
The chapter on funding starts by considering the issue of public and
private benefit. It considered the fact that, on the one hand, higher
education colleges (for instance nursing education colleges) were free,
based on the understanding that the main benefit derived from such
education was public. On the other hand, universities and technikons
charged fees (and received state subsidy) as a result of the combined
public and private benefit. After consideration of a variety of issues, the
NCHE concluded that higher education generated significant benefit for
both the student concerned and the public. It found that to establish a
higher education system characterised by increased and widened access
for students, greater responsiveness to societal needs (including the
elimination of unacceptable inequalities in higher education) and
increased partnership and co-operative governance modes, the
Commission believes that the cost should be shared by the student
and by the public (government). 45 It is important to note that the
Commissions decision was partly based on the cost of expanding the
higher education sector, thus prioritising access. The NCHE also
discussed the need to ensure a balance between public and private
contributions.
45
NCHE, p.220.
40
53. This view was re-iterated in the 1997 Education White Paper, which
explained the need to expand the system, and the costs associated with
this, but also noted high levels of government expenditure on the sector.46
It went on to explain that: Fee-free higher education for students is not
an affordable or sustainable option higher education qualifications
generate significant lifetime private benefits students from middle-
class and wealthy families still tend to be disproportionately well-
represented. For all these reasons, the costs should be shared
equitably.47 The White Paper also discussed the need for a national
financial aid scheme for poor students and the possibility of a graduate
work scheme. The Higher Education Act, 101 of 1997 (as amended)
noted money payable by students as one source of institutional funding,
adding that council may discriminate in a fair manner between
students who are not citizens or permanent residents of the Republic and
students who are .48 These policy decisions forged the course of the
first decade of student funding; and continue to guide policy.
54. It appears that in the various debates and discussion around the purpose
of higher education there was no endeavour to analyse or interpret
s29(1)(b) of the Constitution. There was an implicit acceptance that there
is no obligation on the State to provide higher education fee-free to all
and that a cost-sharing model was the solution,
46
Education White Paper 3: A Programme for the Transformation of Higher Education (1997)
chapter 4.
47
Ibid., 4.7.
48
HE Act, 40(1).
41
3.6 PUBLIC OR PRIVATE BENEFIT
55. As can be seen above, one of the prominent indicators in deciding who
should carry the cost of education, is whether it is a public or private
benefit. The funding positions in policy articulate a dual public and private
benefit, and for this reason argue for a cost-sharing model. During the
Commission, the issue of public and private benefit, and how this should
impact funding, was a common topic of discussion, and many individuals
and institutions explained this in their presentations and submissions.
Some of these views will be considered below. Taking the argument
further, a number of presentations also highlighted the benefit to the
private sector, thus arguing that the private sector contribution to the
funding of further and higher education should be expanded. This, in the
result, is also the view of the Commission.
56. What is notable is that some supporters of free education, discussed a
private benefit to higher education but rejected the notion that it should
include a private financial contribution, focusing on it as a pure public
benefit. For instance, SAUS, SASCO and the Students for Law and
Social Justice, all argued in favour of free higher education, but referred
to the private economic benefits. SAUS noted that it believes that
educated people are having more chances of getting jobs and thereby
getting a salary. When free education is introduced, our people will
access the system, get education and look after their families. They also
recognised the public benefit of this opportunity in that fewer people
42
would need social support from the government; and went further to
argue that free education would lead to a reduction in crime as they were
convinced that most of the people who commit crime are either drop-
outs, uneducated or unemployed. When free education is introduced
people will access it easily and thereby get separated away [sic] of crime.
They also saw an increase in innovation and research output as more
people could study further, leading to the advancement of the country.
SAUS also commented on the private sector benefit, arguing that Human
Resource capital for the private sector will be intensified. We know that
amongst the beneficiaries of the output or products of free education is
the private sector that will gain the much-needed human resource [sic].
49
57. SASCO explained that Free, accessible and relevant education is a
means for social development, personal empowerment and the
advancement of well-being, as well as economic development of nations.
It provides for teaching, learning, research and community engagement
which leads to production and reproduction of knowledge and cultural
capital. It is for these bases [sic] that commodification of education should
be criminalised; as it steals the true and correct purpose of the very
existence of institutions of learning and undermines our birth right. They
also claimed that the Higher education summit hosted by DHET in 2015,
resolved that Higher Education is a public good, and thus the
49
SAUS, Submission and presentation to the Commission, 10 August 2016.
43
responsibility of providing higher education lies with the
state/government.50
58. In explaining the need for higher education to be accessible, the Students
for Law and Social Justice, explained that education has the ability to
alter the lived realities of the historically oppressed, as well as open the
doors of opportunity to those whom society has traditionally relegated to
subservience and poverty. Thus, universal availability and access to
further education is an aspiration all peoples should seek to realise.
Education yields the benefit of bearing returns on investments made for
the proliferation of this right. Significantly, education edifies the human
existence in enabling individuals to pursue lives in which they can
maximise their potential.51
59. Professor Makgoba, when discussing the National Development Plan,
focused on the public benefit and the need for more public funding to
make higher education sustainable. In his presentation, he referred to the
NDP saying that The single most important investment a country can
make is in its people. Education has intrinsic and instrumental value in
creating societies that are better able to respond to the challenges of the
21st century. Lifelong learning, continuous professional development and
knowledge production alongside innovation are central to building the
capabilities of individuals and society as a whole. As such, he explained
50
SASCO, Submission and presentation to the Commission, 22 August.
51
Legal Resources Commission: Students for Law and Social Justice, Submission and
presentation to the Commission, 12 August 2016.
44
that any cost of investment in PSET must also be compared to the
potential cost of not investing. He explained the need for us to maintain
our competitive advantage in higher learning & knowledge generation
and the critical need to invest in research and teaching staff, especially
to encourage better racial representivity. According to him, the main
focus was public investment and public benefit.52
60. The DHET referred directly to the public and private benefits of higher
education, indicating that policy recognises that investment in higher
education is important for economic development of the country; but
knowledge and skills acquired from achieving a university qualification
result in significant lifetime private benefits for successful students. This
is the reason for the cost-sharing model adopted in the 1997 White
Paper, with the caveat that lack of finances should not prohibit students
from accessing higher education.53 The nationwide student protests in
October 2015 demanded fee-free higher education, thereby rejecting the
payment of fees by students (cost-sharing model). This issue will be
addressed elsewhere in this Report.
61. The Council on Higher Education argued in favour of cost-sharing, based
on the public and private benefits of higher education. However, the CHE
also stressed that while equitable and increased access are important for
transformation and should be central to any funding solution, this should
52
Professor M.W. Makgoba, Presentation to the Commission, 3 October 2016.
53
45
not be done at the expense of quality education. The CHE explained that
the public benefits of higher education include economic and cultural
development; and that there should be a correlation between the levels
of public investment and public benefit. For this reason, state subsidy of
higher education is both necessary and desirable. With regard to private
benefits, the CHE focused on greater employment opportunity and better
earning power. They referred to a 2016 Statistics South Africa
Community Survey, which showed that graduates on average earn more
than non-graduates and that there is only 5% graduate unemployment in
South Africa. This contrasts with the UK, for example, where it has been
reported that a quarter of all graduates are low earners 10 years after
graduating this after the rapid massification of their higher education
system. We have a relatively small system in which only 19% of 19-24
year-olds participate; the fact that graduates do get better jobs accounts
in part for the huge demand in South Africa for wider access to university,
yet the UK instance indicates that widening participation may reduce the
certainty of high level employment for graduates. There is no doubt,
however, that graduates derive individual benefits from their education
that are not shared by those not receiving higher education. This was
one of a number of submissions that pointed out that increased access,
whether free-free or not, carries the inherent risk of producing
disappointed graduates.
62. The CHE explained that what is needed is a higher education system to
which access is not limited by lack of access to good schooling and to
46
student funding, but which is funded fairly in the context of the spectrum
of possibilities for all school-leavers.
63. The majority of the universities focused on the dual public/ private
benefits, thus supporting cost-sharing models of different ratios, with
some suggesting increased private sector participation. Universities
generally agreed that more state funding was needed to support the basic
costs of running institutions (block grant) and that fees should be
affordable.
64. Universities South Africa (USAf) referred to the National Development
Plan to explain the purpose of universities to educate and train citizens;
to produce new knowledge; and to transform South African society and
provide opportunities for social mobility. They went on to explain that it is
well established that South Africas higher education system is a
fundamental ingredient in the development strategy that has been
adopted and simultaneously universities are key social institutions in
addressing the social justice agenda of one of the most unequal societies
in the world though creating pathways to social mobility.54 Thus, while
there is an important public benefit to higher education, there is also
personal gain.
65. Mr. Bikwani, speaking on behalf of the University Council Chairs Forum
of South Africa (UCCF-SA) focused on the purposes of higher education,
54
USAf, Submission and presentation to the Commission, 29 August 2016.
47
mentioning both public and private benefits. He referred to their critical
role in shaping discourse on societal transformation in our fledgling
democracy and the imperative to arrest and reverse growing inequality
in our country, an inequality that has entrenched itself along racial
demographics and an inequality that exacerbates the exclusion of the
poor and previously disenfranchised from meaningful participation in
society at large and the economy in particular. He referred to the role
higher education can play in reducing unemployment, especially among
the youth. He focused on the need to deliver world class and quality
education to build the requisite skills profile that would ensure the
competitiveness of South Africa in a globalised economy and the related
need to transform curricula to meet the needs of our country and
continent. As part of the purpose of a higher education institution, he also
mentioned enabling all students to participate in all academic and
campus activities in a dignified manner without fear of exclusion due to
financial considerations. Our students should never be hungry or without
decent accommodation whilst pursuing studies.
66. The University of the Witwatersrand (Wits), in their submission, argued
that the benefits of a vibrant and thriving higher education system are
clear. Universities and graduates are direct contributors to South African
knowledge and innovation and contribute to economic growth. They
added that Graduates are not only more likely to obtain employment, but
often enter into well-paying jobs, increasing the number of taxpayers;
contribute to a more informed democratic participation; tend to be
48
healthier individuals, and are less likely to engage in criminal activity, and
display higher levels of civic engagement. A vibrant higher education
sector is, thus, essential to the creation of a thriving civil society. The
project of nation building is also implicated since, without a thriving civil
society, such an ideal cannot be realised. When considering the context
of South Africas legacy of apartheid and the institutionalized system of
inequality that has been entrenched, higher education plays an important
role in transformation. Furthermore, from a social justice perspective,
university education in South Africa is also a public good. We all benefit
from higher education, whether personally or societally.55 This is a project
for which everyone in South Africa bears responsibility. They concluded
that funding higher education is not just a burden that the public purse
must bear, but that Government, universities, the Private Sector and
Society at large must all contribute to the mammoth task of creating
solutions to the higher education funding crisis.56 The University argued
that outside of general taxes and philanthropy, the private sector
supports universities through earmarking funds for specific projects and
through supporting mostly students who are potential employees. What
is absent, is a systematic mechanism that channels private sector
funds to all universities57. This is despite the fact that the private sector
55
In this sense, we need a system for funding higher education that treats the private and public
benefits not as opposing ideas but as complementary in the social justice project of the country.
56
Wits University, Submission to the Commission, 10 August 2016.
57
Our emphasis.
49
as a whole, is a beneficiary of graduates produced from South African
universities.58
67. The University of Pretoria argued that a cost-sharing model is best based
on the understanding that higher education has both public and private
benefits. Public benefits include social capital (better health, lower crime
rates, lower teenage pregnancy rates, etc.), social cohesion, and
economic development. Private benefits include enhancement of career
prospects, higher salaries and benefits, professional mobility and
increased personal status. The University explained further that, as a
result of the private benefit, once employed, the majority of university
graduates earn more than average incomes, even if they were poor as
students. Over their life-cycles, they cannot be counted amongst the
(permanently) poor. From a life-cycle perspective, the problem is not one
of poverty, but the mismatch between the timing of expenditure and
income. Thus, they argued that the charging students fees is therefore
a rational element in the financing of HE, provided that, on the one hand,
these fees are adjusted by subsidies to account for public benefits, and
on the other, students from lower-income households have access to
financial aid. 59
68. The University of Zululand also supported shared costs, with more focus
on private sector contributions. They explained that education is a public
58
Wits University, Submission to the Commission, 10 August 2016.
59
University Pretoria, Submission and presentation to the Commission, 11 August 2016.
50
good that has significant positive externalities to society, hence all
beneficiaries including government, private sector, students and the
tertiary institutions ought to all contribute to meeting the costs of providing
higher education on a sustainable basis for the purposes of creating a
thriving society based on a knowledge economy. New innovative funding
formulae ought to be sought that involve public-private-partnership and
social investment bond issues to meet the bulk of the financial needs of
tertiary institutions. Since students are the major beneficiaries of the
tertiary education system they ought to pay for their education once they
earn high enough incomes. Moreover, all graduates ought to pay a
special income contingent tax to ensure future generations have access
to tertiary education. The University thus gave its support to a deferred
fees scenario, where those who have benefited from higher education,
and can afford to pay when they are earning, should contribute, together
with government and the private sector.
69. The University of Kwa-Zulu Natal argued three basic principles. The first
is the need for adequate public funding as higher education is a public
good in terms of greater civic participation; increased tax revenue from
higher paid graduates; and lower costs for social grants and other
support. They explained that Public funding has declined, and this has
made universities reliant on fees to a greater extent leading to increased
fees and student debt; and problems retaining critical academic staff. The
second principle is that the individual should pay for the private benefit or
individual gain in terms of better employment opportunities and pay,
51
better social protection in terms of benefits and pensions, and less
chance of retrenchment. The third principle is equity and equality which
relates to access and affordability, and the need for a financial support
mechanism.60
70. The Nelson Mandela Metropolitan University also referred to the National
Development Plan and the role of higher education in development,
highlighting the public good. It explained that Recent reports of the World
Bank (2009; 2010) have similarly highlighted the critical role of higher
education in stimulating knowledge-intensive socio-economic growth and
development. In the light of South Africas inequality and Gini coefficient,
the important role of higher education in transformation was also
mentioned. NMMU also referred to the additional costs of transformation
in higher education in South Africa; such as adequate food and nutrition,
transport and many other hidden costs highlighting the need for
universities to be in financially sound positions to meet these additional
challenges or [else] students from poor backgrounds will remain
marginalised and set up for failure.61
71. The University went on to consider the public and private benefits of
higher education as referred to by the Institute for Higher Education
Policy. Considering the private benefit, the university explained that
According to Montenegro and Patrinos (2014, 19 & 33) globally, and
60
UKZN, Submission to the Commission, 29 August 2016.
61
NMMU, Submission and presentation to the Commission, 2 September 2016.
52
especially in Africa, there are considerable benefits to higher education.
In Sub-Saharan Africa, private returns on higher education are higher
than returns on primary and secondary education. This research showed
that the region with the highest private returns on higher education is
Sub-Saharan Africa, and that South Africa specifically has the highest
private returns to higher education in the world. This is the result of
shortages in high-level skills. South Africas high returns on higher
education coupled with high levels of inequality mean that free higher
education will proportionally benefit the privileged more than the poor
(Patrinos 2015). This is supported by Langa et al (2016, 1) who asserts
that free higher education in highly unequal societies mainly benefits the
already-privileged (new political and business elite), who have the social,
cultural and economic capital required to access, participate in and
succeed at higher education. They concluded that In South Africa, post-
school qualifications contribute to enhanced employment opportunities
and higher wages. It is thus fair to expect students to contribute to these
improved lifelong benefits that they receive from pursuing higher
education qualifications. However, the inability to pay student fees should
not constitute a barrier to obtaining a higher education qualification and
therefore a well-established student financial aid scheme is imperative to
ensure equity. Thus, the NMMU called for increased state funding in line
with the intentions of the NDP; and a cost-sharing model with an
53
expanded loan option, with the possibility of private sector investment in
NSFAS.62
72. The TVET Governors Council argued that education is an apex
programme of the South African government; as such it is the highest
priority and all resources necessary should be channeled such that there
is no unfunded mandate as far as education is concerned. They argued
that the percentage of the GDP going towards further and higher
education is insufficient, and that more government money should be
allocated to allow for free education. This was considered to be in line
with the public developmental benefits of higher education.63
73. The CHET argued that there are a number of public and private benefits
to higher education. The public benefits are both economic (increased
tax revenues; greater productivity; workforce flexibility) and social
(increased quality of civic life; increased charity giving; social cohesion;
adaptation to technology). The private benefits are also economic (higher
salaries and benefits; enhanced employment opportunities; higher
savings levels; professional mobility) and social (improved life
expectancy; improved quality of life for family/children; enhanced social
status; better consumer decision making). The CHET also referred to
research which found that the private returns on higher education in
South Africa are higher than in many other countries double that of
62
NMMU, Submission and presentation to the Commission, 2 September 2016.
63
TVET Governors Council, Submission and presentation to the Commission, 30 August 2016.
54
Mexico and Brazil; four times that of Norway. In countries with a high Gini
coefficient, like South Africa, free education tends to benefit the rich more
than the poor; and private benefit is higher. 64
74. The National Tertiary Education Union (NTEU) argued that we have to
decide whether Higher Education is something we value as a nation and
that if government is serious about confronting the countrys triple
challenge of unemployment, poverty and inequality, then it has to be said
that Education in general must be accorded a high priority position and
value, if not the highest. The NTEU accepted both public and private
benefits to higher education, and explained that university education is
an expensive alternative. As such, university access should [not] be free-
for-all, but for all it should be cheaper and the alternatives must be made
even easier to access, such as TVETs for those who cannot access
universities, whether it be for financial or academic reasons The
viability of TVETs as alternative fee-free institutions should be
considered.65
75. Having considered the aforegoing views, the Commission is persuaded
that higher education brings with it substantial private benefits. At the
most basic level no student attends university or a TVET college because
he or she intends in so doing to benefit the state and increase taxes. He
or she does so for the potential increase in personal or family
64
CHET, Submission and presentation to the Commission, 11 August 2016.
65
NTEU, Submission and presentation to the Commission, 1 September 2016.
55
advancement, status, income, future opportunity or simply, self-
gratification. These are lifelong advantages (many transmissible to ones
estate) which can be exercised within or without the country that provides
education. Insofar as the state receives a return on its education
investment, this is very much related to the degree in which the student
achieves his personal fulfilment. The less successful the student the
smaller is likely to be the return from taxes and indirect economic benefits
to the state. Benefits of higher education are shared between public and
private goods in a measure that differs widely between individual
comparisons. What can be concluded without fear of rational
contradiction is that to tipefy higher education as exclusively or even
essentially a public good is to ignore reality. There can, therefore, be no
principled objection to cost sharing of higher education provided the core

66
values of equity and fairness are maintained. There are also
beneficiaries from higher education production beyond the state and the
individual, most obviously the private business sector. Much of the
success of that sector depends on the continuing production of university
trained graduates or college educated and workplace skilled technicians.
Yet the role of business in providing the cost of higher education has, in
South Africa, been largely voluntary or confined to statutory contributions
deducted from salaries and wages. It is clear that the distinction between
public and private benefit from higher education is often blurred and
66
Unless it is argued that the State alone has a constitutional obligation to provide funding for
further education, a view to which this Commission does not subscribe.
56
varies from case to case and that such provision should be shared
between the state, the former student and the private sector.
3.7 DEFINING HIGHER EDUCATION AND TRAINING FOR THE PURPOSES
OF THE COMMISSION
76. The terms of reference of the Commission refer to higher education and
training. Therefore, the Commission spent some time understanding the
post-school sector in its entirety. The DHET takes responsibility for four
sub-sectors of education: Community Education and Training (CET);
Technical and Vocational Education and Training colleges (TVET) and
university education; and the Sector Education and Training Authorities
(SETAs).
77. Community Education and Training Colleges (CET) are a relatively new
type of institution being established to assist youths and adults who never
completed or attended school. These are people who cannot enrol in
either TVET colleges or universities, and who require a second-chance
to attain skills or re-skilling. The colleges are being built off the base of
general education and training for adults. There is very limited provision
and this is a marginalised sector, which is chronically under-funded.
There is very limited funding available for growth; little infrastructure and
only part-time educators. Nine CET colleges have recently been
established, incorporating approximately 3 200 Community Learning
Centres (Adult Learning Centres) from across the Provinces. A Task
57
Team is currently working on developing a funding model for the CET
sector. The potential demand for CET is significant considering the
number of NEET (not in employment, education or training) youths (see
diagram below). According to the NDP, these colleges are targeted to
enrol one million people by 2030. The colleges could also provide for a
wide-range of student and community needs. 67 While the need for
additional funding for the CET sector is clear, the training offered at
these centres cannot be defined as higher education and training.
As such, the Commission is of the view that CET does not fall under
its mandate. Consideration should be given to funding these colleges in
the same way as no-fee schools are funded, as they are providing basic
education in poor areas. The needs of the CET should be taken into
consideration before determining to allocate further funds to universities
- approximately R46.210 billion in additional funding is needed for CET
over the MTEF.68
78. The Minister of HET provided a similar interpretation of CET, explaining
that The Department and Government generally, reads the constitution
to clearly articulate that basic education, including adult education, is a
fundamental/ basic right that must be provided to all who need it; while
further education, which can be interpreted as including Higher Education
(HE) (also referred to as university education) and Technical and
Vocational Education and Training (TVET), are secondary rights that
67
DHET, Presentation and submission to the Commission, 10 August 2016 & 4 October 2016.
68
DHET, Presentation to the Commission on community colleges & funding requirements, 26
October 2016.
58
must be made progressively available and accessible to those who merit
it (meet the academic requirements). Within the remit of the Department
of Higher Education and Training (DHET), the provision of Community
Education and Training (CET) gives effect to section 29(1)(a), namely
that everyone has the right to adult basic education, while the provision
of TVET and HE responds to section 29(1)(b). To make further education
available is interpreted to mean that the system must grow to provide
sufficient spaces (opportunities) for study. To make it accessible means
it should be affordable and individuals should not be denied access
based on financial need, on the basis of a disability or other form of
discrimination.69
79. The SETAs are not institutions of learning. They are bodies focused on
different skills areas, which were formed to provide information on the
skills needed in that specific area, and to support education and training
in colleges and workplaces. Prior to 2009, SETA management was under
the Department of Labour, hence their focus on workplace training
through learnerships. The various SETAs perform at very different levels,
but in general they have not reached their goals of providing good
information on skills needs and the necessary quality provision. The
system is administratively expensive, and revisions are underway. There
are also concerns about poor governance.70 Given their nature, these
institutions fall outside of the mandate of the Commission. Their role
69
Minister of Higher Education and Training, Presentation to the Commission, 13 October 2016.
70
DHET, Presentation to the Commission, 4 October 2016.
59
in funding and training however, remains of great importance in the
funding of higher education. Most of the training they provide is done
through TVET colleges, with funding from the SETAs. SETAs receive
money from the National Skills Fund (NSF), which consists of funding
from the levies charged to employers based on their number of
employees. There were some suggestions that the levy could be
expanded or better utilised to fund higher education and training, but this
will be considered in a later chapter. Some SETAs do provide financial
assistance to selected students studying at universities and TVET
colleges. Others channel financial aid through NSFAS.
80. Another way of interpreting higher education and training is to align it to
the National Qualifications Framework (NQF). The NQF consists of 10
levels of education divided into three bands. The first band is considered
basic education and consist of levels 1 to 4, which equates to high school
grades 9 to 12 or to similar vocational training. Levels 5 to 7 are offered
at both colleges and universities, especially universities of technology.
Qualifications offered on levels 7 to 10 are university degrees.
81. TVETs (discussed in more detail below) straddle the line between basic
and higher education and training. The National Certificate-Vocational
(NCV), which is offered at the colleges, is equivalent to Grades 10, 11
and 12 (up to NQF level 4). Other courses, such as the National
Accredited Technical Education Diploma (NATED) courses, are offered
up to NQF level 6. It is possible that the various TVET courses should,
60
therefore, be funded according to different norms. In dealing with the
training aspect of our mandate we have not, however, differentiated
between such different levels.
82. University (also discussed below) offerings can begin at NQF level 5 (with
a higher certificate), although the majority are at levels 6 and above
(diplomas and degrees). As such, universities fall clearly within the
definition of higher education and training.
83. Having confined the terms of the Commission to TVET colleges and
universities, it is still important to consider the funding for higher
education within the funding for the education sector as a whole. It should
be remembered that only a relatively small proportion of South Africans
benefit from higher education.
84. In terms of the school trajectory, while Early Childhood Development
(ECD) and Basic Education (BE) should provide for all youth (compulsory
education from Grade R to Grade 9), only a proportion of youth continue
into the Further Education and Training band of schooling, and an even
smaller proportion continue to study post-school. In fact, in terms of the
pyramid of enrolment needs (discussed later, and illustrated in the
diagram below) the university sector should be the smallest in terms of
the number of students. Currently, about 19% of youth, or about just
under one million students, continue to university study (this is called the
61
participation rate). 71 Furthermore, the representivity of those attending
university is not equal. As illustrated by the University of Pretoria in their
presentation to the Commission, from a matric class of 100 000 students
from deciles 1-5, about 90% do not qualify for university. The majority of
those who qualify and attend university come from middle class or
affluent families.72
85. A section of education which receives too little attention in terms of
resource allocation in South Africa is Early Childhood Development
(ECD), although it falls under the priority areas of scarce skills in
education. Studies have shown that what happens to a child in the first
1000 days impacts critically on their future achievements. This is
reference not only to formal education, but also to health and nutrition. In
South Africa, there is very little attention given to institutional support
before the age of 5 (Grade R), with support up to this age divided between
different Departments (mainly DBE and DSD). Even Grade R remains a
challenge for many South Africans. While no-fee schools can offer free
Grade R, poor people living in areas with schools in quintile 4 and 5 are
left to find their own solutions. 73 Research has shown that children
without the necessary grounding prior to Grade 1, struggle in Grade 1
and in general perform more poorly throughout their school career. It is
clear that all children should be able to benefit from education in these
71
CHE (2017), VitalStats. Public higher education 2015.
72
UP, Submission and presentation to the Commission, 11 August 2016.
73
DBE, presentation to the Commission, 23 September 2016.
62
early years if we are going to solve the challenges we find in our
education system.
86. The Commission heard much testimony on the fact that Basic Education
receives the bulk of funding, but that there is, none the less, an
articulation gap between what is taught at school and what is needed in
higher education. It is clear from studies (such as TIMS), that our Basic
Education system is not producing the required outcomes. The
Department of Basic Education explained to the Commission that there
is solid evidence of improvements in the performance of learners, for
instance in international tests, but that overall there is Still a
problematically low level of performance. The reasons for these
challenges need to be better understood and may lie in ECD provision
or funding arrangements or a range of other necessary interventions.74
The number of learners who dropout before they finish Grade 9 (which is
the end of compulsory schooling), and even more before they reach
Grade 12, is a matter of serious concern.
87. Regarding PSET, the Minister stressed that while cost-sharing is an
entrenched principle, finances should not prohibit students from
accessing higher education. As such, the DHET has put in bids to
National Treasury to improve the funding to support students at full cost
of study. Since 2013, the Department has consistently attempted to get
sufficient funds to effectively fund all poor students. Despite insufficient
74
DBE, presentation to the Commission, 23 September 2016.
63
funds, substantial funding has been provided through NSFAS. The
Minister explained that since its inception NSFAS has supported 2.6
million students (1.5 million in universities and 1.1 million in TVET
colleges) through loans and bursaries amounting to R59.7 billion
(according to the 2015/16 NSFAS audited statements). This funding has
increased significantly since 2010, and currently supports approximately
205 000 poor undergraduate students to access higher education and
200 000 TVET college students. 75
3.8 POST-SCHOOL EDUCATION AND TRAINING (PSET): DEVELOPING
AND MAINTAINING THE SECTOR
88. Part of the outcome of the 2009 democratic elections saw the
restructuring of the then Department of Education into two distinct
Departments of Basic Education and Higher Education and Training.
Consequently, the mandate of the new DHET included the TVET and
CET sectors, SETAs, universities and private higher education
institutions offering qualifications from NQF level 5 and above. In 2013
the DHET published the Post-School Education and Training White
Paper, which captured the expanded sector and the desired integration
between sub-sectors. This shift in policy had funding implications for the
PSET sector, and at the time of publishing the White Paper, there was
no costing done to give effect to the implementation of the policy.
Additionally, the per capita funding allocated to universities had been
75
Minister of Higher Education and Training, Presentation to the Commission, 13 October 2016.
64
declining in real terms, thereby deepening the funding crisis and leading
to an increase in student fees.
89. The Department of Higher Education and Training (DHET), in their
opening presentation to the Commission, stressed the importance of
taking into account the entire education context when considering the
students demand for free education. They indicated the various
demands on the education budget, including the need to fund
universities adequately to provide quality higher education and research;
expand, improve the quality of and adequately fund TVET colleges and
financially support TVET students; develop and expand CET colleges
and financially support CET students; fund practical workplace based
learning for University students, TVET students and CET students; and
provide universal quality basic education and early childhood
development more generally. They also referred to the need to expand
the system to provide sufficient spaces for study, but also to ensure that
beyond physical and financial access, there is epistemological access.76
This chapter will briefly consider the mandate of the Commission in terms
of higher education and training; the current PSET context and how it
has been shaped by the past and how it can be developed; and the
various costs facing the TVET and university sector in order to ensure
sustainability and the provision of quality education.
76
65
3.9 THE PSET SYSTEM
The shape of the PSET system in South Africa, 2010 and 2014,
compared to the USA pyramid and indicating the NEET challenge77
- 2010 NEET = 2.7m - 2014 NEET = 3.0M (CHET) (Not in Employment,
Education or Training). It may be simply noted at this stage that this
comparison highlights two major weaknesses in our system; the small
proportion of college students as against students attending universities
and the number of unemployed and uneducated persons.
77
APPETD reproduced this slide in their presentation to the Commission, 22 September 2016,
title added by author, no source provided by APPETD.
66
3.10 THE PSET SECTOR
90. The post-school education sector, like all other parts of South African
society, has been shaped by its apartheid past, and it continues to
experience pressures as a result of this. During apartheid, the post-
school sector was divided into a number of colleges, technikons and
universities. Within each of these sectors, there were institutions with
specific foci and for designated races. For instance, within the college
sector, there were, among others, teacher education colleges and
agricultural colleges. Universities were designated by race, and research
was only a focus at the white universities, and even within these to a
greater degree at some than at others. Technikons did not have a
research focus, but provided technical and vocational training in various
fields. In the post-apartheid period, this landscape has changed
significantly, but the history of an institution tends to still have a bearing
on its current status.
3.11 THE COLLEGE SECTOR
91. The college sector has not developed along as clear a path as the
university sector has.78 Understanding of the best vocational structure
has shifted over time, and attempts to ensure sufficient artisans and
technically trained workers and to improve the image of this sector
78
The section on the college sector is based on a workshop given to the Commission by Volker
Wedekind on 28 July 2016. Additions are made (and footnoted) from various presentations to
the Commission.
67
continue to this day. Unfortunately, most people still see college as a less
prestigious career option compared to a university education, and this is
one of the reasons why South Africa has too few people with vocational
skills in comparison to those with more theoretical skills. It is generally
accepted that what is needed to best develop the economy and
development in a country, is a pyramid, with those with technical or
vocational skills forming the bulk at the bottom (these would be
those trained in college or through apprenticeships) and those with
theoretical skills (a degree, or university education) filling the
smaller space at the top. The structure of such a pyramid is the
reverse of what presently exists. The model which is adopted to
fund students at TVETS and universities must accordingly reflect
the priority of the college system if a meaningful reversal is to be
brought about. South Africas lack of technical skills problems is
compounded by the fact that technikons (as discussed later) have
changed into Universities of Technology, and there has been a shift away
from diplomas in favour of the more sought-after degree.
92. Aside from the image problem that they face, the colleges have also
experienced various challenges over the last couple of decades. In an
attempt to create a more integrated education system, changes were
made that have not always had the desired outcome. For instance, the
number of public colleges was reduced from 153 to 50. Governance
structures have changed and so have conditions of service; and
challenges to governance and management structures persist at some
68
institutions, while others are progressing well.79 The lack of security and
clear direction, and the introduction of new lecturer qualification
requirements, has led to many lecturers leaving the sector (and a
shortage is now faced). There is a need for lecturers with an
understanding of theory and practice, and for professional development
of these lecturers.80 Another change to the sector was the decision to
close down all education colleges in favour of teachers getting a degree
through a university. Colleges remained a provincial competency until
2013, meaning that the funding for and standards of different public
colleges was very different.81 Furthermore, some colleges (to this day)
remain the competency of a department other than the DHET (for
instance agricultural, nursing and police colleges).
93. Added to this, interpretations of what vocational training is, have changed
intermittently over this period. At one time, there were Further Education
and Training Colleges (FET), and now they are Technical and Vocational
(TVET) Colleges. Some offered Adult education, but now this is being
moved to community colleges. TVETs offer programmes like the NCV
which is a matric equivalent but also post-school qualifications (like
NATED) and skills development courses and occupational programmes
(mainly together with the SETAs) and higher certificates (with
universities). These programmes are diverse in terms of level and focus,
with more than twenty specialisations in the NCV alone. They offer pre-
79
80
81
False Bay College, Submission and presentation to the Commission, 25 October 2016.
69
service and in-service training. This means they straddle the line between
different types of education and different quality assurance bodies,
making it hard for them to develop a specific identity. NATED courses
were being phased out, and were then brought back at the behest of
industry. There has also been a lack of development in the programmes
and courses, meaning that there are challenges with curriculum design,
relevance, and with some outdated content.82
94. One of the big challenges facing these colleges continues to be their
relationship with industry or the workplace. 83 First, this impacts in the
relevance of the courses they offer, which need to be up-to-date. Second,
it leads to a problem that students cannot complete their courses as they
cannot access workplace training and work-integrated learning, which
are formal requirements of many of the programmes. This results in
students having a theoretical training only, for a technical or practical
qualification. Articulation, both between the TVETs and industry and
between TVETs and higher education, remains a concern, and is most
likely one of the disincentives to a TVET education.84
95. Despite these challenges affecting the basis of the college sector, there
is still a push to grow the sector to meet the needs of the economy and
the demand for further education. The number of students in the TVET
sector more than doubled, from 345 000 students (headcount enrolment)
82
83
84
70
in 2010 to 709 535 in 2015. However, in terms of the fully costed funding
norms, the number of headcount enrolments funded in the Ministerial
approved programmes is approximately 429 638, as compared to the
approximately 664 748 enrolments in the system. This is indicative of the
level of underfunding and over enrolment in the colleges.85 New colleges
are planned - one is complete; two are underway and another nine are
out for tender (although a lack of funding remains a concern for full
functionality).86 While there are initiatives to correct the problems in the
sector, the sector is currently in a situation where student throughput is
worse than at universities (although a lack of data means this is hard to
analyse); where many students go to colleges as a last resort; where
many students enrolled in the college are following the NCV, despite
already having done the equivalent in a school; and where funding is a
major problem both at institutional and student level as these colleges
tend to cater for the poorer students.87
3.12 TVET FUNDING NEEDS
96. The TVET sector is facing severe financial pressure, which impacts on
the quality and innovation of the sector, and on the student experience.
97. False Bay College explained the funding situation from the Colleges
perspective to the Commission.88 College programmes can be grouped
85
DHET, Presentation and testimony to the Commission, 10 August 2016.
86
DHET, Presentation and testimony to the Commission, 10 August 2016.
87
88
71
into 3 categories, namely, Ministerial Programmes, Occupational
Programmes and Higher Education Programmes. The Programme
Qualification Mix (PQM) of the college is developed taking into account
the economy of the region, employment opportunities, past programme
performance and job placement performance. The funding
arrangements for these programmes differ.
98. Ministerial Programmes include the National Certificate Vocational
(NC(V)) as well as Report 191 (NATED) programmes. The DHET funds
these programmes out of their allocation from Treasury in the form of
formula funding. The DHET is responsible for the costing of these
programmes and the current policy is that the DHET funding provides for
80% of the programme costs and the student is responsible for paying
the remaining 20% in the form of tuition fees. NSFAS bursaries are
available for needy students who are not in a position to pay the 20%
class fees. The reality however, is that in 2015 there were 664,748
students in these programmes at colleges countrywide whilst the DHET
could only fund 429,638 (64%) students. This underfunding continued in
2016 and indications are that it will remain unchanged in 2017. The
College explained further that both NSFAS and DHET allocations are
based on 2013 figures, resulting in a large number of unfunded students.
The College had a shortfall of R19 million in 2016.89 The DHET explained
that Colleges are expected to recover fees from students that do not
89
Presentation and submission by False Bay College, 25 October 2016
72
qualify for NSFAS bursaries; however, due to the no fee increase in
universities, colleges are finding it difficult to recoup these funds.90
99. Occupational Programmes include learnerships, apprenticeships and
skills programmes. These programmes are not funded by the DHET but
are offered at a cost to the client. Colleges work together with SETAs and
the National Skills Fund (NSF) to fund these programmes and provide a
stipend for needy students.91
100. Higher Education Programmes are offered in partnership with a
university, mainly at NQF level 5 (higher certificates). These programmes
are subsidised by the DHET through the partnering university and the
students can access NSFAS loans through the university.92
101. The situation is made worse by fear that the university crisis is diverting
attention from TVET sector; and that funding will be directed to
universities. 93
102. The Tshwane South College reported a similar unstable financial
position. Since 2013 the college has submitted a negative budget to their
Council each year, although it has each time managed to meet its
obligations and commitments by making cuts in other areas or from
90
91
92
Presentation and submission by False Bay College, 25 October 2016
93
73
project funding. 94 The College carries 73 staff members who are not
funded through the annual DHET allocation; and this prohibits the college
from making critical appointments on all post levels, affecting the quality
of teaching and learning. The College feels that there is pressure to
increase enrolments from the DHET, despite the fact that there is no
additional funding.95
103. The South African College Principals Organisation (SACPO) agreed with
the Colleges general assessment, explaining that while the DHET uses
the 80:20 ratio for funding, the allocation has been reduced to 62% or
less and bursaries have also been cut. Furthermore, DHET keeps a
portion of this money (63%) for salaries, without considering the different
budget status of each college. Remaining funds are retained by the
DHET. Colleges are also not receiving Capital Funding.96
104. The TVET Governors Council went even further, expressing their opinion
that the funding of Post-Schooling education in South Africa has been
distorted in terms of allocation by prioritising universities over the TVET
Colleges, the supposed skills machinery for the country.97 This had led
to under-funding in the sector since at least 2009. In 2016, underfunding
reached almost R4.7 billion, and TVET Colleges were excluded when
universities were compensated for the no-fee increase; and when relief
94
Tshwane South College, Presentation to the Commission, 25 October 2016.
95
Tshwane South College, Presentation to the Commission, 25 October 2016
96
South African College Principals Organisation (SACPO), Presentation to the Commission, 24
October 2016
97
TVET Governors Council, Presentation & Submission to the Commission, 30 August 2016.
74
was provided for historic debt. TVETs annually write off bad debts,
leading to even more chronic financial strain. The Council explained that
they are expected to increase the size of the sector, without the proper
levels of funding, or capital budget or sufficient funding for student
support, despite the fact that the sector provides for the poorer student
population and many under-prepared students. The Governors Council
called for an increase in the allocation from the state.98
105. The DHET agreed that there is a crisis of underfunding in the TVETs
sector. They explained that in terms of the fully costed funding norms, the
number of headcount enrolments funded in the Ministerial approved
programmes is approximately 429 638, as compared to the
approximately 664 748 enrolments in the system indicating the level of
underfunding / over enrolment.99 They explained that for 2017/18, TVETs
were funded at 53% rather than 80% as per policy (where the remaining
20% should be made up through tuition fees). In 2013/14 they were
funded at 81%, but since then this has declined to 68% in 2014/15; 60%
in 2015/16; and 56% in 2016/17. This underfunding is heading towards a
major crisis.100
106. The DHET also discussed the underlying principles of fair funding for
TVETs. This is not currently the situation as the level of funding is not the
same across all provinces. For instance, in the Eastern Cape TVET
98
TVET Governors Council, Presentation & Submission to the Commission, 30 August 2016.
99
100
DHET, Presentation to the Commission on Funding of TVET & CET Colleges, 24 October
2016.
75
students are funded at R26 857 per FTE (full-time equivalent) learner,
and in Limpopo at R16 050. This is a result of the process of changing to
a single national system from the old provincial system. Fair funding
would include equal rand values per weighted FTEs; an allowance for
whether colleges are urban or rural, small or large; and allocations based
on effective throughput levels. 101 Currently, allocations are made based
on the funding formula for different programmes, regardless of
certification or throughput rates. Once the enrolment-based allocation is
determined, TVET colleges only received a percentage of the allocation
based on previous provincial allocations and available funding. Actual
spending per FTE by Colleges does not differ substantially between
different types of courses and, in practice, Colleges do not spend
substantially more on higher funded (more practical) courses. This
impacts on the quality of practical courses. There is also evidence that
Colleges spending more on staff development have significantly higher
certification rates. Low throughput rates can also result in small class
sizes at higher levels, which increases the cost per student for offering
that course. The Ministerial Committee on the Review of the Funding
Frameworks of TVET Colleges and CET Colleges, has suggested a
greater focus on the cost per graduate, rather than on the more basic
measure of cost per enrolment. Even though targets in this sector are
mostly focused on enrolment numbers, if students dont complete, then
101
2016.
76
there is no benefit to society or the economy. The Committee also
recommends free tuition in TVET and Community Colleges.102
107. The DHET added that NSFAS bursaries (amounting to R2.3 billion in
2015) have been allocated to poor students to fund tuition fees (229 000
beneficiaries), as well as to provide accommodation and or travel
allowances to needy students staying 10 km from a TVET college
campus.103 The Minister explained that while significant NSFAS funding
is available, and about 50% of students dont pay fees, there simply is
insufficient funding to support all poor students adequately.104 This has
led to unrest in colleges.105 The South African Further Education and
Training Students Association (SAFETSA) corroborated the fact that
there is insufficient funding of TVETs, and that the poor infrastructure to
support their learning and training, as well as a myriad of NSFAS
challenges, complicates life for many students. NSFAS will be
considered in more detail in a separate chapter. There is also pressure
on the examination system which is underfunded.106
102
2016.
103
104
Minister of Higher Education and Training, Presentation to the Commission, 13 October
2016.
105
106
77
3.13 THE UNIVERSITY SECTOR
108. As mentioned above, the technikons (which were diploma awarding
institutions focused on technical courses) no longer exist, and have either
been converted into universities of technology (UoTs) or have been
merged with traditional universities into what are now called
comprehensive universities (institutions with both technical qualifications
and formative degrees; and some postgraduate offering). A number of
traditional universities still exist, and while racial barriers have been
removed, a distinction between universities based on their past and
language barriers continue. A process of merging institutions was
undertaken in the early 2000s in an attempt to transform the university
landscape. In some instances, this process has been effective, but not
all institutions were merged, and not all mergers were successful. The
post-merger landscape consisted of 23 universities 11 traditional; 6
comprehensive universities (when including the Universities of Zululand
and Venda, which were to move towards a comprehensive offering) and
6 universities of technology (UoTs) - reduced from 36 universities and
technikons in 1994. Since then, two new universities were established in
2014, and one merger was undone to create two universities, leaving the
system with 26 universities currently.
109. The historical disadvantages tend to still impact on the current trajectory
of the majority of these institutions. Despite the mergers and other
initiatives since 1994, people still refer to institutions as historically-black
78
(HBIs) or historically-white (HWIs) and the nomenclature is used to
denote Historically Disadvantaged Institutions (HDIs) and Historically
Advantaged Institutions (HAIs) respectively. HBIs tend to have a higher
proportion of black students, less research focus, and greater financial
strain. UoTs (whether HBI or HWI) find themselves in a similar situation,
with a generally poorer student base. HWIs tend to be institutions of first
choice, so they can select students with higher matric averages, who are
more likely to succeed. They can also offer better support (academic and
financial) and better student life and employment opportunities.
110. Nonetheless, as mentioned earlier in this report, it was at these HWIs that
the 2015 protests began, both over a lack of institutional transformation
and over financial strain. Furthermore, as indicated to the Commission, a
number of these HWIs are currently under severe financial strain. This
has resulted in, for instance, cuts to support staff and library collections.
The financial state of the university sector (before considering the
demands for more affordable fees or free education) is not healthy
and is unsustainable. This state of affairs poses serious risks to the
quality of provisioning and support to both students and staff.
3.14 UNIVERSITY FUNDING
111. A number of submissions were made to the Commission commenting on
the lack of funding for universities. A focus of these discussions was on
the fact that while the number of students enrolled in the sector has
79
doubled from 495 356 in 1994 to 983 698 in 2013, there has not been a
relative increase in funding. The Report of the Ministerial Committee for
the Review of the Funding of Universities (2013) found that Meeting the
resource needs of the sector will require significant additional funding. An
analysis by the Committee found that state funding of higher education
(in real terms) has been declining over the years. Between 2000 and
2010, state funding per full-time equivalent (FTE) enrolled student fell by
1.1% annually, in real terms. During the same period, perhaps as a
response to declining state funding, tuition fees per FTE student
increased by 2.5% annually, in real terms. South Africas funding of
higher education, even though significant, does not compare favourably

107
to other countries. Testimony was given to the Commission
comparing funding of the university sector in South Africa as a
percentage of GDP to a number of other countries. While this comparison
is indicative of underfunding, such comparisons can be misleading as the
size and shape of the sector varies in different countries (for instance,
should the whole of the post-school sector be considered or just
universities; what about comparative participation rates?). Furthermore,
while a country like Cuba spends a greater percentage of their GDP on
university education, the private benefits to a graduate are much lower
than in a country like South Africa as indicated elsewhere in this report.
Whatever the historical or international comparison, testimony from
107
Report of the Ministerial Committee for the Review of the Funding of Universities (2013), p.7.
80
colleges and universities indicated severe financial strain, not only on the
students but also on the institutions.
112. The cost of an education goes beyond what is often considered. 108
During the Commission testimony was heard regarding a number of costs
to an institution, as well as the impact of these costs not being sufficiently
met. Due to this not being the primary focus of this report, these will only
be discussed very briefly. However, it should be borne in mind that
any solution to the financial crisis in the college and university
sectors, must also take these into account if the quality of education
on offer is not to be negatively affected. One of the costs highlighted
by the University of Johannesburg in their presentation to the
Commission was the high cost to ensure that underprepared students
are successful in their university studies and to ensure that students do
not drop out before they have completed their studies. This requires a
suite of academic and social assistance programmes which the university
has to provide In addition to this UJ also has an extensive tutor and
mentoring programme to ensure students success in the classroom. This
is funded from the operating budget and the increasing investment has
resulted in an increased graduation rate over the past 5 years of 10%.
The University of Johannesburg highlighted the need for universities to
build and to maintain an adequate level of reserves [to] allow Councils
to invest in strategic initiatives, such as new facilities or the funding of
108
Universities were unable to explain clearly why an LLB degree for example would cost more
at one institution than another. This question may need to be addressed in finding a solution to
fee regulation.
81
strategic research areas. It added that although UJ had modest
operational surpluses this was not enough to fund the backlog
maintenance.109
113. CHET reported on the DHET analysis of 2015 Reports by universities
(2016), which found that six universities had operating deficits in their
2014 council controlled funds (NWU, RU, UKZN, UNISA, CUT, MUT);
nine universities had council controlled personnel costs above the DHET
norm of 53%-63% (CPUT (67%), TUT (66%), RU (73%), UFS (64%),
UCT (65%) , WSU (71%), DUT (71%), MUT (65%), VUT (70%)); and that
student debt before provision for doubtful debt was R5.451billion or 28%
of expected tuition fee income.110
114. Another key issue raised during the Commission, in particular by
universities, is that inflation in the education sector is higher than general
inflation. This is referred to as the Higher Education Price Index (HEPI),
which stands at CPI plus 2%. 111 An expert analysis of the funding
framework and the challenges was further provided by Prof Rolf Stumpf,
a retired vice chancellor and advisor to a number of universities in South
Africa.112 A number of reasons were discussed for this higher inflation
rate. In the first instance, a large proportion of the budget of an institution
109
UJ, Presentation & Submission to the Commission, 2 September 2016.
110
111
USAF, Submission and presentation to the Commission, 29 August 2016; UNISA Bureau of
Market Research (2014), Research and development of a higher education price index for
South Africa (Commissioned by HESA).
112
Rolf Stumpf, Presentation to the Commission, 18 October 2016.
82
goes to salaries (in the case of the University of Johannesburg, 61%).113
Salaries are one of the items that tend to increase beyond CPI, and in
households salaries do not form a large portion of expenditure. The
second main reason for higher inflation is the proportion of goods bought
internationally, and the additional cost of the depreciating of the Rand.
This is particularly the case with research equipment and access to
international journals. In 2014 the costs to libraries actually increased by
an estimated 40% due to the combined effect of a new e-resource tax
and the deprecation in the value of the Rand.114 Another major cost driver
raised by Universities, which has also been increasing at a higher than
inflation level rate, is the cost of utilities (water, electricity) and these,
together with costs for cleaning and security, account for 10% of the UJ
budget.115 It is further expected that the demand for in-sourcing non-core
services and concomitant staff costs will exacerbate the situation at many
universities in the near future.
115. Teaching and academic staff: 116 While the cost of staff salaries is
normally taken into account when measuring the cost of providing an
education, this is one of the factors leading to the high rate of inflation in
the sector. Lecturing staff (both at college and university level) need
specific training and a general shortage of academic staff is experienced
by the university sector, especially in some professional fields.
113
114
CHE (2016) South African higher education reviewed. Two decades of democracy, p. 214.
115
116
This section is partly based on the presentation by USAF to the Commission, 20 October
2016; but also on broader reading, including CHE (2016) South African higher education
reviewed.
83
Academics need to have undergone many years of study (undergraduate
and postgraduate, preferably up to doctoral level) in order to have the
requisite knowledge in their field, and in order to be able to carry out
research. Only an academic with a doctorate can supervise a doctoral
candidate. Such qualifications are scarce but necessary, and the
National Development Plan has set targets for the number of academics
with a doctorate by 2030, although this is not the only measure of quality,
and in some fields industry experience may be more beneficial.
116. Aside from the necessary qualifications and research ability, teaching
skills are required to ensure effective teaching and learning. An additional
cost with staffing is the need to transform the academy to be more
representative of the countrys demographics. There is a particular
shortage of black female academics, and most Professors are white men.
There is an urgency in transforming the sector, but appropriate strategies
and the attendant investment needs to be put in place to accelerate
transformation. The challenge is not only as a result of the limited number
of students who decide to pursue doctoral studies, but also in making
academia attractive. In some fields, professionals will earn considerably
higher salaries outside of the university, and those with postgraduate
qualifications are in high demand in our economy.
117. The staffing challenge is exacerbated by the fast expansion of the sector
over the past twenty years, meaning that more staff are needed. USAf
has calculated that the sector will require the recruitment of 3 683
84
additional academics into newly created posts by 2019, adding an
average of 737 per year. This excludes those needed to replace staff who
retire or resign from existing posts. Add to this the general problem of the
under-preparedness of students, and the demands for and on academic
staff increase. Unfortunately, the last twenty years have not witnessed an
increase in academic staff concomitant to the increase in student
numbers, leading to greater pressure on academics, larger classes, and
a less attractive profession. CHET explained that academic staff
numbers have increased by about 2% per annum, meaning that the
overall student: staff ratio has increased from 20:1 in the early 2000s to
27:1.117 The system has been employing about 233 (fulltime equivalent)
academics into newly-established posts each year between 2000 and
2012.
118. On the other hand, the National Tertiary Education Union raised the issue
of low cost higher education without affecting the quality.118
119. There has been much written on the state of the academic profession
globally, and it is not necessary to dwell on that in detail in this context.
The demands on academics are increasing, there is a publish-or-perish
culture, and an increasing number of academics are employed on
117
118
NTEU, Submission of May 2016.
85
contract rather than permanently. South African universities are similarly
affected.
120. In South Africa, an additional staffing cost which needs to be taken into
account, is the cost of insourcing. This was one of the demands of the
2015/16 protests, and a number of universities agreed to the insourcing
of certain support staff (including security, catering and cleaning staff).
The full cost of insourcing has been estimated by USAf to stand at
between R0.5 and 2 billion per annum. This will also see an increase in
the salaries and benefits for insourced staff. Some universities have
indicated that they expect no additional costs, which has yet to be seen.
121. Research:119 The cost of research is not always taken into account when
considering the cost of running a university, and yet research is a core
function of the university. Research is not only important for the country
in terms of innovation and development, but it is also vital for teaching.
The focus of any funding debate should not only be on undergraduate
students, simply because intense protest action comes from
undergraduates, but also on postgraduate and research students who
are at formative stages of knowledge production. The National Research
Foundation indicated that they fund 10% of all postgraduate students,
and also make allocations to the universities third-stream funding.
Maintaining research is not cheap. It requires, among other things,
119
This section is partly based on the presentations and submissions to the Commission by the
National Research Foundation (NRF), 5 September 2016 and by Loyiso G. Nongxa, 19 October
2016, but also on broader reading, including CHE (2016) South African higher education
reviewed.
86
laboratories, expensive equipment, IT facilities and expensive software
licences, and libraries with access to journals. The needs differ by field.
Agricultural research will require experimental farms. Medical research
requires tertiary hospitals as training platforms. In the case of the
Veterinary education and training, which is a scarce skills area, animal
hospitals and related facilities are required. All of these are run at a high
cost to the university, and in certain instances cross-subsidised by other
programmes and fundraising initiatives. In some instances, research can
bring in an income, but the experience has been that enthusiasm for new
developments decreases quite quickly, and that funds often end up being
directed from existing programmes to keep research projects going.
Private companies can ask an institution to conduct specific research for
which they are willing to pay, or non-profit organisations may be willing
to fund research in a specific field. This money is however, ring-fenced
only for specific projects and the blue skies research of an institution
needs institutional funding. Some of this research funding is also used by
undergraduate students, and as such is more directly linked to teaching
costs. For instance, students need access to the library and to relevant
recent publications, students also need access to laboratories and need
to be able to do experiments and use field-specific equipment. For
postgraduate students, the difference between teaching and research
costs is even less clear. The NRF indicated that Any policy, planning or
funding decisions that respond to the challenges of HE must enhance
research excellence innovation and knowledge production. Any funding
decisions for students must include appropriate resourcing for
87
postgraduate studies (number and value of bursaries and
scholarships).120
122. Student support services: 121 Support services have become more
extensive and more important in recent years, not only in South Africa,
but also internationally. Support services include administrative, financial,
psychological, medical, career advice and academic support. The cost of
such services depends on the extent and uptake of the services. The
main reason for student support is to make the transition to higher
education easier for students in the hope of improving throughput rates
and lowering dropout levels. There has been extensive research both
internationally and nationally on the ways to improve the efficiency of the
higher education sector. Career advice is considered an important
intervention to ensure that students are studying in the field most suited
to them (academically and personally) as this will make them more likely
to persevere and succeed. Students also need to receive the assistance
they need when they start in higher education, and throughout their
studies, to ensure than they can succeed physically and emotionally.
Such support includes assistance with the application process and other
administrative tasks; assistance in applying for financial support where
necessary and available; and medical care and counselling if and when
120
NRF, Presentation to the Commission, 5 September 2016.
121
This section is partly based on the presentations to the Commission by Emeritus Professor
Ian Scott, 19 October and 9 November 2016 (based and updated on a proposal produced by a
CHE task team of senior academics submitted to the Minister of HET in December 2014) and by
the DHET, 24 March 2017. Also on broader reading, including CHE (2016) South African higher
education reviewed; CHE (2013), A proposal for undergraduate curriculum reform in South
Africa: The case for a flexible curriculum structure.
88
needed. Some universities have introduced specific programmes for first
year students to help them to adapt to university life and to understand
what will be expected of them.
123. Another important aspect of support is academic support, which has
received a lot of attention over the last couple of decades, especially in
South Africa. Academic support can take on different forms, such as an
extended programme where an additional year is added to the curriculum
to assist with the articulation from school; additional classes in key
subjects such as literacy and numeracy; IT innovations (such as clickers/
robot system) which help identify when and where there is a problem;
language support; and summer/ winter schools. It is clear that while
student support adds a significant additional cost to the provision of
education, it is crucial considering the current throughput and dropout
levels. Research by the Council on Higher Education (CHE) indicates
cohort throughput rates as shown below:
89
Accumulative throughput comparison of 2008, 2009 and 2010
cohorts finishing within regulation time up to n+2 years for 3-year
diplomas, 3-year degrees, 4-year degrees and weighted national
rate (excluding UNISA)122
124. Based on such cohort throughput studies, the South African university
system is generally deemed inefficient as a large number of
students are given the opportunity of education without them
succeeding. This is financial burden for the state, the university and the
individual, and also comes with psychological consequences. Professor
Scott explained to the Commission, drawing on a CHE task team report
on a flexible curriculum, that the university sector is a low participation
system compared to similar income countries, with a Gross Participation
122
CHE (2017), VitalStats. Public higher education 2015.
90
Rate of 20% in 2013.123 This participation is racially skewed. About 12%
of African and coloured youth access universities, making it a small,
select intake who should collectively have strong potential to succeed.
However, this is not the case and performance has stayed stubbornly
poor over time with overall throughput rates as shown in the table above,
and only 7% of African and coloured youth succeeding in higher
education.
125. Scott suggested that one of the reasons for the demand for Decolonising
the curriculum could be the need to remove inequalities in
epistemological access. He suggested that low and skewed
performance could be creating disaffection with the higher education
sector. He went on to explain that while no racial group is performing
well, there is still abundant evidence of racial and class inequalities in
successful engagement with the undergraduate educational process. He
added that the extent of the under-performance of such a small and
select intake clearly indicates systemic obstacles within the universities
educational structures and processes themselves pointing to a
mismatch between the assumptions on which SAs undergraduate
education is based and the realities of the educational backgrounds of
the majority of the student body.
126. Scott outlined the history of Academic Support (AS) or Academic
Development (AD) programmes in South Africa, and referred to the
123
Ian Scott, Presentation to the Commission, 19 October 2016.
91
articulation gap between school and university. He discussed under-
preparedness and how the gap could be closed from either side, but that
there is a lack of opportunity to explore subject and curriculum choice.
He referred to possible language barriers, and proposed ways to better
engage students. Scott also addressed a proposal to extend the standard
curriculum for 3-year programmes to 4-years, and showed analysis which
indicated that the cost of expanding to 4-years would be less than the
cost of admitting more students in an attempt to get the same number of
graduates. This analysis was based on the success of foundation
programmes, which have been implemented at most institutions, and on
the assumption that any additional students given access would be less
able to succeed without support than the current, top achieving, intake.
127. The DHET, in their response, described a number of initiatives already
underway to improve throughput, and the proposed University Capacity
Development Programme. The DHET suggested that the current
interventions are bearing fruit, and that there are clear improvements in
throughput. The proposal of an extended curriculum, as put forward by
Scott, is not the route favoured by the DHET at this time. The Minister
explained that the DHET has provided significant funding for foundation
provisioning and a range of other initiatives, such as the teaching
92
development grant at universities with the aim to improve the success
rates of all students and therefore ensure access with success. 124
128. While there are a number of different views on this issue, and various
initiatives either proposed or underway to try and improve throughout,
there are certain elements of overlap. There is agreement by all
involved that the current throughput levels need to be improved.
Treasury agreed with the inefficiency of enrolling more students
and allocating more money to a system that is not yielding the
desired results. Throughput in both universities and colleges was of
great concern to Treasury. 125 The issue of the best way to improve
student throughput falls outside the mandate of the Commission.
However, the Commission is focused on university funding, and it is clear
that improved throughput is a necessary pre-requisite for broadening
opportunity to access higher education (and the funding of such access).
The necessary measures must, therefore, be introduced to ensure a
higher education system focused not only on access, but also on
success. Increased access without success is not in line with the spirt of
the Constitution. It will be destructive of the very opportunity that it is
intended to provide, viz access to quality education and consequent
productive employment through the former students lifetime. Further
124
2016.
125
National Treasury, Presentation to the Commission, 7 October 2016.
93
consideration will be directed to the important issue of student support in
chapter 23 of this Report.
129. Infrastructure (including student accommodation): One of the larger
expenses, which most institutions indicated that they cannot afford
without state assistance, is infrastructure development. As mentioned
above, the size of the higher education sector has increased significantly
over the past two decades both at colleges and universities. With
growing student numbers, there is a need for more infrastructure be it
lecture halls, library space, laboratories and rooms for practical work, or
student accommodation. Investment in infrastructure is costly, with slow
return. The 2002 university funding formula did not make an allocation
for infrastructure development, or even for infrastructure maintenance.
As a result, universities found it hard to maintain current infrastructure,
and those without reserves could not expand. Lack of maintenance has
led to an even greater infrastructure backlog, and institutions under
severe financial strain continue to prioritise immediate costs over long-
term maintenance. In 2006/07 the DHET realised that the sector was
growing without sufficient emphasis on the development of infrastructure;
and as a result, the government invested more than R13 billion from
2007/6 to 2014/15 over 3 funding cycles. 126 The first cycle ran from
2006/07 to 2009/10. It saw R3.6 billion invested in engineering and other
SET categories, as well as general infrastructure capacity. The second
126
DHET, Presentation to the Commission on Infrastructure initiatives and related costs, 20
October 2016.
94
cycle, 2010/11 to 2011/12, consisted of funding to the value of R3.3
billion, with an additional R2.5 billion in co-funding from universities (total
R5.8 billion). The priority areas were architecture, engineering, health
sciences, life sciences, student housing (R660 million) and teacher
training. Third cycle, 2012/13 to 2014/15, funding amounted to R8.5
billion (R6 billion from the state and R2.5 billion in university co-funding).
The priorities changed for this cycle to include the backlog at historically-
disadvantaged institutions (HDIs), infrastructure to support students with
disabilities, research equipment, assistance for project management
capacity and African languages. Money was also made available for
student housing (R1.69 billion and university co- funding of R670 million)
to provide 9000 new or refurbished beds. The HDIs received R1.443
billion (85%) of this allocation, and the other campuses R247.3 million
(15%).
130. From 2015/16 the DHET changed the process for allocating the grants
so as to focus on the system as a whole in a more integrated way. All
institutions have developed campus master plans and have carried out
maintenance audits, disability audits, and IT audits. The sector has a
maintenance backlog of R25 billion. The cycle made allocations of R1.9
billion, R700 million going to maintenance; R850 million to student
housing, and R350 million to priority commitments from the third cycle. It
is envisaged that the 2016/17 to 2018/19 cycle will make R7.5 billion
95
available, with about half going to student housing and the other half to
infrastructure needs.127
131. In 2010 the DHET identified the need for new universities to be created
to meet the capacity demands in the sector. A feasibility study and 10-
year spatial development plan were completed with an initial grant of R50
million from National Treasury. After a successful bid to Treasury, the
process of establishing the new universities began. Separate earmarked
grants were put aside for the two new universities (Sol Plaatje University
(SPU); University of Mpumalanga (UMP)). Their first intake was in 2014
(124 at SPU and 240 at UMP, mainly in refurbished facilities) and the
plan is to grow over the next 10 to 15 years to 7 500 students at SPU and
18 000 at UMP.128
132. In 2011 a Ministerial Committee produced a report on the state of student
accommodation at universities. 129 The report only considered contact
universities, and found that across the sector the provision of
accommodation was inadequate. At some institutions, students were
staying in private accommodation that wouldnt meet minimum health
and safety standards. Official university residences were too few to meet
the student demand with 107 598 beds for the approximate 535 000
127
October 2016.
128
October 2016.
129
Report on the Ministerial Committee for the Review of the Provision of Student Housing at
South African universities (2011); Iain LAnge, Submissions and presentation to the
Commission, 26 January 2017.
96
students in contact institutions at that time (20% in residences). The
problem of housing was worst at HDIs. Dr. LAnge explained some of the
advantages of university accommodation, including a safe and hygienic
living and studying environment; access to nutrition; close proximity to
the university and amenities; a living-learning environment; support for
first year students; and improved academic success. It is felt that
university accommodation is especially important for students on
financial aid, given the array of support measures in place, but that it can
also be important as an environment for developing social cohesion
between students from different races and social classes, and notably
creating living and learning spaces.
133. The Committee proposed three options for student accommodation
development (i.e. to cater for between 50% and 80% of the student
population; or to grow at 5% p.a.) at a cost of about R147 billion over a
period of 15 years. This excludes the R2.5 billion backlog in maintenance
of student accommodation across the sector. To modernise existing
residences so they are fit-for-purpose, a further R1.9 billion is

130
required. These costs exclude the cost of developing student
accommodation for the TVET sector. In this sector, a lower percentage
need to be accommodate as more students are likely to be able to live at
home, but the current provision is close to non-existent.
130
October 2016.
97
134. Language: 131 The issue of the language of our institutions of higher
learning remains a sensitive issue, and the 2015 Higher Education
Summit noted that the increasing levels of frustration due to the slow
pace of transformation in the university sector. One of the major issues
highlighted in this regard, was language practices which create barriers
to effective teaching and learning. In an attempt to be more inclusive, the
majority of institutions have selected English as the main language of
teaching and learning. However, the vast majority of those attending
higher education institutions do not come from English speaking
households. Language can, therefore, act as a barrier to academic
success. Many institutions are trying to incorporate an indigenous
language into their administrative culture, but this does not tend to carry
through to teaching and learning. Another sensitive issue is the use of
Afrikaans. A number of the HWIs were historically Afrikaans institutions;
and while some have selected to drop the language entirely, and had to
go through court battles in order to achieve this, others have attempted
various dual language policies with associated costs. The issue of
language was one of the matters raised during the protests of 2016, and
it is clear that it remains an emotive issue. The view held by the protestors
is that it is expensive, favours one race group over others, and leads to
a lack of integration. The cost of a bilingual (or multilingual) policy at an
institution is high. In order to offer courses in more than one language,
an institution needs to ensure sufficient academic staff proficient in such
languages, study guides and other support material need to be
131
Marlene Verhoef, Presentation to the Commission, 20 October 2016.
98
developed and produced in these languages, and duplicate classes need
to be offered (even when the demand is low). At certain institutions, this
emotive issue led to demands for mother tongue instruction, even if it
may not be developed as an academic language. This argument was to
justify equitable treatment of students on campuses.
135. Transformation: South African society cannot shy away from the need
to transform the society, with higher education institutions being no
exception to this rule. In 2008, a racist incident at the University of the
Free State, led to the formation of a Ministerial Committee on
Transformation and Social Cohesion and the Elimination of
Discrimination in Public Higher Education Institutions. The Committee
reported later in the year. 132 Broadly, it found that that discrimination,
particularly on the basis of race and gender, is pervasive in the higher
education sector. It found a disjuncture between institutional policy and
practice, with institutional culture remaining a challenge. Transformation,
much like other higher education initiatives, requires funding. Some of
the recommendations by the Committee were: the creation of a
permanent oversight body to monitor transformation in the sector;
earmarked funds for the development of black and female academics;
earmarked funds for academic development; attention to the state of
student housing and residence cultures characterised by discriminatory
practices, especially at previously Afrikaans universities; increased
132
Report of the Ministerial Committee on Transformation and Social Cohesion and the
Elimination of Discrimination in Public Higher Education Institutions (2008).
99
funding for NSFAS; and the implementation of language policies that
promote African languages. The issue of transformation is one of the
prominent issues leading to student dissatisfaction with the higher
education experience. The need for curriculum reform (or decolonisation
of the curriculum) is a key demand by the study body. Rhodes University
stressed the need for transformation in their presentation to the
Commission, and highlighted the costs associated with it. 133 They
explained the need for re-curriculation for more inclusive programmes;
for transformation of staff demographics; for better support of
students to ensure they are not just provided physical access to the
universities but also epistemological access to the knowledge within it,
all of which need additional funding.
3.15 PRIVATE HIGHER EDUCATION AND TRAINING
136. Section 29(3) of the Constitution recognises the place of private tertiary
education. It provides:
(3) Everyone has the right to establish and maintain at their own
expense, independent educational institutions that-
(a) do not distinguish on the basis of race;
(b) are registered with the state, and
(c) maintain standards that are not inferior to standards at

comparable public institutions.
133
RU, VC presentation to the Commission, 2 September 2016.
100
(4) Subsection (3) does not preclude state subsidies for independent
educational institutions.
137. While the State has a programme for providing subsidies to independent
basic education institutions, as envisaged in the Constitution, it has not
yet developed a similar programme for independent tertiary institutions.
In many developing or comparable economies (e.g. Brazil) such
education assumes a far more important role than is presently the case
in South Africa. We have considered that the terms of our mandate
extend to the feasibility of providing fee-free tertiary education to students
at private institutions of higher learning including those offering technical
training.
138. The purpose of this discussion is not to consider the challenges and
merits of private institutions. However, it is important to remember that
these institutions provide another avenue of access to PSET, often in
specialised areas. There are currently 114 private higher education
intuitions and 627 private colleges in South Africa, offering a range of
programmes.134 It is estimated that about 10 to 15% of enrolments are
currently in private institutions. The Commission heard testimony from
the Association of Private Providers of Education, Training and
Development (APPETD) and the Private Higher Education Interest
Group (PHEIG), and also from some individual institutions.
134
2016.
101
139. APPETD described the private further and higher education sector,
pointing out that the sector is regulated through the Higher Education Act,
like public institutions. These private institutions receive no subsidies or
grants from government, even though low-cost providers address the
needs of the poor who cannot access public universities. APPETD
argued for support from the Treasury for these institutions. They
explained the real cost of an education at a public institution by referring
to subsidy contributions from DHET, tuition fees and third-stream income.
They then referred to some other countries where the state provides
financial aid to students attending private institutions. Finally, they
referred to the massive growth targets for higher education as projected
in the NDP, and how private institutions could assist with human
resources capacity building.
140. APPETD concluded by suggesting a voucher system for poor and
missing middle students taking courses in skill-priority disciplines, which
could be used to access approved private institutions. In this way,
APPETD argued that private institutions could become part of the
solution to the higher education crisis.135 Richfield Graduate Institute of
Technology, a higher education provider, put forward a very similar
proposal to APPETDs. They indicated that they receive no subsidies,
grants or allowances, but argued that they provide low-cost education to
the poor, both in relation to TVETs and universities. In the light of this,
135
APPETD, Presentation to the Commission, 22 September 2016.
102
they argued for financial support to be available to students attending
these institutions.136
141. PHEIG, on the other hand, focused on the crisis in the public higher
education sector, and indicated in their testimony that we do not believe
that any state funding should be directed in any way to the private sector.
We fully support the current structure in that the private sector should be
paying for full costs in relation to regulation accreditation and we think it
is completely inappropriate to be advocating for redirection of any subsidy
towards the private sector. So, our interests are fundamentally different
on this matter.
142. PHEIG noted the current situation where, as a result of not being able to
afford fees, higher education [is] inaccessible for many students. They
indicated the growing problem of the so-called missing-middle and the
need to address this situation, pointing out that fee increases meant
fewer students who can afford public higher education and fewer
students who existing state support systems can support. If that is taken
with the reported low repayment rate on the NSFAS system, the net
impact is serious in terms of limiting access. The PHEIG also pointed to
continued inequity in the public higher education system between
historically advantaged and disadvantaged institutions, and increasing
costs which have not been offset by subsidy increases or fee increases.
136
Richfield Graduate Institute of Technology, Presentation to the Commission, 30 August
2016.
103
Finally, the problem of low throughput and graduation rates was referred
to, pointing out that more graduates graduating sooner may result in an
increase in the repayment of NSFAS funds and therefore more funds for
new students and less stress on institutions with repeating students.137
143. While the private higher education sector in South Africa is relatively
small, its role in expanding capacity should be given serious thought.
Although a number of presenters rejected private education as part of the
commodification of education, it seems to the Commission that the
private education sector must necessarily play a role in supplementing
the lack of capacity in the public sector, the more so if student numbers
are materially increased by the provision of universal access. It may be
noted that the model proposed by the Commission is one that seeks to
treat students at all institutions of higher learning on a basis that is as
equal as possible.
3.16 CONCLUSION
144. The discussion above highlights the many funding pressures facing the
PSET sector, and most specifically the TVET colleges and universities.
There is already a severe funding crisis, which is impacting on capacity,
quality, throughput, staff ratios, infrastructure maintenance, research and
on basic provision and transformation. It is clear that the sector faces
many challenges, and while some of these could be solved through
137
PHEIG, Submission and presentation to the Commission, 22 September 2016.
104
efficiency changes, many require additional funding. The purpose of this
chapter is to highlight the need to consider the entire education sector,
and the entire range of needs of each sub-sector within the education
sector, before determining whether it is feasible or not to provide fee-free
higher education to one section of the entire PSET system. That said, the
affordability of education is a key concern which needs consideration,
especially in a country where the income distribution is so skewed, and
the poverty level rises unabated.
4 FEE-FREE IN THE CONTEXT OF HIGHER EDUCATION AND TRAINING
145. The expression fee-free may bear a seemingly obvious meaning on its
face. In practice, the position is otherwise. First, the evidence before the
commission has been virtually unanimous that although the fee element
of higher education and training represents a substantial proportion of the
cost of such education or training for the student, it is, on its own, of little
practical significance unless regard is also had to other elements of the
full cost of study. Thus, it has been emphasised (and persuasively so)
that tuition is for the great majority of the student body (and also for the
aspirant student population) of little practical value without food,
accommodation, transport, books, computers/tools/equipment, internet
connectivity, health care and in many instances, family support (i.e.
support of the students family, not a family contribution). It has been
urged that one of the contributors to the high dropout and failure rate in
higher educational institutions has been the emphasis on tuition fees
105
while underplaying the full cost of study. The truth of this assertion is not
measurable but the Commission has been persuaded of its likelihood and
the consequent need to take the full cost of study into account in any
assessment of the cost and feasibility of a fee-free higher education and
training system.
146. Nor have we regarded the expression fee-free as limiting the
commission to higher education which carries no tuition fee at all for the
student during the period of his or her studies and at any time
thereafter. It has become apparent from a consideration of the many
reports and published articles on the subject as well as world trends, as
also the diverging views expressed in evidence before us that the real
need in relation to higher education in South Africa (in universities,
colleges and private institutions) is to make access available to all
who qualify academically for it, irrespective of whether they can or
cannot afford to pay the tuition fees demanded by such institutions
at the time of applying and for the academically acceptable period
of their studies. This does not exclude the obligation to pay the whole
or part of such tuition fees at a later date when the former student, now
reaping the benefits of free access to an institution of higher learning, is
able to pay. We have therefore understood the concept in this sense, i.e.
fee-free at the point of access and for the academically acceptable
duration of study.
106
5 FEASIBLE
147. Feasibility is a word of wide import. It means not merely whether a
project is affordable or doable but, according to the Shorter Oxford
English Dictionary whether it is capable of being done, carried out or
dealt with successfully in any way; possible, practicable. It is in this broad
sense that that we have interpreted this concept. Thus, many presenters
were motivated by idealism, political or economic philosophy, or a desire
to further human rights. While we honour such motives each proposal
must, in the end, stand or fall by the degree of its practical application.
6 LEGAL CONSIDERATIONS, INCLUDING THE CONSTITUTION
6.1 THE CONSTITUTIONAL OBLIGATION IN RELATION TO HIGHER
EDUCATION AND TRAINING
148. A wide discussion ranged in the Commission between the
Commissioners, evidence leaders and experts as to the scope of the
Constitutional obligation to provide higher education. The Commission
listened to the views of interested persons and weighed them up with
deference. What follows reflects the Commissions understanding of the
law.138 We accept that a definitive interpretation lies with the Courts.
138
It must fairly be noted that the Commissioners (all legally trained) were not in agreement with
the advice of the evidence leaders (also legally trained) in all respects.
107
149. One of the key foci of the Commissions work has been to better
understand the reasons for the demand for free education; the
Constitutional obligations; and the governments policy in this regard.
When presenting their demands, many stakeholders referred back to the
1955 Freedom Charter. The Freedom Charter was a document drawn up
during the struggle against apartheid by the South African Congress
Movement (an alliance of the African National Congress (ANC), South
African Indian Congress, Coloured Peoples Congress and South African
Congress of Democrats). In historical terms, the Charter was considered
to be the blueprint for a democratic, post-apartheid South Africa. The
Freedom Charter does not form part of South African law and, while not
detracting from its historical and political significance, is not a legal
document. The Freedom Charter states that:
The Doors Of Learning And Of Culture Shall Be Opened!
The government shall discover, develop and encourage national talent

for the enhancement of our cultural life;
All the cultural treasures of mankind shall be open to all, by free

exchange of books, ideas and contact with other lands;
The aim of education shall be to teach the youth to love their people and
their culture, to honour human brotherhood, liberty and peace;
Education shall be free, compulsory, universal and equal for all children;
Higher education and technical training shall be opened to all by means

of state allowances and scholarships awarded on the basis of merit;
Adult illiteracy shall be ended by a mass state education plan;
108
Teachers shall have all the rights of other citizens;
The colour bar in cultural life, in sport and in education shall be

abolished.
150. The document refers to free, compulsory basic education for all children.
However, when referring to higher and technical education it does not
refer to free education, but rather to state allowances and scholarships,
which are awarded based on merit. The Charter does not explain merit
in this context. It can be taken to mean that state allowances and
scholarships should only be provided to the best performing students.
Another interpretation was provided by SAFETSA. They explained that
our understanding in the association is that they are also saying that
there must be a system in place not for us to be given education, whether
it is free or not, there must be systems in place on the basis of merits.
Those merits are [the] means test [to see whether you] are from a poor
background or not but there are discussions and assumptions outside
there to say once we achieve free education any person irrespective of
merits 139 should receive free education. In other words, SAFETSA
interpreted merit to mean financial need, and that a means test to
determine need is within the understanding of the Freedom Charter.
139
SAFETSA, Testimony to the Commission, 29 September 2016.
109
151. The Commissioners are satisfied that the Freedom Charter did not
address the question of fee-free higher education. Its emphasis seems
rather to have been on access and merit.
6.2 THE CONSTITUTION OF THE REPUBLIC OF SOUTH AFRICA, ACT 108
OF 1996
152. The Commissioners hold differing views as to the scope of the states
obligation to provide higher education. In the view of the Chairperson the
state has no legal obligation to provide such education free of charge.
Commissioners Ally and Khumalo interpret the United Nations
International Covenant on Economic, Social and Cultural Rights as
requiring the state to progressively provide free higher education
according to the capacity of the state. We shall begin by setting out the
Chairpersons reasons for his conclusion.
153. While the Freedom Charter was a document often referred to, it is the
Constitution of the Republic of South Africa, Act 108 of 1996 which
determines the states obligations in terms of higher education and
training. The Constitution deals with education in section 29:
(1) Everyone has the right:
(a) to a basic education, including adult basic education; and
(b) to further education, which the state, through reasonable

measures, must make progressively available and accessible.
110
(2) Everyone has the right to receive education in the official language or
languages of their choice in public educational institutions where that
education is reasonably practicable. In order to ensure the effective
access to, and implementation of, this right, the state must consider all
reasonable educational alternatives, including single medium institutions,
taking into account:
(a) equity;
(b) practicability; and
(c) the need to redress the results of past racially

discriminatory laws and practices.
154. The key point is that everyone has a right to both basic and adult basic
education and to further education. However, in the case of further
education, the state must take reasonable measures [in order to make
it] progressively available and accessible. There is, therefore, not a right
to free further education140; but there is the expectation of progressive
steps towards increased access and availability. The right to basic
education and adult basic education is not limited in the same way. As
such, CET as discussed previously, must be treated in the same way as
basic education, and falls outside of this discussion on higher education
and training.
155. In discussing their interpretation of the Constitutional obligation, the
Minister of HET explained that The Department, and Government
generally, read the constitution to clearly articulate that basic education,
140
Nor is s29(1)(b) reasonably capable of an interpretation that includes such a right (to the
extent that s233 of the Constitution may be invoked in interpreting the first-mentioned section).
111
including adult education, is a fundamental/basic right that must be
provided to all who need it; while further education, which can be
interpreted as including Higher Education (HE) (also referred to as
university education) and Technical and Vocational Education and
Training (TVET), are secondary rights that must be made progressively
available and accessible to those who merit it (meet the academic
requirements). Within the remit of the Department of Higher Education
and Training (DHET), the provision of Community Education and Training
(CET) gives effect to section 29(1)(a), namely that everyone has the right
to adult basic education, while the provision of TVET and HE responds
to section 29(1)(b). To make further education available is interpreted to
mean that the system must grow to provide sufficient spaces
(opportunities) for study. To make it accessible means it should be
affordable and individuals should not be denied access based on
financial need, on the basis of a disability or other form of
discrimination.141
156. The Students for Law and Social Justice (SLSJ) explained that There
are three key features of section 29(1)(b) that must be noted: 1. The right
to education, both basic education and further education, is the only
socio-economic right contained in the Bill of Rights that is not expressly
circumscribed in its wording by the availability of resources. 2. In realising
the right to further education, the state is enjoined to take measures that
141
2016.
112
are reasonable. 3. The right to further education must be made
progressively available and accessible. They explained further that On
the question of availability of resources, SLSJ submits that it is not
appropriate to read the availability of resources into section 29(1)(b) as a
justification, in and of itself, that can be relied on by the state for non-
fulfilment of the right but it may be a component in assessing the
reasonableness of measures taken. It should therefore be incumbent on
the state and all relevant stakeholders, including the institutions, involved
in realisation of the higher education framework, to work to constantly
develop a system that accommodates legitimate concerns, needs and
aspirations of students. 142
157. Availability is a key aspect of the Constitution. In line with DHETs
understanding of the Constitution, they have taken a number of steps to
ensure greater (and growing) access to higher education. The National
Development Plan (NDP) and the subsequent PSET White Paper (WP),
set high targets for growth in the higher education and training sector.
The White Paper, taking its lead from the NDP, targets student enrolment
in universities of 1.6 million and in TVETs of 2.5 million by 2030. This
continues a trajectory of high levels of growth in the sector over the past
two decades.
158. Future growth is, however, reliant on increased government subsidy, if
the quality of education is not to be negatively affected. As explained
142
SLSJ, Submission and presentation to the Commission, 12 August 2016.
113
previously, per capita funding to both TVETs and universities has not
grown in line with expanded enrolment. This has contributed to high
increases in university student fees, and a crisis in funding at TVETs. The
National Treasury, in their interaction with the Commission, indicated that
the targets were not costed prior to the publication of either the NDP or
the PSET WP. As a result, when bids were put to Treasury to fund this
growth, it was agreed that an in-depth costing should be completed as
the first step.143 This costing report indicates that, in order to fund all
increases in the PSET sector (CET, TVET and university), about
R655 billion would be needed by 2030 (or R253.1 billion in 2014
prices), compared with R64 billion expenditure on the sector in
2014. 144 The costing report indicates that while enrolments are
expected to increase by 168% between 2014 and 2030, the total
expenditure (in real terms) needed to achieve the aims of the White
Paper is expected to increase by 242%. Consequently, expenditure
on PSET as a percentage of GDP will rise from 2% in 2014 to 4.4%
by 2030, if the policy targets are met. 145 The report goes on to
explain that in the TVET sector, expenditure would need to increase
from R8.7 billion (2014) to R292.2 billion (or R112.4 billion in 2014
prices. The cost increase would be as a result of increased enrolments,
quality improvements, and changes to the training programme mix.
University expenditure was not expected to increase as quickly. The
report calculated that expenditure would increase from R52.9 billion
143
National Treasury, Testimony to the Commission, 7 October 2016.
144
Volume 5: Consolidated Report on the Costing and Financing of the White Paper on Post-
School Education and Training, p. I.
145
Ibid.
114
(2014) to R334.3 billion in 2030 (or R129.8 billion in 2014 prices). The
main reason for slower growth is less expenditure on quality changes as
the throughput rate is higher in the university sector. Cost increases
would be due to increased enrolment, higher staff costs as more would
require a PhD, higher post-graduate enrolment, and more students
housed in student accommodation.146
159. Accessibility refers to both affordability and, as argued before the
Commission, epistemological access. Over the past decade, higher
education fees have grown at a rate higher than inflation. As a result,
higher education has become unaffordable for a large part of the
population. The states financial aid scheme is only available to the
poorest section of society, leaving the so-called missing middle to find
alternative funding. Failing to do this, higher education becomes
inaccessible. This is the key concern for the Commission. Added to this,
high failure and dropout levels across the system, indicate a systemic
articulation gap. This concern was discussed in more detail earlier in this
Report. Failure to address the issue of epistemological access, or
access with success, will negate any attempts by government to increase
the availability of affordable higher education.
160. There was also some debate in the Commission regarding the
interpretation of the progressive realisation of the right. In determining
this, it is important to consider the primary focus of the right. From the
146
Ibid., p. I - II.
115
above discussion, and the DHETs interpretation, the primary focus is on
access and availability. The Constitution states through reasonable
measures, must make progressively available and accessible. It does
not refer to free education, and does not indicate the progressive
realisation of free education. The focus is not on the policy used (such as
the preferred financial aid intervention) to ensure the right, but on the right
itself. Therefore, if increased access and availability would be ensured
through a different or changed funding model, this would be progressive
in meeting the Constitutional requirements. As such, policy changes
away from free education could be introduced should these meet the
Constitutional demand for higher education to be progressively [made]
available and accessible. It must, however, be borne in mind that higher
education and training must be accessible to individuals from all financial
backgrounds.
6.3 EXPRESSION OF THE CONSTITUTION IN GOVERNMENT AND ANC
POLICY
161. For the past twenty years, the Constitutional requirements have found
expression in government policy. As discussed before, higher education
policy has focused on expanded access, a cost-sharing model, and the
provision of student aid to ensure that no student is denied access on the
basis of financial need. More recently, there have been nuanced changes
to the policy position, moving towards a call for free education for the
poor. These are expressed in the PSET White Paper (2013), the task
116
team report on free education for the poor and various ANC manifestos
and resolutions. It is necessary to examine more clearly what the shift
has entailed, and how the call for free education is defined. These
policies and manifestos will be considered below.
162. The government and DHET are not unaware of the challenges posed by
fee increases. In the 2013 PSET WP, the general policy position of a
shared cost-model was retained, although the focus had now shifted to a
significant increase in fees; the problem of poor students receiving
inadequate funding from the National Student Financial Aid Scheme
(NSFAS); and to students who fell outside of the NSFAS funding
allowance, but who couldnt afford university costs. The White Paper
explained that Education and training must also be affordable for
potential students and that government has significantly increased the
funds available for student loans and bursaries.147 The Policy explained
further that, since 2011, poor students in TVET colleges have not had to
pay tuition fees, and have been assisted with accommodation or
transport costs and that it was committed to progressively extending this
to university students as resources become available. 148 The White
Paper went further to recognise the problem of (what later came to be
called) missing-middle students, and committed itself to making
147
WP 2013, 7-8
148
WP, 2013, 8
117
resources available to this group. The option of capping fees was
raised.149
163. Despite recognising the problem with the fee model, the White Paper
remains committed to fees, stating that all universities also charge
student fees, which are essential to institutional survival in the current
funding environment. Fees have risen substantially over the past two
decades, as overall government funding to institutions has not kept up
with the financial requirements of the system. Rising student fees
continue to pose a major barrier to access for many students. The
government will consider ways of controlling fee increases. 150 The
section notes the 2012 report on fee-free education for the poor
(discussed below), stating that this would require significant additional
funding, but that Everything possible must be done to progressively
introduce free education for the poor in South African universities as
resources become available.151 Thus, while the White Paper continues
to support the principle of fees, there is a clear departure from earlier
policy in that free education for the poor, fee regulation, and funding for
the missing-middle are all proposed concurrently. Despite this, the model
of loans is also clearly retained, with the White Paper explaining that
Partnerships will be essential to the success of student funding
initiatives. These will include intra-governmental partnerships, such as
cost-recovery support from the South African Revenue Service (SARS)
149
WP, 2013, 8
150
WP, 2013, 37
151
WP, 2013, 37
118
The principle of cost recovery of loans from students who have
benefited from state funding is well-established in South Africa, and is
essential to the affordability of continued and growing student funding.152
6.4 ANC POLICY DECISIONS, 2007 TO 2012
164. In order to understand shifting policy positions as well as the students
demands, and only with this in mind, it is necessary to traverse ANC
resolutions and policy decisions in the interim years.153 At the ANCs 52nd
National Conference in 2007 the ANC accepted a resolution to
progressively introduce free education for the poor until undergraduate
level. This resolution was reflected in the Presidents January 8th
statement in 2011, where he noted that: With effect from this year, 2011,
students who are registered at a public university in their final year of
study and who qualify for funding from the National Student Financial Aid
Scheme, will receive a loan equivalent to the full cost of study, which is
the full fee and the necessary living expenses. If these students graduate
at the end of the year, the loan for the final year will be converted to a full
bursary. They will not have to repay the amount. This model will be
phased in over the next few years to include students in earlier years of
study.154 He added that: Also from 2011, students in Further Education
and Training Colleges who qualify for financial aid will be exempted
152
WP, 2013, 37
153
Ms Naledi Pandor presented to the Commission on 27 March 2017 on behalf of the ANC
Health, Education, and Science and Technology sub-committee.
154
Ibid.
119
completely from paying fees.155 The Minister HET, Dr. Blade Nzimande,
responded to the 2007 resolution by appointing a working group to
consider the feasibility of making university education fee-free for the
poor (discussed below). This report of the working group was submitted
to the June 2012 ANC Policy Conference, which determined that a policy
for free higher education to all undergraduate level students from poor
and working-class communities should be finalised for phased
implementation from 2013.156
165. At the ANCs 53rd National Conference, in December 2012 in Mangaung,
the ANC noted that significant steps had been taken towards developing
a policy on free higher education for students from poor and working-
class communities, for phased implementation from 2014. It was
explained that A draft policy on Free Higher Education has been
completed, and the broad consultative process, including the social,
economic analysis and impact and consultation with Treasury will
ensue. 157 It was resolved that the policy would be completed and
adopted before the end of 2013. At the same conference, it was noted
that university education is costly and the principle of increased access
to higher education is a core transformation goal. Furthermore, it was
noted that students from poor families should not pay up-front fees; that
academically capable students from working class and lower middle-
class families should also be subsidised; that full cost of study should be
155
Ibid.
156
Report of the Working Group on Fee Free University Education for the Poor in South Africa,
2012.
157
http://www.anc.org.za/docs/res/2013/resolutions53r.pdf. Accessed 20 April 2017.
120
covered; and that The upfront fees that are provided and enable fee-
free university education for the poor and subsidised fees for the
working class and lower middle strata, should be made available as
loans through a strengthened NSFAS system. Part of the loan
should be converted to a bursary for successful students. As such,
the ANC resolved that NSFAS needed to be strengthened and
restructured for this fee-free model, that full-costing should be completed;
and that a graduate tax should be considered.158
166. Before moving on, it is important to analyse these resolutions. The ANC
called for free education, and supported the free education report
discussed below (which advocated deferred payment i.e. loans).
However, the ANC also noted the high cost of university education and
the need for an expanded system. It went further to explain free education
as a deferred payment system, where loans are repaid after study, but
with a bursary for successful poor students (neither term being defined).
This is, in effect, what NSFAS was already doing after the Presidents
announcement in January 2011. The main improvements called for in this
resolution are, therefore: full cost of study loans; loans for the missing
middle; and an improved NSFAS system.
158
Ibid.
121
6.5 FEE-FREE WORKING GROUP
167. In 2012 the Minister of HET appointed a working group to consider the
feasibility of making university education fee-free for the poor. This was
in reaction to the ANC resolutions discussed above. As part of its terms
of reference, the group was expected to determine the actual cost of
introducing fee-free education for the poor; suggest a definition of the
poor; examine international models and options of fee-free education;
and contemplate implications and consequences of fee-free education.
168. In the report, the definition of undergraduate study included all 3- and 4-
year degrees and diplomas; fees were taken to mean full-cost of study;
and the poor were defined as those earning less than the lowest SARS
tax bracket (R54 200 in 2010). In its analysis, the working group
considered the arguments in favour of a fully state-subsidised model as
opposed to a cost-sharing model, and pointed to a move towards cost-
sharing in the face of the increasing cost of higher education; the need
for greater participation; and declining government funding. The working
group also considered up-front fees (where parents take responsibility)
as opposed to deferred fees (where the individual is responsible).
Income-contingent loans (ICL) are considered, and compared to the
current NSFAS ICL. Various problems with the NSFAS system are
identified (including lack of resources to offer full-cost loans; low-
recoveries; administrative problems; and top-slicing by institutions). In its
analysis, the working group recommends an ICL model, where students
122
repay loans over a period of 15 years, dependent on whether they ever
reach a minimum threshold income. The group also identifies a possible
grant for poor students, which is the gap between their full-cost of study
and the repayable loan thus providing free education where a loan is
not repayable. They recommended full-cost loans for students from poor
households; loans with household contribution for those from middle
income households; and no loans for those from affluent households. The
working group also suggested reducing current NSFAS rebates for
academic performance; limiting the loan amount so as to avoid reckless
lending; retaining the current NSFAS system for those students already
enrolled in the system; and general increases in government subsidy to
universities in order to expand academic support and ensure success.
169. In considering South African policy, ANC resolutions and the inputs of
Commissions, task teams and working groups, it is clear that certain
principles overlap throughout. The first, is the need for a transformed and
expanded higher education system. The second is agreement that higher
education is expensive, with both public and private benefits leading to
a cost-sharing principle. The third, is that students should not be denied
access on the basis of financial ability (only academic ability). As such,
there is support for a financial aid system of deferred payment through
an appropriate and affordable loan and bursary mix.
170. The Commissioners, having considered the submissions of the evidence
leaders, understand the Constitution to mean that the state must provide
123
the public institutions, teaching staff and all ancillary measures necessary
to offer higher education to citizens and residents of South Africa.
Because the ideal of universal access was recognised as not immediately
obtainable the state was obligated to take reasonable measures (this
being a fact-based value question upon which the state exercises a wide
measure of discretion according to its balancing of available means and
priorities) to increase the breadth of its provision of education and its
accessibility to aspirant higher education students. The section says
nothing about the cost of or payment of tuition fees and there is in our
view no implication to be read into the state obligation in that regard. It
may be that in ensuring access to education such access will remain
barred to those who cannot afford it. It is then the duty of the state to
ensure that such bar is removed. Fee-free education may then become
a necessary means to achieve the primary goal of universal access. The
removal of the bar may however take various forms, for example, the
provision of scholarships, loans, incentives, grants, tuition fee write-offs,
or simply an exemption from paying tuition fees. Tuition free higher
education is thus, within the context of the constitution, merely one
means of achieving the constitutional right to universal access.
124
7 INTERNATIONAL OBLIGATIONS
171. Evidence leaders, however, argued that the constitutional obligation of
the State must be understood 159 by the extension of that obligation
involved in South Africas ratification of the United Nations International
Covenant on Economic, Social and Cultural Rights. South Africa signed
the Covenant in 1994 and ratified it in 2015160. In so doing South Africa
added a declaration to its signature, referring to article 13(2)(a) and
stating that: the government of the Republic of South Africa will give
progressive effect to the right to education, as provided for in article
13(2)(a) and article 14 within the framework of its national education
policy and available resources.". The relevant sections of the Covenant
provide as follows
Article 13(1) The states parties to the present covenant recognise the
right of everyone to education. They agree that education shall be
directed to the full development of the human personality and the sense
of its dignity, and shall strengthen the respect for human rights and
fundamental freedoms. They further agree that education shall enable all
persons to participate effectively in a free society promote understanding,
tolerance and friendship among all nations and all racial ethnic or
159
Section 39 of the Constitution provides:
(1) When interpreting the Bill of Rights, a court, tribunal or forum -
(a) must promote the values that underlie an open and democratic society
based on human dignity, equality and freedom;
(b) must consider international law;
(c) may consider foreign law.
160
Ratification, of itself, is insufficient to render the Covenant domestic law in South Africa.
There has been no enactment into law by national legislation, nor does the Covenant contain a
self-executing provision (s231(4) of the Constitution).
125
religious groups and further the activities of the United Nations for the
maintenance of peace.
(2) The State parties to the present covenant recognise that with a view
to achieving the full realisation of this right:
(a) Primary education shall be compulsory and available free to

all;
(b) Secondary education in its different forms, including technical

and vocational secondary education, shall be made generally
available and accessible to all by every appropriate means, and
in particular by the progressive introduction of free education;
(c) Higher education shall be made equally accessible to all, on

the basis of capacity by every appropriate means, and in
particular by the progressive introduction of free education;
(d) Fundamental education shall be encouraged or intensified as

far as possible for those persons who have not received or
completed the whole period of the primary education;
(e) The development of a system of schools at all levels shall be

actively pursued, an adequate fellowship system shall be
established, and the material conditions of teaching staff shall be
continuously improved.
(3) The States parties to the present covenant undertake to have respect
for the liberty of parents and, when applicable, legal guardians to choose
for their childrens schools, other than those established by the public
authorities, which conform to such minimum educational standards as
may be laid down or approved by the state and to ensure the religious
and moral education of their children in conformity with their own
convictions.
(4) No part of this article shall be construed as to interfere with the liberty
of individuals and bodies to establish and direct educational institutions,
126
subject always to the observance of the principles set forth in paragraph
1of this article and to the requirement that the education given in such
institutions shall conform to such minimum standards as may be laid
down by the state.
Article 14 Each State party to the present covenant which, at the time of
becoming a party has not been able to secure in its metropolitan territory
or other territories under its jurisdiction compulsory primary education,
free of charge, undertakes within two years, to work out and adopt a
detailed plan of action for the progressive implementation, within a
reasonable number of years, to be fixed in the plan, of the principle of
compulsory education free of charge for all.
172. Testimony referring to the Covenant161 was provided by Oxfam and the
SLSJ. Oxfam referred to the Covenant and to the requirement to move
progressively towards free education. They explained their opinion that,
while the State always needs to contend with competing obligations, like
the right to access water and food and education, these are all subject to
the same Bill of Rights and Constitution. However, in the South African
case, [we need] to deal with the legacy of apartheid [and] the divided past
and how the state was used to systematically marginalise certain
population groups If you are looking at the quantum of the university
fees themselves, if we were not to intervene at that level it will mean the
majority of the black population will forever be dependent, so the
intervention of fee-free tertiary education [is] an attempt to aggressively
[deal] with inequality. They went on to explain that a tertiary education
161
The Commission has not treated this evidence as interpretative of South Africas obligations
(any more than it has done so in referring to policy statements) but rather as providing social
commentary on the obligations as the presenters perceived them.
127
would also help with the situation of poverty, alongside the question of
unemployment, and the question of very very low wages for the majority
of the population. They indicated that at primary and secondary school
level there are interventions like fee-free schools, but that at tertiary levels
the fees are much higher. In light of this, Oxfam gave its support to fee-
free education for everybody.
173. Oxfam contended that in terms of the Convention, South Africa has to
put in place all technical and economic apparatus towards the full
realization of the right of affording the citizens access to tertiary
education, and it has to use all appropriate means necessary in doing
so. They argued that NSFAS does not comply with this particular article
as while fees have increased, funding has remained stagnant. They
concluded that it is clearly a question of a violation simply because the
state has not been adhering to the obligation of the progressive
realization of this right over time [and because] the language that is
used in the current policies seem to suggest that the objective of the state
in South Africa is not full realization of the right rather The means test
is a permanent measure that has been put in place to ensure that we
discriminate based [on] those who are said to have the means to fund
themselves. In Oxfams opinion, the framing of section 29(1)(b), it
speaks to the element of progressive realisation so all that needs to
happen is that the government needs to demonstrate commitment to the
full realisation of the right and then putting in place reasonable measures
128
towards the attainment of the right, and then they will have to diagnose
progress over time.
174. The SLSJ explained that: Importantly, the language defines the right
broadly, setting a framework of ideals for states to fully realise over time
based on its available resources. As a state develops, it must take
measurable steps to reach the next goal in fully realising the right to
education. In the context of education, states have a specific and
continuing obligation to move as expeditiously and effectively as possible
towards the full realisation of the right to education as laid out by the
ICESCR and by national policies. While states must prioritise the
provision of free and compulsory primary education, they also have an
obligation to take concrete steps towards achieving fee-free secondary
and higher education for all. What can be interpreted from this SLSJ
explanation, is that the free basic education is the first priority. The SLSJ
did not refer to the declaration South Africa added regarding free basic
education. This should be read together with General Comment 13
below, which focuses on free basic education as the first entitlement.
175. The SLSJ explained further that General Comment No. 13 on the right
to further education as contained in the ICESCR provides that:
While the precise and appropriate application of the terms will depend
upon the conditions prevailing in a particular State party, education in all
its forms and at all levels shall exhibit the following interrelated and
essential features:
129
(a) Availability - functioning educational institutions and programmes
have to be available in sufficient quantity within the jurisdiction of the
State party. What they require to function depends upon numerous
factors, including the developmental context within which they operate;
for example, all institutions and programmes are likely to require buildings
or other protection from the elements, sanitation facilities for both sexes,
safe drinking water, trained teachers receiving domestically competitive
salaries, teaching materials, and so on; while some will also require
facilities such as a library, computer facilities and information technology;
(b) Accessibility - educational institutions and programmes have to be

accessible to everyone, without discrimination, within the jurisdiction of
the State party. Accessibility has three overlapping dimensions:
(i) Non-discrimination - education must be accessible to all,

especially the most vulnerable groups, in law and fact, without
discrimination on any of the prohibited grounds . . . ;
(ii) Physical accessibility - education has to be within safe

physical reach, either by attendance at some reasonably
convenient geographic location (e.g. a neighbourhood school) or
via modern technology (e.g. access to a distance learning
programme);
(iii) Economic accessibility - education has to be affordable to all.

This dimension of accessibility is subject to the differential
wording of article 13(2) in relation to primary, secondary and
higher education: whereas primary education shall be available
free to all, States parties are required to progressively introduce
free secondary and higher education;
(c) Acceptability - the form and substance of education, including

curricula and teaching methods, have to be acceptable (e.g. relevant,
culturally appropriate and of good quality) to students and, in appropriate
cases, parents; this is subject to the educational objectives required by
130
article 13(1) and such minimum educational standards as may be
approved by the State (see article 13(3) and (4));
(d) Adaptability - education has to be flexible so it can adapt to the needs

of changing societies and communities and respond to the needs of
students within their diverse social and cultural settings.
176. The SLSJ indicated that, section 29(1)(b) of the Constitution makes
explicit reference to two of the four factors above: availability and
accessibility. The question of affordability of further education is integral
when considering the availability and accessibility of the right. This has
been suggested by the Department of Higher Education and Training
(DHET), which has further acknowledged the need for an expanded
approach to dismantling the barriers to higher education as erected by
financial constraints and the ancillary social constructs.
177. It is instructive to glance at other countries who are party to the Covenant.
For example, the UK ratified the Convention in 1976. Since then, the UK
has moved from a free higher education system, towards one where
university fees are charged and students are offered income contingent
loans. Similarly, Australia ratified the Covenant in 1975, and has a
university fee system in place, without a policy to move towards free
higher education. There are a number of other countries that have ratified
the Covenant, but who are considering moving away from free education
to loans or other systems or that have no policy towards free higher
education in place (Ireland (1989); Canada (1976); China (2001); Russia
(1973)). None of these policies or policy changes is per se decisive or
131
necessarily relevant to the constitutional position of South Africa. They
are merely indicative of a recognition that the covenant does not set free
higher education as a goal to be striven for by its signatories.
178. The Chairman of the Commission162 is of the view that the ratification of
the Covenant does not extend South Africas constitutional obligations;
rather it affirms the existing obligations in relation to the provision of
higher education.
179. It appears to the Chairman that with regard to the terms of article 13(2)(c),
the end to be achieved is equal accessibility to all, on the basis of capacity
(i.e. the capacity of the signatory state): the means to achieve that end
are every appropriate means, and in particular by the progressive
introduction of fee-free education. The end of universal accessibility is
peremptory but the means to be adopted are discretionary and
determined by the signatory according to what is appropriate in the
circumstances of that signatory. It is in this context that the progressive
introduction of free higher education must be understood. In so far as
article 13(2)(c) is concerned that sub-article must be read in the light of
the principles enunciated in general comment number 13. Particularly
relevant to the present context is the dimension of economic
accessibility. It is in relation to that dimension that State parties are
required to progressively introduce free [secondary and] higher
162
The view of Commissioners Ally and Khumalo differs slightly and is expressed in paragraph
183.
132
education. This is simply a restatement of the progressive role of free
higher education as set out in article 13(2) but drawing attention to its
dependence on economic affordability. We are of the opinion that such
an interpretation reconciles the principles stated in the General Comment
with the intention expressed in Article 13(2)(c).
180. The view of the Chairman therefore is that the Convention is consistent
with the Constitution of the Republic and does not extend the obligation
of the State to the provision of higher education that is fee-free. In each
case fee-free education may be employed as a means to achieving the
end of accessibility. It would, in the view of the Chairman, have been
extraordinary conduct, if South Africa had materially broadened the terms
of its constitutional obligation under s29(1)(b) without an express
declaration manifesting that intention.163
181. When South Africa added its declaration to its signature it expressly
qualified only articles 13(2)(a) and 14 in both of which the virtually
immediate availability of compulsory primary education is affirmed
(subject to the caveat in article 14) by committing itself to the progressive
realisation of that right. That qualification has no bearing on the
interpretation of article 13(2)(c). The view of the Chairperson is therefore
that the Convention is consistent with the Constitution of the Republic
163
The expansion of the clear meaning of s29(1)(b) to create wider rights than are provided in
the section would require an amendment as contemplated in s74(2) of the Constitution. No such
amendment has been effected. Even a reasonable interpretation of s29(1)(b) does not include
an obligation to provide higher education at no cost to the beneficiary. Such an addition must
necessarily be burdensome to the State. Section 233 of the Constitution is not of application.
133
and does not extend the obligation of the state to the provision of fee-free
higher education. In each case fee-free education is a means to
achieving the end of accessibility.
182. In keeping with the economic and social demands of the country this
provides the flexibility to utilise the fee-free element either in an absolute
sense or in a modified application (such as fee-free at the point of access,
and throughout the duration of the students tenure, while requiring
repayment of the whole or part of the amount spent on the student, after
completion of his or her studies).
183. Commissioners Ally and Khumalo agree that s29(1)(b) of the Constitution
does not create a right to free further education, but merely a right to
further education made progressively available and accessible by
measures which are reasonable in the context of the States capacity.
However, they consider that the Covenant broadens the constitutional
obligation. In their view article 13(2)(c) means that a state party
acknowledges a duty to provide free higher education, a duty that is
limited only by its progressive realisation within the capacity of the state.
8 STEPS TAKEN TO REALISE THE RIGHT TO ACCESSIBLE / FREE
HIGHER EDUCATION
184. In a submission made to this Commission the Minister of Higher
Education and training has submitted that to respect, protect, promote
134
and fulfill the right to higher education and to ensure that it is made
progressively available and accessible, government has taken the
following measures:
184.1. has supported the system to double its enrollments since
1994;
184.2. has ensured a largely transformed student population;
184.3. has provided substantial funding through NSFAS to support
poor students at universities and TVET colleges;
184.4. since inception NSFAS has supported 2.6 million students (1.5
million in universities and 1.1 million in TVET colleges) through
loans and bursaries amounting to R59.7 billion (according to
the 2015/16 NSFAS audited statements). This funding has
increased significantly since 2010, and currently supports
approximately 205 000 poor undergraduate students to
access higher education and 200 000 TVET college students;
184.5. has provided significant investment in foundation provisioning
and a range of other initiatives, such as the teaching
development grant at universities with the aim to improve the
success rate of all students and therefore ensure access with
success;
135
184.6. has implemented the Staffing South Africas Universities
Framework to assist with improving the quality of provisioning
and ensuring the development of the academic profession;
and
184.7. has established three new universities (the University of
Mphumalanga, Sol Plaatje University, and Makgatho Health
Sciences University) to further increase the number of spaces
in higher education and ensure the geographical spread of
contact institutions.
185. The Minister did however point out that the transformation of the sector
is facing the risk of reaching a plateau in terms of enrolments. It is unlikely
that there will be any further growth progressivity with respect to
increasing spaces without injection of additional funds.
186. We have no doubt that the government has progressively increased
availability of and access to higher education. Whether it now can and
should extend such access by the provision of fee-free education is the
issue before us. Depending on the correct view of the legal obligation of
the state, the answer to that question may be a constitutional imperative
or a matter of state choice (policy). On either interpretation of the
obligation the capacity of the state remains a key determinant.
136
187. If free higher education is not a right, questions of regression and
its constitutional impermissibility do not arise.164 Nor are those provisions
of the Covenant (e.g. General Comment No. 3) in relation to retrogressive
measures relevant to the states policy on whether or not to provide fee
free higher education and training.
9 TESTIMONY ON FREE EDUCATION
188. According to the terms of reference of the Fees Commission, the main
focus for the Commission was on the feasibility of free education, in
particular for the higher education sector. The Commission took a broad
view of feasibility, to include a broad discussion of the points in favour of
and those against the introduction of free education for all (or some) in
the South African context. These different opinions will be considered
below. No attempt is made to bring all the various submissions together.
Rather, this section aims to provide a summary of the very different
opinions put before the Commission, which all needed to be given
consideration and understanding.
189. The parameters of free education were also a point of discussion, but
there was general agreement from all parties that whatever form financial
aid should take in South Africa, funding should cover the full cost of study.
164
See the judgements of the Constitutional Court in the following cases: Governing Body of the
Juma Musjid Primary School and Others v Essay NO and Others 2011 (8) BCLR 761 (CC) at
para 58; Minister of health and Others v Treatment Action Campaign and Others 2002 (5) SA
72 (CC) at para 46; Maphango and Others v Aengus Lifestyle Properties (Pty) Ltd 2012 (3) SA
531 (CC) at para 32; Sarrahwitz v Maritz NO 2015 (4) SA 491 (CC) at paras 45-6
137
Full cost of study means that funding should take into consideration not
only tuition fees, but also the cost of accommodation, transport, learning
materials, food and other living expenses. Some also called for funding
towards basic access to health care. While there were some different
views on the items to be included in full cost of study, it was generally
agreed that, given the levels of poverty in South Africa, providing for
tuition fees only is not a viable solution. It was noted that full cost of study
is not generally the focus in other countries, and in fee-free systems, only
tuition is covered with grants or loans to cover living expenses available
to those in financial need. Among those supporting free tuition, some
support free full cost of study, and others supported free tuition with loans
for other expenses.165
9.1 AN OVERVIEW OF THE TESTIMONY ON FREE EDUCATION
190. Most participants in the Commission gave some indication of what they
recommended in terms of funding arrangements for higher education
going forward. Below is a discussion of selected testimony to the
Commission. Many of the viewpoints were offered in the first set of the
Commission, which did not have a specific topic for consideration, but
rather an overview of the relevant issues related to the terms of
reference. In the discussion below, testimony will be divided among
stakeholders so as to allow the discussion to flow. The first section will
consider governments input; followed by students; higher education
165
138
institutions; and finally, civil society and research groups and individual
participants.
191. There were certain overlapping viewpoints which most, if not all,
participants agreed on. First, the issue of a decline (per capita) in state
funding was highlighted as a major problem, which has left not only
higher education institutions struggling, but also students, as institutions
have raised tuition fees in an attempt to cover costs without
compromising the provision of quality higher education academic
programmes. Related to this, many stakeholders discussed funding of
higher education as a percentage of GDP, and compared this to funding
in other countries to highlight the need for greater state funding. Second,
there was general agreement that NSFAS is underfunded, and that this
has led to some of the problems experienced by students. There was not
always agreement in identifying what the problems with NSFAS are
with some rejecting NSFAS completely and others suggesting reform of
the existing financial aid policies. NSFAS will be considered later in a
separate section of this report, and not as part of the testimony on free
education. Finally, there was agreement that, given South Africas
inequality and socio-economic situation, financial support needs to be
provided for academically deserving but financially needy students. It
was agreed that students should not be excluded from higher education
for financial reasons. The form and extent of support was the topic of
much debate in the context of the economic climate and the competing
priorities outlined in the National Development Plan.
139
9.2 GOVERNMENT AND STATUTORY BODIES TESTIMONIES
192. The first perspective on free higher education to be considered is the one
provided to the Commission by government departments and statutory
bodies working in the higher education sector. The DHET explained that
Any funding considerations relating to university education cannot be
isolated from those of the whole education system - as a country we have
to balance the importance of a strong university sector with the serious
need for growth in other parts of the education system, and therefore
funding free higher education should not be contemplated outside
considerations for adequately funding institutions, including TVET, CET,
Basic Education Schools and Early Childhood Development.166
193. The DHET explained their view in reference to the general state of
underfunding of the sector. This report has already considered how
DHET described underfunding in terms of the PSET sector as a whole.
However, they also described the state of university funding in the context
of the demand for free education. They explained that block grant
allocation to universities have increased by 139.7% between 2004/05
and 2015/16 in nominal terms, but that due to the eroding effect of
inflation, this was only a 29.8% increase in real terms, not taking into
consideration the higher rate of inflation at universities. If the impact of
substantial increase in student enrolments is taken into consideration,
there was actually a decrease in the per capita full-time equivalent (FTE)
166
DHET Presentation, 04 October 2016
140
student allocation of -3.4% over these eleven years. The DHET explained
that Growth in student numbers without matching growth in subsidy
funding, has resulted in general underfunding of higher education, putting
pressure on institutions to raise funds through fees and third-stream
income. The net result is that university fees have become increasingly
unaffordable to the working and lower middle classes. In order to counter
this, the DHET proposed that block grant funding to universities should
increase to a level of 50% of the cost to run an institution; but that fees
should be retained as one of the three funding streams. 167 It should be
noted, however, that enrolment growth is a planned process in three year
cycles at universities. The huge demand for university places at the
different types of universities, and the commitment to increase access,
compounded the funding difficulties for the higher education sector.
194. The DHET also explained that, in its view, NSFAS is already
implementing fee-free higher education for the poor. A student entering
the university receives fees (and living expenses) up-front through an
interest free loan. Interest is only charged one year after he or she has
successfully completed their studies, and is below the commercial
lending rate. Furthermore, up to 60% of the loan is converted into a
bursary for students completing in regulation time. However, if a student
never graduates, and never earns above a certain salary threshold,
and therefore the student never benefits from the goods of
university education, i.e. they never find productive employment
167
141
and remain poor, they never pay back their loan and in effect receive
their entire university education free (paid for by the state). The
DHET explained that calculations have been made regarding extending
NSFAS loans to 25.5% of undergraduate university students (full cost of
study). This would require an additional R29 billion over the 2016/17 to
2018/19 MTEF period, and would cover most poor students at
universities (family income below R120 000 per annum). However, more
money would be required to assist financially needy students in the
missing middle category.168
195. Similarly, the Minister of HET in his testimony explained that the
approach has been to increasingly improve and widen access to higher
education and TVET by ensuring that NSFAS qualifying students (the
poor) are effectively funded for their studies. He explained that DHET has
put bids to the National Treasury to improve the funding of NSFAS to
cover students at full cost of study, but that these have not been
successful. He explained that he acknowledges the current fiscal
constraints of Government, but must also acknowledge that this in itself
creates numerous challenges for the Department and has a serious
impact on service delivery. The Minister explained that the principle of
cost-sharing in universities has been entrenched, but that lack of finances
should not prohibit students from accessing higher education. He added
that in response to the demand for fee-free higher education and training,
the government has made significant new funding available. Free TVET
168
142
college education for poor students has been introduced, but there are
insufficient funds to support all students who require full cost of study
support. Government is committed to ensuring that all financially needy,
academically deserving, university and TVET students, whether poor,
working class or middle class, are able to access loans and bursaries so
that they are able to access higher education TVET and are not expected
to pay fees (FCS) at point of entry. The loan portion of the financial aid
for university students should be recovered once the individual is working
productively and earning an income through improved systems. The
Minister also discussed the ANC resolutions regarding free education,
and that the Ministerial Review of the NSFAS (2010) proposed that full
state subsidization of poor students should be progressively realized and
it proposed an income-contingent loan scheme for students from lower
middle-income families, the so-called missing middle. In summary, the
Minister explained that NSFAS provides eligible students with the means
to obtain a tertiary qualification by offering loans at a low interest rate and
a reasonable repayment plan. These loans are repayable as soon as the
student begins to work and earns at least R30 000 or more per year. Up
to 60 % of the award may be converted into a bursary dependent on the
students year-end results. Final year students at higher education
institutions who qualify for NSFAS funding are offered an incentive of
having their total loan for the final year converted into a 100 % bursary if
they complete their studies in the same year.169
169
Minister HET, 13 October 2016.
143
196. The National Treasury focused their attention on the financial situation of
the state, rather than providing a theoretical position on free education.
They referred to the lack of growth in GDP and as a result in government
revenue, while spending on social support has increased. This had led to
an increasing debt burden, leaving the state with a debt to GDP ratio of
50%. As a result, there is pressure to cut spending; and we have entered
a period of consolidating the budget. They indicated that aside from the
budget given to PSET, additional money is allocated through other
Departments, and Provincial and Local government, and through
earmarked taxes (like the NSF). In 2014/15, 71% of the PSET budget
was allocated to universities (R5.9 billion), 12% to TVETs and 2% to CET,
while an additional R13.8 billion was collected through the national skills
levy. NSFAS for universities has increased from R510 million in 2000 to
almost R7 billion 2014/15. NSFAS for TVETs has increased from R300
million (2010/11) to R2 billion (2014/15). The National Treasury indicated
that should the position be taken to fund free education, money would
170
have to be cut from other social priorities. National Treasury
highlighted that budget allocation is guided by Constitutional imperatives.
They indicated that Basic Education receives the highest percentage of
the allocation, with the PSET allocation among the top five together with
housing, health and social protection. Treasury argued that in their
understanding of progressive realisation within available resources,
there is an obligation for fiscal sustainability. They explained again that
170
National Treasury, 12 August 2016.
144
the relationship between taxation and economic growth is complex, and
that resources are ultimately determined by the size of the economy.171
197. The CHE explained that A central objective of transformation in higher
education is equitable access with success, but not at the expense of
quality. It discussed the private and public benefits of higher education,
and the need for state subsidisation. However, it pointed to the growing
number of poor students, and the limited tax base. Other funding
pressures in the sector were mentioned, and in the education pipeline as
a whole. The CHE discussed some funding options, together with their
challenges. First, fully state subsidised education, which could lead to a
reduction in quality within public institutions; exacerbated wealth
inequalities; and increased moonlighting. Second, an income contingent
loan, which could lead to a high debt burden. Third, the capping of fees,
which could lead to rapid fee increases at institutions with traditionally
lower fees. Finally, a sliding scale of fees, which would require a broad
enough tax base to raise sufficient funds, and would not be feasible in
poorer institutions where there are few or no wealthy students.172
198. The NRF began by discussing the public and private benefits of higher
education, and stressed their focus on the importance of innovation for
the knowledge economy. The NRF explained that The funding of Higher
Education is more than just about funding undergraduate students
171
National Treasury, 07 October 2016.
172
Council on Higher Education, 22 August.
145
There is need to provide adequate funding for postgraduate students,
researchers, research infrastructure as enablers for generating new
knowledge and enhancing our research and innovation. In this regard,
the NRF acts as an agency of the Department of Science and Technology
in the same way as NSFAS is an agency of the DHET. The NRF funds
10% of all postgraduate students in the country while NSFAS funds 25%
of all undergraduate students in the country. The funding of researchers
at universities comes in the form of NRF research grants, student
bursaries and scholarships, large infrastructure equipment grants which
cannot be based at one single university. Funding is on a competitive
basis. The NRF discussed the pressure that their funding is under,
especially as fees increase above inflation and the NDP has set targets
for increasing the number of doctorates, as well as the performance of
NRF funded students, which is above the set benchmark. The NRF
concluded that any policy, planning or funding decisions that respond to
the challenges of [higher education] must enhance research excellence
innovation and knowledge production and that funding decisions for
students must include appropriate resourcing for postgraduate studies
(number and value of bursaries and scholarships). In addition, funding
must take into account socio-economic circumstances and must be
scalable and support [the] sustainable growth of higher education. It
added that, in its view, primary and secondary education is a
constitutional right of all South Africans, free higher education is not
enshrined in the same manner. The affordability of free higher education
for all admitted students is questionable under the current economic
146
climate in South Africa. For this reason, the NRF would support an
affordable and sustainable solution that funds students on the basis
of cost of study but that is selective and differentiates on the basis
focus/priority areas and transformation imperatives and targets [and]
full, partial or no funding depending on income levels and access to
other funding such as bursaries.173
199. The Department of Basic Education focused their presentation on the
performance of Basic Education in preparing students for higher
education study. Regarding the university crisis, they suggested that their
pro-poor policy with regards to free schools has been a success; and
recommended making funding systems as simple as possible.174
200. In summary, the governments interpretation of the Constitution does not
support a free higher education system. Rather, the focus is on access
and support for the poor. The various government presentations
highlighted the severe financial constraints under which it is operating,
with various priorities struggling for better funding. Lack of funding to fund
new initiatives was highlighted more than once. Among these priorities is
education, which receives a substantial percentage of overall funding
(when considering the sector as whole). The need to focus on the
national perspective was highlighted by all. The achievements in
improving and increasing funding possibilities for higher education were
173
National Research Foundation Presentation & Submission, 05 September 2016.
174
DBE Presentation, 23 September 2016.
147
mentioned. Despite this, there is a clear recognition of the need for better
funding for NSFAS with a concomitant increase in the recovery of loans.
It was agreed that no poor student should be denied access based on his
or her financial situation. Further important points were the need for
quality, and for a mixed focus on under-graduates and post-graduates.
9.3 STUDENTS AND STUDENT ORGANISATIONS
201. In their submission to the Commission, SAUS complained about
increasing student debts which in our struggle we call it the black debt.
They explained that the main problem is a lack of funding. First,
universities are underfunded, and as a result they have been increasing
tuition fees to mitigate shortfalls and related vulnerabilities. Second,
many students rely on NSFAS, but NSFAS is unable to provide financial
support to all the deserving poor families with an income below R130,
000. Added to this, poor students in the missing-middle cannot access
NSFAS. As a result, universities face high levels of student debt, and
students either drop-out as they cannot afford to complete their studies,
and continue to struggle and are harassed by institutions to pay huge
debts. SAUS recommended: Increasing Governments spending from
0.75% of GDP to 2.5 % of GDP [which] will relieve the burden on students
to fund their own education. This will go a long way in assisting in our call
for free education. 175
175
SAUS, 10 August 2016.
148
202. In light of this dire situation, SAUS gave its support to a free education
model. They argued that charging fees is against the spirit of the
Freedom Charter of 1955, and that free education would lead to various
public benefits, including reduced unemployment. However, in light of
financial constraints, SAUS accepted that the realization of free
education is likely to be a phased in model, thus free education for the
poor is the first step towards a progressive higher education system. We
need to ensure that we particularly empower and advantage the poor in
order for us to start alleviating class struggles, especially in the capitalist
scheme. They explained that the missing middle are not middle-class
students, these are students from the working class who are too rich for
NSFAS, and too poor to pay fees: too poor to be rich, and too rich to be
poor. They are the children of teachers, of police men, of civil servants
and others. SAUS believe that the problem began with the
commodification of education, meaning that people get the education
that they can AFFORD, not the education that they deserve... The focus
is no longer on the academic project. The focus is not on learning, or on
developing but on ensuring that we pay the institution for the service
rendered without proper academic support and holistic learning. 176
203. Regarding funding for free education, SAUS outlined a number of
possible initiatives: (1) Cutting the government wage bill, as one third of
government spending is on wages. SAUS believes 7% can be cut to raise
R26 billion. (2) Introduction of an education tax of 3%, to raise over R30
176
SAUS, 10 August 2016.
149
billion from all the tax payers. (3) As a developing country, South Africa
should be able to rely on fully developed countries to finance some of its
aspirations. Mozambique for example introduced free education in the
1990s and the international solidarity helped them to fund part of the free
education bill. The country will create a model that developed [countries]
can be able to release funding and assist in funding free education. (4)
Adjust government spending to meet priorities, for instance SAUS
suggested that sport is not a high priority. (5) Access private sector
funding For example if all companies listed at the JSE can contribute 4%
of the required funding for free education, only 25 companies can pay the
full amount towards free education (6) By dealing with corruption and
other leakages, such as Government Ministers who live a lavish lifestyle,
money could be diverted to higher education. For instance, When one
minister goes out of the country and spent R300 000 just for one holiday,
such money would have funded three students to receive free education.
(7) Private individuals and the general public wishing to contribute to free
education can be mobilised through government systems to fund free
education. This will be added by making them understand the benefits
accrued by the existence of graduates from free education. 177
204. The Students for Law and Social Justice stressed the importance of
making higher education available and accessible due to its ability to
alter the lived realities of the historically oppressed, as well as open the
doors of opportunity to those whom society has traditionally relegated to
177
SAUS, 10 August 2016
150
subservience and poverty. Their submission focused on the
constitutional imperative and obligation under international law, and
considered access more broadly than only financial access. The SLSJ
called for admission policies to be reviewed as a space in which to effect
redress of past and present injustices and for a progressive sliding-scale
model of governmental subsidisation directly to students, not as a
collective but as individuals, [to] ensure that personal circumstances of a
student (including the best interests of the student, any forms of
disadvantage, socio-economic disparities, and historic or continuing
social systems or structures) [are] accurately accounted for.178
205. Regarding free higher education, SLSJ believed that the immediate
realisation of fee-free further education for all would serve to benefit the
advantaged in society to the detriment of the overburdened poor. It
supported a model based on substantive equality where those most in
need are assisted at the justifiable expense of those wholly able to pay,
but that no retrogressive measures should be implemented in the pursuit
of realising the right to further education, save for measures designed to
redress the injustices of the past. This proposal would see greater
subsidisation of those with an inability to pay, and lesser and
subsequently no subsidy to those able to pay, depending on personal
circumstances. The system would entail fee-free education to those
wholly unable to pay; using increased governmental expenditure on
higher education coupled with reducing or removing subsidisation of
178
Students for Law and Social Justice, 12 August 2016.
151
those wholly able to pay. The sliding element of this proposal is realised
in students paying varying fees contingent on their available
resources.179
206. The SLSJ also indicated that an alternative to the sliding-scale model of
subsidisation the implementation of a system of income-contingent
loans (ICLs) by the state It is a common occurrence that prospective
students are in need of credit facilities, but fail to meet the surety
requirements of private financial institutions. ICLs would be beneficial to
the student making use thereof and would, due to its income contingency,
prevent financial overburdening, particularly for students with less
financial means. The onset of repayment would trigger upon sufficient
income being earned exceeding a determined reasonable threshold. This
prevents a situation where students are forced to pay more than they can
afford at a given time.180
207. SASCO criticised the commercialization of higher education, which
essentially advocates for the management and governing of institutions
of higher learning in ways identical to the manner in which business
corporations are managed. They referred to the aspirations of the
Freedom Charter and Constitution, and gave their support to the 2012
ANC resolution that academically capable students from poor families
should not be expected to pay up-front fees in order to access higher
179
180
152
education. Academically capable students from working class and lower
middle-class families should also be subsidised with their families
providing a household contribution to their studies in proportion to their
ability to pay. The fees that must be covered include tuition,
accommodation, food, books, other essential study materials or learning
resources and travel that are the full cost of study fees. They also
referred to the Report of the Working Group on Free University Education
for the Poor in South Africa (2012), which indicated that Free university
education for the poor, in principle, can be considered to be a materially-
significant additional step in governments ongoing efforts to both
address some of the legacies of the past and deepen the scope and
quality of democratic life in South African society. 181
208. SASCO explained their opinion further: Free, accessible and relevant
education is a means for social development, personal empowerment
and the advancement of well-being, as well as [the] economic
development of nations. As such, We believe that tuition fees should be
completely removed from education in order to begin dismantling the
market. Fees are used purely as a way of creating a sticker price for a
degree, constructing the fantasy of a market transaction to turn students
into consumers and force universities into competition. SASCO called for
181
SASCO 22 August.
153
a funding system that provides universities with financial security and
autonomy without generating unhealthy competition for funding.182
209. Regarding the funding of free education, SASCO accepted that it might
be implemented in phases, for the poor, and missing middle, and later for
all. Identified sources of funding include using unclaimed pension fund
money; a wealth tax; an education fund where all working people
contribute R20; and increased business investment. They explained that
this did not need to be only in the form of additional taxes, but that
companies could be given incentives, like BEE points, to invest their
corporate social responsibility budget in higher education. Furthermore,
even a modest 1% increase [in the] skills levy, channeled into higher
education could take a huge burden off of government and, ultimately the
individual taxpayer, and go a long way in making business pay a fair
share towards generating the skilled workforce that they tap in to, rather
than continuing to free ride. SASCO also called for central control of all
money from local government, district government, provincial
government, national government, state owned companies, as well as
international government/bodies for loans, bursaries, scholarships,
grants so as to ensure maximum use, consistent rule application and
meeting our educational and skill needs.183
182
SASCO 22 August.
183
SASCO 22 August.
154
210. Finally, SASCO called for application fees to be abolished and for no
funding to go towards private providers. They said the question should
not be whether the country can afford the cost of free quality education,
the question we ought to ask, is whether can the country afford having
youth that is not educated, skilled and empowered?.184
211. Representatives of the UKZN SRC presented to the Commission,
explaining that the SRC was busy dealing with the problem of poor
students without NSFAS funding, and that this reemphasize the urgency
in relation to the need for free, compulsory, quality education. The current
system is not assisting anyone; in fact, it is excluding the poorest of the
poor. It doesnt even fund half of the students that, based on their
previously disadvantaged background, are not able to be funded
because of they are saying that there is shortage of money. The SRC
described inequality between previously advantaged and disadvantaged
institutions, and said that a Commission was not needed as no
Commission is set up when state owned enterprises need more funding
or bailouts. They went on to argue that free education is possible, but
that too much money is lost through corrupt practices. The SRC clarified
that they only support free education for the poor. They argued that too
much of a university budget goes towards executive salaries, and that
this is part of the commodification of education. They described their
problems with NSFAS, focusing on the fact that there was not sufficient
money for all qualifying students, and that the missing-middle also
184
SASCO 22 August.
155
needed assistance. They added that S-Bux (the NSFAS student card)
limits where they can shop; the means test is very problematic; and there
was some concern that NSFAS is a loan. However, another participant
did argue that Im saying maybe there should be a level at which, [sic]
once your tax contribution and theres a certain level in which you earn,
you are then asked to pay a particular portion. I dont particularly believe
that we should just give NSFAS money for free, because when you look
at NSFAS, what NSFAS is meant to do is give you a chance at changing
your individual circumstances. What NSFAS does, is it makes you swim
against the stream in the sense that if the natural evolution of your life is
that youre from a shack and you are destined to become a domestic
worker, through the intervention of NSFAS you become a doctor and
immediately you earn R37 000. Now, these are realities [sic] what NSFAS
can do, so we must not close that gap, we must allow that gap for people
that can to contribute.185
212. The UWC students also made a submission. They indicated that higher
education needed to be freed from, among others, exclusion on the basis
of being poor; high dropout rates; lack of student support; negative
labelling of students; and mismanagement of NSFAS and other funding.
The students criticised the continued policy focus on free education for
the poor, not allowing scope for wider consideration of free education and
in the context of no clear definition of the poor. The students added that
despite a focus on access, this remains limited and access is not
185
UKZN SRC, 29 August 2016.
156
translated into success. This leaves students with large debts which they
cannot pay as they have no qualification supporting their employment.
The SRC recommended that institutional autonomy be reviewed to
develop a hybrid system with a focus on academic freedom and
transformation simultaneously; that fee capping be introduced to allow for
better management of funding; and that NSFAS be restructured to ensure
better management and monitoring of funds and students, to ensure
better throughput and to ensure better tracking of students during study
and post-graduation. In relation to this, the SRC called for a better
tracking system for re-payment of NSFAS loans, and called for no interest
on loans. Finally, the SRC concluded that free education could be funded
through existing means (grants, SETAs, donor funding) and that a
National Education Redress Fund be established and linked to a
reparations process, with additional funds through CSI with tax
rebates.186
213. After commenting on the extension granted to the Commission, the
DASO moved to discussing the financial positon of universities. They
noted that South African Universities are inadequately funded which
leaves them in a precarious financial position, that both teaching and
research are important activities that should be adequately funded; and
that fees have been increasing quickly due to subsidies decreasing in
real terms, especially when considering the growth in enrolments and
research output. DASO noted that increases in allocations to NSFAS
186
UWC SRC Submission.
157
have largely been negated by fee increases, and that adequate levels of
NSFAS funding are vital to ensure that no student is excluded from higher
education on the basis of its affordability. DASO highlighted the dire
financial position of the HDIs, where most students rely on NSFAS. They
recommended that these institutions need to be considered in any
solution. DASO commented that access to higher education is a
fundamental basis for economic empowerment, and that fees need to be
affordable to ensure access for students from poor and working-class
families. DASO argued that By cutting corruption and reprioritising the
existing budget, free higher education for the poor with support for the
missing middle can be made a reality. They called for a focus on
graduates, rather than enrolments; for an increase in government
subsidy towards the level of 50% of costs so quality education and
support to poor students and the missing middle can be provided for;
and for improved student support. DASOs position regarding free
education is that the poorest students need the most comprehensive
financial support possible; missing middle students should also receive
financial support, proportional to their financial standing; and Better-off
students should not receive financial support for fees. They explained
that NSFAS could still be used as the body to manage this support, but
that more funding should be directed towards the entity. They argued that
poor students should receive full-cost of study funding, converted into a
bursary on completion; that missing-middle should be progressively
158
supported proportionate to their family incomes; and that academically
competent students should be funded for post-graduate study.187
214. SAFETSA is the student body for the TVET sector, and provided the
viewpoint of TVET students. They began their discussions by
contextualising the 2015 protests, and explained that current debates
seem to be dominated by the emergent notion of the missing middle.
While care is needed to search for ways of finding those that are deemed
to be missing. It should not be the case that their discovery occurs by
hiding those in lower social stratum. SAFETSA explained further that
students in the TVET sector tend to represent the poorest segment of the
population, and it would not be correct to sacrifice the poor masses of
our people in the TVET sector to protect the yet to be found middle. They
reminded the Commission that while the fees protests had originated in
the university sector, any decisions made could also impact on the
TVETs. They added that NSFAS provides TVET students with bursaries
rather than loans, due to the policy objective of increasing TVET
enrolment and because TVETs attract the poorest students. Despite the
assistance offered by NSFAS, SAFETSA pointed out that insufficient
funding is a serious challenge, which results in dropout and protests.188
215. Regarding free education, SAFETSA discussed some of the pros and
pitfalls of such a system, but argued in general for free education for the
187
DASO Presentation, 23 September 2016.
188
SAFETSA Presentations & Submission, 29 September & 22 November 2016.
159
poor. They explained that, in their interpretation, free fees appears as a
measure reasonable enough for making post-school education available
and accessible in line with the Constitution. They added that At stake on
this issue is the participation in education, by significant members of this
society despite their creed and economic status. In this light free-fee can
also be seen as longterm strategy to reduce the number of NEETs
Fees have implication[s] for meaningful participation in post-school
education. Education is not a place for making money, but provides [a]
context to build a country. They explained further that there are critics
who have raised concerns about monetary value, but that the other view
of sympathisers who place the people at the centre then end with
structure that could best serve them. SAFETSA also pointed to a South
African Institute for Race Relations (SAIRR) study which noted that only
5% of the households could actually afford paying for university education
fees. In conclusion, SAFETSA noted that study loans impose an extra
burden on students to start life on a deficit; and recommended that
South Africa makes undergraduate and all college studies to be free for
all those who cannot afford to pay; that government and business
commit to [a] mechanism that would raise necessary revenue; and that
those that have been helped should contribute to their alma mater once
they are employed.189
216. The Young Communist League of South Africa (YCLSA) was clear in
their support for free education, although they did accept that there would
189
SAFETSA Presentation & Submission, 29 September 2016.
160
need to be steps in the interim until it could be attained. The YCLSA
indicated that its vision is to see free quality compulsory education in
institutions of higher learning. We seek to strive for the creation of access
and success in all institutions of higher learning without students having
to pay. We further seek for transformation of curricula content and a
reconfiguration of institutional autonomy. In general, we want a
transformed education system and the product thereof. In preparing to
usher in free education, we want the government to evaluate the cost of
education and introduce control over fees in the meantime. The demand
for free education can only fail if it is reduced to cancellation of fees alone,
it should be a demand for quality education too with necessary
implications for the transformation of the curricula. The transformation of
the curriculum and its content is a necessary pillar for the demand for free
education. YCLSA explained further that Tuition fees must be abolished
and a grant be introduced for students. We call for more state funding for
higher education to complement the loss of revenue from tuition fees and
living costs for students. The responsibility to take a student to an
institution of higher learning must belong to the nation and society as a
whole and not a family. The YCLSA drew a distinction between free and
fee-free education, explaining that Free education is meant to speak to
free quality compulsory education and addresses the question of quality,
the content of education, transformation and fees while the loosely coined
word of fee-free is used to divert attention away from all issues of the
education and emphasizes the question of fees in exclusion from other
important issues. Therefore, the debate must be on the provision of free
161
quality compulsory transformed education and not on fee-free
education.190
217. In addition, YCLSA noted the need to address the existing difference
between historically white and black Universities and colleges We
need to recognise and redress the historical burdens of institutional
inequities among higher education institutions, which resulted in
financial, educational and geographical disadvantages. They also
indicated the need for increased access, but acknowledged that many
universities are at full capacity and new universities have been opened.
YCL noted that Lack of free quality education is amongst the major social
injustices in contemporary South Africa. They also called on people to
fight against the running of institutions of higher learning like businesses
and transform ivory towers into peoples centres for peoples education.
They noted that the commodification and commercialisation of education
remains the biggest challenge and that we need to develop systems and
opportunities that allow the poorest of the poor to attain education without
the burden of the cost. In this regard, YCLSA also called for government
to interrogate private institutions of higher learning. 191
218. Regarding NSFAS and loans, YCLSA noted that NSFAS has led to many
black graduates being in debt after completing school. The students fall
victim to unpaid loans which go on for years given the unemployment
190
YCLSA Presentation & Submission, 29 September 2016.
191
162
rate. In addition, NSFAS does not cover all the costs and needs of poor
and working-class students. In the short term, the YCLSA called for
review of the NSFAS family income threshold, no fee increase, the
capping of fees, the removal of application and registration fees so that
students be allowed to pay as and when they can pay during the
academic year. They called for government, universities, business and
Finance capital through institutions and big monopolies to contribute
and find a funding solution.192
219. In summary, all students highlighted the problems with the current
system, and with NSFAS being insufficient. While most student groups
gave their support to free education in some format, the majority also
recognised that in the short term this could only be provided to the poor.
Definitions of the poor were not provided. Some students called for free
education without any re-payment, while others supported re-payment
when a certain income level has been reached so that other needy
students can be funded. Application fees and upfront registration fees
were highlighted as limiting access to financially needy students.
192
163
9.4 HIGHER EDUCATION INSTITUTIONS
9.4.1 UNIVERSITIES
220. Universities South Africa (USAf) referred to the growth in the higher
education sector, without the concomitant growth in public spending, as
well as improvements which have been made in throughput and in
African and women enrolment numbers. According to USAf, important
principles to maintain include institutional autonomy; accountability; high
levels of quality; and a contribution to the national social justice agenda.
USAf did not give its support to free education, which in its opinion would
benefit the wealthy. It recommended one of two models. The first model,
would give grants to poor students accepted at a university and loans to
students in the missing middle; with other students paying upfront fees.
Fee increases would be controlled through a national fee regulatory
framework; and DHET and universities would work closely together in
planning. This model could lead to high student debt. The second model
proposed is a graduate tax in a fee-free regime. In this model, no student
would be excluded on financial grounds, and no student would pay
upfront fees. A percentage would be added to their tax when employed,
collected by SARS, and which would be ring-fenced for higher education.
The problems with this system are that the tax burden increases;
emigrating students would not pay; and its success is dependent on the
state of the economy. USAf recommended further that whatever model
is adopted, additional measures should include improved tax incentives
164
to encourage individual and corporate donations to higher education;
business contributions through a levy or tax; and the use of skills levies
in a consistent and direct way. USAf referred to the current system of
cross-subsidisation (both of poor students, expensive courses, and post-
graduate study) and warned that this should be borne in mind in any
future model.193
221. The University of the Witwatersrand prepared their submission after
engaging with a number of stakeholders within the university. They found
that none of our respondents supported a free-for-all system in which
even those who could afford to pay were fully funded. This led to various
proposals for means testing and/or a sliding scale based on family
income. There was general agreement regarding the need for South
Africa to increase the amount it spends on education as a percentage of
GDP. The University argued that the public and private benefits of a
thriving education system are clear, especially given the need for
transformation in South Africa. For this reason, Wits argued for the
burden of funding to be shared between the government, the private
sector and individuals. They went on to explain that private sector
contributions to the university were normally earmarked; and that in the
case of Wits, funding has decreased over the past five years.194
193
USAF Presentation & Submission, 29 August 2016.
194
Wits University, 10 August 2016.
165
222. Regarding individual contributions, it was agreed that those who can
afford to contribute should. For others, there should be assistance and
Wits considered options including a means test, involving SARS in
determining household income, or leaving parental income out and
contracting students into a pay-back or work-back model. However, the
University also pointed out that according to Stiglitz: Student debt is not
benign and economically insignificant. It affects capital formation the
increase in per capita output, or net additions of capital stock such as
equipment, buildings and roads all of which go to create goods and
services and have a direct negative effect on our productivity as a
country. People will not start new businesses, invest in capital equipment,
manufacture goods and innovate. 195
223. The University of Pretoria started by pointing to both the public and
private benefits of higher education; and to the stagnating government
investment which led to higher than expected tuition fee increases. The
University highlighted how access and affordability in SA is a complex
challenge pointing to the unequal society and unequal participation in
higher education. The problem of insufficient NSFAS funding to support
all deserving poor students was recognised as one of the major problems
leading to the current funding crisis. The University described the tuition
fee dilemma within a life-cycle approach explaining that students from
poor households would not remain poor after they graduated and that,
from a life-cycle perspective, the problem is not one of poverty, but the
195
Wits University, 10 August 2016.
166
mismatch between the timing of expenditure and income. This mismatch
can be addressed through a revamped NSFAS. The University of
Pretoria views fees as a rational element in the financing of HE, provided
that, on the one hand, these fees are adjusted by subsidies to account
for public benefits, and on the other, students from lower-income
households have access to financial aid. The University also suggested
a sliding-scale tuition fee model, in which tuition fees [are] charged
according to a students household income [and] various tuition fee
tiers are determined based on a students household income.
Accordingly, students from lower-income families pay lower fees while
students from well-off families pay the full fee rate. The University
explained that such a model would require that all students are means
tested. The University was not in favour of a regulated set fee model, as
different universities have different costs, and some have instituted a
cross-subsidisation policy (either to subsidise expensive programmes or
to subsidise poorer students).196
224. Tshwane University of Technology (TUT) explained that they increasingly
rely on student fees as a source of income, due to a decline in direct
subsidy from the government. This has affected the institution negatively
as they cater for poor students, and as a result student debt (and debt
written off) has been increasing, especially since the protests in 2015.
TUT projected a deficit budget from 2017. The problem is compounded
by insufficient NSFAS funding for all qualifying students, even though
196
University Pretoria 11 August 2016.
167
TUT does not provide full-cost of study allocations to students, and has
rather developed its own model to cater for more students. TUT
recommended that universities should not expand to meet the enrolment
targets set in the 2013 White Paper on PSET education, unless the
necessary funding is available. Furthermore, expanded access should
focus on the college sector to turn around the skills pyramid. TUT did not
give its support to free education for all, as this is unaffordable, but
suggested a sliding scale of fees to accommodate all students. They
suggest that students who can afford fees continue to pay upfront, and
that other students pay after they have studied either through community
service or through a tax (administered by SARS) on their earnings when
a minimum income threshold is reached.197
225. The University of Mpumalanga argued that the provision of high quality
higher education is expensive and that in order to make higher education
progressively more available and accessible, then the issue of the
funding must be addressed. The University went on to discuss public and
private benefits, and the need for a cost-sharing model. They explained
that the key questions that must be answered are the proportions of the
private and public contributions and when and how these funds are
collected. This problem is compounded through by the fact that South
Africa remains one of the most consistently unequal societies, meaning
that some can afford upfront fees, and others require assistance.
Pressure on institutions and students has increased as a result of
197
TUT, 22 August 2016.
168
government funding not keeping pace with inflation and growing
enrolment. The UMP supported a loan and bursary system, where loans
are repaid through the tax system over a number of years, with no interest
charged; and an increase in government subsidy in light of the public
benefits.198
226. Like many of the other universities, the University of Limpopo (UL) began
by referring to a decline in government subsidies which has led to higher
tuition fees; a high reliance on (insufficient) NSFAS funding for students;
growing student debt; and the public and private benefits of higher
education. The UL explained that even with fees levied, the higher
education system is currently underfunded by about R90 billion, making
fee-free education unaffordable, although poor students should be
helped. UL recommended that the State should provide more direct
funding; that business and civil society contributions should expand; and
that expansion targets for the university and TVET sectors should be
moderated. Together with this, NSFAS recoveries need to grow;
institutional autonomy should be protected; and HDIs should be given
dedicated support to address the backlog as a result of the historical
legacy.199
227. The University of Venda referred to the rising costs facing institutions,
together with increasing student debt. They indicated that a minimum of
198
University of Mpumalanga, 22 August 2016.
199
University of Limpopo Presentation & Submission, 24 August 2016.
169
an 8% increase was needed by the institution to remain sustainable.
Univen recommended that municipalities should give universities a
rebate on their utilities; that the HDI Development Fund should be
implemented urgently; that provincial governments should provide more
bursaries in skills shortage areas; and that there could be engagement
with the National Lottery to devise a new category of assisting
universities. The Univen also said that rather than a student-centred
NSFAS model, universities should be given more latitude to allocate
funds according to the needs of their students; and SARS should assist
with collections and household data.200
228. The University of KwaZulu-Natal (UKZN) began by referring to the
principles of adequate public funding; public and private benefits; and
equity and equality. They indicated that the decline in public funding was
putting pressure on institutions and on student fees; but that free
education was not the solution as this would benefit the rich. They
recommended a system of grants for the very poor for undergraduate
study only, with a means test linked to SARS and social security data.
They also recommended income contingent loans for those from
households with an income between R150 000 to R500 000.201
229. The Durban University of Technology (DUT) accepted that there is a
compelling transformative rationale for fee-free education, but also
200
University of Venda Presentation, 24 August 2016.
201
UKZN Submission, 29 August 2016.
170
recognised high private returns and limited resources. As a result, they
did not give their support to a total fee-free education [system] for all
undergraduate university students but rather a formula based notion of
fee-free undergraduate higher education for the poor and indigent based
on family income, which should be extended to accommodate the
missing middle. The DUT supported full cost of study allocations, and
recovery through some form of additional tax once recipients graduate
and begin working.202
230. The University of Zululand (UZ) argued that the central problem is the
inability of students to pay upfront fees. The University argued that due
to the public benefits, a public-private-partnership and social investment
bond [solution should be found] to meet the bulk of the financial needs of
tertiary institutions and Since students are the major beneficiaries of the
tertiary education system they ought to pay for their education once they
earn high enough incomes. Moreover, all graduates ought to pay a
special income contingent tax to ensure future generations have access
to tertiary education. As such, the submission argued that integral to
future financial sustainability is effective cost sharing, diversifying income
sources, creating new sources of income, building partnerships at home
and abroad, and creating wealth beyond teaching and research.203
202
DUT Presentation & Submission, 30 August 2016.
203
University of Zululand Presentation & Submission, 30 August 2016.
171
231. Based, on this, UZ proposed a loan repayment system or taxation
mechanism after the student enters the job market on the basis that it
shifts the burden of payment from the point of consumption to after
graduation when the graduate is able to earn. Loan re-payments would
end once the loan is paid off, while a graduate tax would be ongoing. UZ
proposed that such loans be available to students from poor and middle-
income families, and that the size of the loan would be on a sliding scale
based on household income. Furthermore, students from more affluent
homes should be charged higher fees on a sliding scale. The University
also proposed that tuition fees should be responsive to employer
preferences, i.e. lower fees for courses and programmes that are in high
demand in the market place relative to those which are not.204
232. The University of Fort Hare (UFH) began by explaining that, as an
historically disadvantaged institution, they experienced serious
underfunding, which in turn led to backlogs in infrastructure and
equipment for teaching and learning, research, staff and student
accommodation, transport etc. In this way, the university highlighted how
a lack of money was affecting the quality of the education the institution
could provide. The UFH referred to and critiqued the post-apartheid
funding formula and the recent funding review. They also indicated that
There is no national decision to fund higher education in an amount
related to a percentage of the Gross Domestic Product. As a result of this
there are varied unplanned proportions of funding compared to GDP over
204
University of Zululand Presentation & Submission, 30 August 2016.
172
years. As a result of the decline in funding the institutions have been
increasing fees to match the requisite need for quality higher education.
For HDIs, whose majority of students come from poor families, this has
led to high demands for the National Student Financial Aid Scheme
(NSFAS) to provide more funding. The lack of matching increases in
NSFAS funding has led to increased student debt. The UFH went into
some more detail regarding underfunding for both university quality
development and students.205
233. UFH indicated that, in their view, Fees should be a component of higher
education funding but the poor should access higher education without
having to pay at the point of service. The students supported by the state
should pay back after qualifying, either in kind or in cash. Public service
in various spheres of government is one option. This needs proper HR
planning so that the public service is not bloated in the end.206
234. The Walter Sisulu University (WSU) focused on their financial position.
They indicated that 90% of their students applied for NSFAS, and about
73% qualified. The rest of the students were part of the missing middle
and cannot afford fees. As such, the university is very reliant on state
funding, and bad debt is a growing problem, leaving the University in a
dire financial situation. It can hardly cover the costs of basic educational
services, and has no money for maintenance or for improving the student
205
UFH Presentation, 01 September 2016.
206
UFH Presentation, 01 September 2016.
173
accommodation situation. WSU suggested a differentiated fee system,
with a three-year rolling plan model for fee setting. 207
235. The NMMU discussed the public and private benefits of higher education
in some detail, and indicated that the transformation of the sector carries
additional costs to cater to the needs of students from working class and
poor backgrounds. The University indicated that Universities must be in
financially sound positions to meet these additional challenges or
students from poor backgrounds will remain marginalised and set up for
failure. As in the submissions of other universities, NMMU discussed the
decline in university funding and funding as a percentage of GDP.
Regarding NSFAS, the NMMU argued that loan recovery is a major
issue, and that if recoveries had continued to grow along a normal
[upward] trajectory, it is estimated that, in 2014, they should have brought
in R1.7 billion, instead of just R2.48 million [and] NSFAS would have
been in a position to fund 51 000 students. Another concern is
defining and including the missing middle, where NMMU has their own
model to cover students coming from households with an income up to
R300 000. NMMU concluded that for them, the question is: Who must
pay and when?. Their argument was that Firstly, government needs to
prioritise the funding of higher education in line with the policy intentions
of the National Development Plan. Secondly, since there are public and
private benefits to higher education, both the state and students need to
contribute to the cost of higher education on condition that those who are
207
WSU Presentation & Submission, 01 September 2016.
174
unable to pay are supported adequately through a strengthened NSFAS
with loan options for the middle-class. Furthermore, the role of the private
sector in strengthening NSFAS through loans and investments in
scholarships needs to be investigated and incentivised by the State.208
236. Similarly, Rhodes University (RU) began by discussing the public and
private benefits of higher education, and social justice in terms of access.
They indicated that broad access is a moral obligation, and that it is
already skewed by the uneven school system. While the rich can afford
fees, the upper-middle can access bank loans and the poor can access
NSFAS, the majority of South Africans sit between these categories and
are denied access to higher education by the crushing fees. The RU also
referred to the costs of transformation, including the need for re-
curriculation, and to South Africas low investment in terms of GDP and
per-capita decline in subsidies. RU discussed its serious financial
position, and why relying on third stream income is not a viable option,
partly due to the impact this would have on quality. Rhodes University
discussed NSFAS, and some of their achievements and challenges.
They explained how the real concern about NSFAS is that it is only
available to the lower end of the socio-economic spectrum and thus
potential students who have perhaps got a better chance of success are
denied access on financial grounds. RU is one of the Universities which
supplement NSFAS, but access remains limited given the high cost of
university education and the difficulty many experience in obtaining bank
208
NMMU, 02 September 2016.
175
loans. RU went on to support some aspects of the proposed new NSFAS
model, but expressed concern at the centralised nature of the proposal.209
237. Finally, RU agreed with Nico Cloete of CHET, indicating that it needs to
be very clearly acknowledged that if free education is uniformly provided
to all, it will be a regressive subsidy of the upper middle class and the rich
by the rest of the population. It added that While the idea of free higher
education is popular, it privileges the elite in a mockery of a pro-poor
policy.210
238. The University of Johannesburg (UJ) began its presentation by referring
to the history of its merger as a comprehensive university, the size of the
institution as well as its programme and qualification mix. It highlighted
the importance of institutional autonomy, and how university councils,
together with executive management, bear fiduciary responsibility and
ensure effective universities with the highest levels of quality. To achieve
high quality teaching/learning and research, they have to be funded at
appropriate levels. Like other universities, the UJ went on to describe the
importance of financial sustainability, the cost of quality education,
declines in government subsidy and the resulting fee increases. UJ
described their internal student assistance programme, funded through
fees, which includes a food assistance programme. UJ pointed out that
there is no subsidy for operational expenses for student accommodation,
209
RU Presentation, VC Presentation & Submission, 2 September 2016.
210
RU Presentation, VC Presentation & Submission, 2 September 2016.
176
and that residence fees charged are not at a level where institutions could
finance new residence developments. The University discussed various
costs, including the increased cost of supporting underprepared
students.211
239. UJ recommended that the cost-sharing model between the state and the
student continue due to mixed public and private benefits. However, UJ
argued that a necessary element of social justice is that the funding
model should include mechanisms to ensure that academically deserving
and academically achieving students should be not excluded from
university because they cannot afford it. UJ suggested assistance will
be a combination of grants and loans, depending on the student and his
familys ability to contribute to the education costs. In addition, UJ
suggested that government subsidy be increased to 1% of GDP, and that
a graduate tax be considered.212
240. The University of the Western Cape (UWC) began their presentation by
referring to their history. In 1995, the Minister of Education called for no
fee increases to allow indigent students to register. The UWC heeded
this call, which resulted in severe financial pressure, students who could
not afford to pay their debt, and eventually by 1998 the University was
insolvent and had to retrench 41 academic and 300 non-academic staff.
UWC warned that we should learn lessons from the past. Only after an
211
UJ Presentation & Submission, 02 September 2016
212
UJ Presentation & Submission, 02 September 2016.
177
injection of money from the state, was UWC able to recover. Since then,
they have slowly regained financial security, and increased student
numbers with gradual fee increases (above inflation). Nonetheless, a
large percentage of UWC students rely on NSFAS, and over the last
twenty years there has been an increased focus on fee income as
government subsidies have not kept pace with growth. In conclusion, the
University indicated that they support free education for the poor and
missing middle. However, if increases in state subsidy are to continue
along the current trajectory, there will be financial loss in real terms. If
funded at the correct level, free education for the poor could result in
better support for the HDIs due to better cash flow and lower levels of
student debt.213
241. Stellenbosch University (SU) began by arguing that chronic
underfunding of the sector over close to two decades has given rise to a
plethora of consequences affecting much more than the financial
situation at our universities. These sectoral challenges necessitate a
sectoral approach to find lasting solutions. They referred to an academic
study on education funding, which argued in favour of cost-sharing,
despite this not being the most politically favourable policy, as this was
the best way to ensure not only the financial health and sustainability of
higher education institutions, but it can also bring about enhanced
efficiency, equity and responsiveness. Despite favouring cost-sharing,
the authors stressed the importance of government funding, with fees to
213
UWC Presentation, 05 September 2016.
178
supplement this funding. The University went on to discuss the current
underfunding of the sector, higher education inflation, and funding as a
percentage of GDP. Having highlighted the need for more funding and a
differentiated higher education landscape, SU acknowledged that South
Africa has an unequal society comprising of an affluent and upper middle
class that can afford university education and a large component of lower
middle class and poor students who cannot pay their way. We realise that
student fees are a major concern for many of our students and their
families. However, we do not believe that fee-free higher education is
currently feasible. They indicated that they currently assist students is
the missing-middle who do not qualify for NSFAS and described their
bursary system, funded out of the fees of those students who can afford
to pay, and their general financial situation.214
242. In their recommendations, Stellenbosch indicated that they think free
higher education is not feasible in the current economic situation, and
that Studies have also shown that in the developing world fee-free higher
education has tended to benefit the upper middle class and very affluent
sectors of the population rather than the poor. They added that, given
the public and private benefits, they support a cost-sharing model, but
due to the socio-economic context a differentiated approach of fee
increases that are mitigated through financial support to academically
deserving poor students related to the combined annual household
income. They clarified that they do not support differentiated student
214
Stellenbosch University Presentation & Submission, 06 September 2016.
179
tuition fees based on household income, but we do support the provision
of bursaries and/or loans to academically deserving, needy students
according to a sliding scale linked to the combined annual household
income of the students family. Examples of three income scenarios were
provided.215
243. The University of Cape Town (UCT) referred to the success of higher
education in South Africa over the last twenty years, but highlighted
various pressures, including financial pressure, low throughput and
increases to student fees. The University explained that the ideal position
would be if South Africa was a rich country with little inequality and if it
was already providing universal fee-free quality primary and secondary
schooling, universal access to early childhood development centres,
healthcare, social welfare support for all elderly and unemployed, we
would support a system of no-fee higher education. However, given
significant inequality and rationed public resources and low to middle
income; in the next 30 years, higher education will not be the highest
priority such that it commands the resources from public funding needed
to cover its full costs. Therefore, a cost-sharing model is needed. UCT
went on to discuss funding streams, public and private benefits, and the
need for increased government subsidy. They explained that Tax based
public funding should benefit all, and not just a small proportion of the
population who are likely to be the most privileged. Higher education is
only accessible to about 20% of the population and a much smaller
215
Stellenbosch University Presentation & Submission, 06 September 2016.
180
percent of households, and even though this should increase to about
25% over the next 20 years, this is still a small minority of the population.
Furthermore, this 20% is already relatively privileged as evidenced by the
fact that they have been to better schools and come from family
backgrounds that have enabled them to succeed academically. They will
also become even more privileged relative to the rest of the population
as a result of their university education. This is unlike public funding for
schooling or health, which will benefit 100% of the population if everyone
chose to use the public schooling and health systems. Thus, everyone is
paying tax (e.g. through VAT, duties, and for many, income tax) while
only a small proportion who are already relatively privileged, benefit.216
244. UCT discussed different options to support students in financial need, but
pointed out that poverty is a continuum, and having cut off points could
therefore affect some negatively. As such, UCT suggested that two levels
of fees could be unfair to those near the cut-off; and sliding scale fees
are administratively challenging. Therefore, they recommended one
tuition fee with bursary and loan support on a sliding scale for those in
need. UCT discussed the benefits of loans (and good and bad loans),
including the replenishing of financial resources and the possibility of
banks becoming involved, but also the possibility of the poor being over-
indebted.217
216
UCT Presentation & Submission, 06 September 2016.
217
UCT Presentation & Submission, 06 September 2016.
181
245. Like other universities, the UFS started by focusing on government
subsidy as a proportion of GDP; low throughput; and the role of
universities within the entire PSET sector. The University suggested that
government subsidy should be increased to 1% of GDP. The UFS gave
its support to free education for the poor, and discussed their bursaries
for poor students and their feeding scheme, as well as access to a
number of other bursaries and scholarships. They explained that another
0% fee increase was not possible, and would impact severely as many
cuts had already been made.218
246. UNISA discussed the financial position of the University and higher
education in general. They explained that substantial additional
investment is required to move UNISA from a correspondence to an
Open Distance Learning institution. They added that Online interactive
teaching and learning is not inexpensive and therefore does not meet the
economies of scale often attributed to distance education. They
explained that, in their opinion, in the Long-term fee-free education is
unsustainable and puts most South African universities at risk unless
Treasury is able and willing to make up the shortfall. UNISA explained
that a fee-free higher education system without additional sources of
funding will impact negatively on the quality of [their] offerings, for
instance, they explained that academic talent would be lost if salaries
were not competitive. However, UNISA believes that Free education in
South Africa is an inspirational goal worth pursuing, especially for
218
UFS Submission, 22 September 2016.
182
students who are poor and who qualify for access to higher education
institutions. In the current context, free education for all would benefit the
wealthy who can afford fees; would remove the current cross-
subsidisation of the poor by the rich through fees and of certain fields by
others; could cause distortions in funding through an extended formula;
and may affect postgraduate and part-time students negatively.219
247. The Cape Peninsula University of Technology (CPUT) began their
submission with a discussion of the role of the university and the public
and private benefits, then moved to consider the historical context of
universities and argued that inequality continues between institutions and
not only between students. The CPUT suggested that any funding
changes need to take into account the different needs of universities and
students in order to overcome these inequalities at both levels. CPUT
went on to consider free education, and noted that The risks associated
with a free-fee structure are considered high. While the model is followed
in other countries, there is sufficient evidence that shows it is difficult to
sustain. Nigeria is an example of a fee-free system which struggles from
underfunding and lack of competitive infrastructure. It is also considered
that not paying for a service has a psychological impact on society with
respect to the value of the service provided, which in turn affects the
sustainability of that service. In addition, CPUT noted that a centrally
219
UNISA Presentation & Submission, 22 September 2016.
183
controlled loan or graduate tax system would need to ensure that fee
money filtered back to institutions.220
248. CPUT went on to consider the impact of a number of factors on the
financial state of various institutions, including the impact of mergers and
very different fee structures. CPUT argued that these perpetuate the
inequality between advantaged and disadvantaged institutions, and
between traditional universities and universities of technology. Returning
to funding, CPUT argued that Diversification of funding sources is
considered essential, as is the need to maximize the potential value of
investment and research in terms of both finance and infrastructure.
Public investment in universities is now paramount if South Africa is to
continue to address redress and inequality amongst its citizens. It is
suggested that the scope for formal partnership between government,
industry and the higher education sector should be explored further with
the aim of increasing the public sector investment in higher education.
Furthermore, CPUT argued that that there is a basis to consider a
funding model that provides for the differentiation of funding based on
past inequalities, together with consideration for those institutions that
cater mainly for the financially impoverished and who have a very low fee
base. As such, CPUT concluded that erosion of the financial grants in
real terms indicates that if a fee-free scenario were to be considered by
the State, universities would require a commensurate increase in the
block grants provided by the State. It is therefore considered unlikely and
220
CPUT, Presentation & Submission, 23 September 2016.
184
irresponsible by CPUT to suggest that a fee-free scenario for higher
education can be considered. CPUT added that the Commission should
be mindful of perpetuating a system of differential fees amongst the
student population, as this could be considered unconstitutional. In
conclusion, CPUT indicated that that beneficiaries of the education
sector should pay for the services received. Individuals as beneficiaries
should pay fees. Those who cannot should then be subsidised by the
state. Business as a beneficiary of the skills should also contribute
directly to the sector and not only through current tax but perhaps an
additional education tax.221
249. The Central University of Technology (CUT) focused on the size and
shape of the institution, and their financial challenges. They noted that
fees have become an increasingly important part of the budget, but that
student debt as a proportion of fees is also increasing dramatically. CUT
pointed out that a large percentage of their students rely on NSFAS or
other funding, but that NSFAS does not cover all students or all costs. In
conclusion, CUT gave their view that fees cannot be taken out of the
equation [as] they represent the commitment of students, their families
and communities to their own development; that legislation providing tax
benefits to private enterprise and individuals providing bursaries must be
examined that benefits like a BEE credits system should also be
considered; and that NSFAS should be further strengthened, [in]
221
CPUT, Presentation & Submission, 23 September 2016.
185
helping needy students who should not be exonerated from paying back.
222
250. In brief, all the universities highlighted the financial pressure on the
sector, and explained that a decline in funding per capita had impacted
on student fees and university sustainability. Many institutions referred to
the public and private benefit of higher education, which justifies private
contributions through fees. Autonomy and quality were raised by some
institutions. All institutions called for some support for poor students
through a loan system; free education; a loan/ bursary mix; a graduate
tax; fee regulation or differential fees. Challenges with these various
systems were also raised. HDIs highlighted the additional problems they
face as the majority of their students are poor and rely on NSFAS. HWI
institutions referred to the bursaries they offer poor students and cross-
subsidisation between students. It should be noted that not much focus
was placed on whether international students should pay their full fees,
or whether some form of subsidy will be paid to cover their cost of study
in lieu of the benefits universities derive from international student
participation, e.g. international ranking of universities.
9.4.2 TVETS
251. The TVET Governors Council started by discussing the severe
underfunding of the TVET sector, and how universities often received
222
CUT Presentation, 23 September 2016.
186
preferential treatment. They discussed the cost-sharing model of post-
school education, but that within this government subsidy was declining,
putting pressure on students and institutions. The Council suggested
that, given skills shortages and the need for transformation, South Africa
should consider free education for students in TVETS, colleges and
universities. It argued that this is affordable, and that government should
consider a possible education tax through increasing income tax (1%),
capital gains tax (5%) and PAYE (0.5%). In addition, it called for the skills
levy to increase to up to 5% on a sliding scale.223
252. The TVET Governors also indicated that NSFAS capacity should be
strengthened as a matter of urgency, it should improve its debt collection
systems to ensure more available funds for redistribution, and that the
funding and distribution model by NSFAS for the universities, TVETs and
Community Colleges should be the same. In conclusion, it recommended
that a sustainable free education model be phased in on [an] incremental
basis with effect from 2017.224
253. The Buffalo City TVET College explained that, in their view, no South
African learner, who meets the minimum entry requirements for a chosen
programme, should be excluded from his or her studies for financial
reasons. The TVET management felt that that those who can afford fees
should pay, while the college SRC was of the view that higher education
223
TVET Presentation & Submission, 30 August 2016.
224
TVET Presentation & Submission, 30 August 2016.
187
should be free for all regardless of the financial status of students. The
College explained that, when referring to fees, they understand this as
full-cost of study. They argued for an interest-free loan with repayments
to begin when the graduate starts earning. This would assist in the
sustainability of the funding model. They added that graduates wishing
to emigrate within a period of five years need to pay back the value of
benefits received. They added that there should be an emphasis on
academic performance. A learner who fails to meet an acceptable level
of academic performance should be immediately excluded from the
programme and replaced with another deserving learner. The excluded
learner will be responsible to pay back the costs. However, they also
called for more emphasis on academic support. Finally, there should be
Continuous evaluation of the relevancy of vocational education and
training provided by TVET colleges in order to meet the needs of the
country and the National Development Plan.225
254. The College of Cape Town discussed the benefits of expanding the TVET
system, and called for government funding for all TVET programmes and
students. They recommended that the poor be given bursaries for tuition
and living expenses, and that the missing middle be given loans, while
those who can afford to pay should continue to do so. In conclusion, the
college reported that their SRC had indicated that if the government is
serious about expanding the TVET colleges sector, then it should review
225
Buffalo City TVET College, 02 September 2016.
188
the allocation to TVETs, review which programmes qualify for student
financial support; and expand the group with access to financial aid.226
255. False Bay College explained the system of funding for different TVET
programmes, and indicated that if all programmes and students were
funded according to the regulations, then it would be a system very close
to free higher education as TVET students get bursaries from NSFAS.
However, the College does not support a fully free system, but rather
differentiated support through a strengthened NSFAS. The differentiation
would be between poor (family income below R175 000 pa), missing-
middle (family income between R175 000 and R300 000) and wealthier
students (called category 3 with income above R300 000 pa). Category
1 students would qualify for a NSFAS bursary covering tuition, training
material, transport, accommodation and R4000 for food pa. Category 2
students should qualify for a NSFAS bursary for tuition and training
material and a loan for other expenses. Category 3 students could apply
for a loan for tuition only, but only if their family income is below R500 000
pa. The College concluded that the university fee crisis is diverting all
attention to universities and it could be at the cost of TVET Colleges.
There is a real fear that funding that would have been committed to
support the growth of TVET Colleges could be recommitted to solve the
university crisis.227
226
College of Cape Town Presentation, 06 September 2016.
227
False Bay College Presentation, 06 September 2016.
189
256. In summary, TVET providers focused on the levels of poverty in the
sector and the need for financial support for students as a result. While a
free-for-all system was supported by some and not by others, the need
for more funding if enrolment is to expand (as per policy) was highlighted
by all. It should further be noted that a significant number of the fifty public
TVET colleges have serious infrastructure backlogs which need to be
funded in order to improve the quality of education and realise economic
growth with rising employment levels. The estimated costs of such
developments have been discussed earlier in this submission.
9.4.3 PRIVATE PROVIDERS
257. APPETD highlighted the role that private institutions play in providing
access to higher education. They explained how many students rely on
bank loans, but that not all students are approved as they dont have the
necessary collateral. APPETD explained that they do not support free
higher education for all, as this would mainly benefit the rich and the
middle class, but that they would support free higher education for the
poor. They recommended that NSFAS support for the poor continue, but
that private providers be included in the same process (i.e. student
applies and is approved). Regarding the missing middle, they suggested
a voucher system for priority skills areas, which could also be used in the
190
private sector. In conclusion, they recommended that private providers
be seen as part of the solution in providing access to higher education.228
258. The PHEIG outlined the current funding crisis in the public higher
education sector, and highlighted the fact of a growing missing-middle
who could not afford fees and were not able to access NSFAS funding.
Given inequality in South Africa, the PHEIG suggested that a means of
ensuring financial access should be found. Regarding free education, the
PHEIG argued that those who can afford to pay should pay, and that
through their fees there could be some subsidisation of the poorer
students by the wealthier ones and the reality is that it is morally and
socially correct and necessary. Fees from fee paying students is
however, not an endless source of income for institutions and it is skewed
by institution with several of the more financially stable institutions
already having more access to fee paying students. The PHEIG also did
not give support to some institutions being designated fee-free; or to a
tiered solution which would be administratively onerous. Instead, it
recommended that institutions continue to charge fees; that the NSFAS
ceiling be lifted, and increased in line with CPIX; that NSFAS manage
repayment more tightly, possibly with SARS; possible gap funding for the
missing middle; NSFAS student repayments could be based on
performance with less being due by students who succeed
academically; and that universities are subsidised differently for
residential accommodation and meals and meal support for students who
228
APPETD Presentation, 22 September 2016.
191
are receiving fee assistance so that basic needs for food and shelter are
met for all registered students. Finally, the PHEIG noted that many in the
missing middle access bank loans, and that a bank tax could be
introduced in this regard; and that a graduate tax should be handled with
care as many in the missing middle and just above, incur significant debt
(including interest) to pay for higher education and there would be a
disproportionate burden on these people if a graduate tax and bank
interest were both to be paid from starting salaries.229
259. The Centre for Creative Education (an independent, not-for-profit,
educational institution) indicated that creating free Higher Education
would not be a fair solution if free education would only apply to studying
at public institutions. The Centre referred to the Constitutional right to
private education, and indicated that Free public education and cost-
based expenses for independent education we would regard as unfair
competition.230
260. The Richfield Graduate Institute, a private institution, argued for funding
for students enrolled at low-cost private institutions. They argued that
they fill the gap in terms of access, and students should be able to select
their institution of choice. As such, they recommended that all students
have access to higher education funding, which they can use where they
229
PHEIG Presentation & Submission, 22 September 2016.
230
Centre for Creative Education, 5 September 2016.
192
prefer. This could also reduce the cost of expanding the public higher
education sector.231
9.4.4 CIVIL SOCIETY GROUPS, RESEARCH BODIES AND
INDIVIDUALS
261. The CHET, after referring to both public and private benefits, explained
that in countries with high Gini coefficients (like South Africa) free HET
privileges the already privileged, and as such CHET does not support
free university education for everybody. The CHET Director, Mr. Cloete,
went on to discuss how the current crisis was brought about through a
decrease in the public funding of higher education, leading to a great
dependency on fees and third-stream income. He also referred to the
comparatively low percentage of GDP spent on higher education in South
Africa. Cloete pointed to the so-called trilemma of trade-offs between
the size of the system, government subsidy, and tuition fees. He referred
to a number of possible (some inter-related) solutions including increased
government subsidy to 1% of GDP; either the retention of tuition fees,
except for the poor, or a sliding scale of fees; a more standardised
process in determining tuition fees; improving on NSFAS recovery of
loans and possible loan for the missing-middle; the introduction of greater
tax breaks for corporates contributing to universities; institutional
231
Richfield Graduate Institute, 30 August 2016.
193
differentiation models; introducing social impact bonds; or a graduate tax
model.232
262. The National Tertiary Education Union (NTEU) highlighted the public
benefit of education, but did not give its support to a free-for-all system.
It argued that higher education should be more affordable and
accessible, and suggested that ways should be found to reduce the cost
of a university education, and that TVETs should be utilised as a cheaper
alternative. NTEU also called for government to re-prioritise its spending
habits and construct a more equitable funding model for higher
education, balancing institutional and student needs. NTEU explained in
their presentation to the Commission that they do not support an increase
in taxes; a graduate tax; increased tax on business (which could affect
graduate employment); an indirect tax like VAT; or the privatisation of
universities. They suggested that university staff costs could be shifted
to the civil service structure and budget.233
263. Mr. Lukhona Mnguni, a PhD student at UKZN presenting in his personal
capacity, argued that progressively acquired fee-free higher education
and training is attainable. He suggested that this should start with the
most needy students, and explained how this term was difficult to define.
He said that the feasibility test should go beyond finances, to consider
issues including high attrition rates, over saturation of students in some
232
CHET, 11 August 2016.
233
NTEU Presentation, 01 September 2016.
194
institutions, students living conditions and the working conditions of
academic staff. He argued further that a feasibility study must envisage
a need for increased participation and thus propose a funding model that
is futuristic and sustainable precisely for the achievement of increased
participation.234
264. Mr. Mnguni discussed the current ways of defining the poor, but argued
that the test should be as to whether people [could] objectively afford
University fees and related costs. Due to the difficulty in determining the
threshold, he gave his support to fee-free higher education for all. He
explained further than Many black young people choose to not
participate in higher education, though capable, because of exorbitant
fees and related costs; many others are financially excluded. However,
he also argued that Fee-free higher education will be unsustainable for
our context because of poorly endowed institutions of higher learning.
Mnguni suggested ways in which education could be better funded, and
referred to the governments declining subsidy. He suggested that
universities should pay more attention to growing endowments; that
unused money could be sourced from the National Skills Fund (NSF);
that government should increase their spending on higher education to
1.5% of GDP; that 10% of the budget for all mega infrastructure projects
be directed to human resource development; and that all successful BEE
and B-BBEE beneficiaries must give 10% of their shares as endowments
to universities, particularly to HDIs. Furthermore, a percentage of the
234
Mr Lukhona Mnguni Presentation & Submission, 29 August 2016.
195
Corporate Social Investment (CSI) budgets of companies with an annual
turnover of R50 million or more should be directed to higher education;
the Skills Development Levy should be increased by 1%; and a five year-
long 1% annual tax on wealthy individuals and corporates should be
introduced and managed though the Public Investment Corporation
(PIC). Finally, he suggested that government should reconsider the once
off tax proposed by the Truth and Reconciliation Commission and must
improve its supply chain management processes to stop illegal and
corrupt transactions.235
265. Mr. Nzuza also made a submission to the Commission, in his personal
capacity, and argued that fees perpetuate inequality in post-apartheid
South Africa. They make the disadvantaged rely on NSFAS and
bursaries, and if they cannot access these, they are excluded. He argued
that continued fees will lead to greater disparity between individuals, and
will limit economic growth. He also argued that this went against our
Constitution, which is focused on the right to equality [which] is a right
and a value that strengthened and acts as a foundation to our
constitution. This is made worse by the lack of NSFAS funds to support
all poor students and increasing tuition fees, which together impact on
achieving equality. Mr. Nzuza suggested that, in the first instance, only
235
Mr Lukhona Mnguni Presentation & Submission, 29 August 2016.
196
the very poor should receive free education, while those who can afford
continue to pay.236
266. Mr. Clive Honman, a training and development manager presenting in his
own capacity, suggested that, considering the expense of a university
education, students leaving school should be required to go to a TVET
college first. Here they could become better prepared for university, and
this would cover the first year of the curriculum and reduce the time spent
at university. Considering the lower cost of TVET education, this could
be offered free. Furthermore, the government could provide free
university education in skills shortage areas, or other areas in line with its
development plan. Students who benefit from the above pay back via an
education tax which only kicks in when the individual earns over a specific
threshold and for a defined time period thus re-filling the coffers for future
generations. He also suggested that costs could be reduced by better
utilising universities for the full-day and over vacations.237
267. A parent, Ms. Ntabeni, gave testimony regarding her situation. She is a
teacher, and as such her son did not qualify for NSFAS, so she needed
to pay fees. She indicated that she has insufficient money, and has
borrowed money, used her investments and still owes the university. She
indicated that she does not support free education, as this is not
affordable. However, she recommended that the NSFAS means test be
236
Mr S.G Nzuza Presentation, 29 August 2016.
237
Mr C Honman Presentation & Submission, 30 August 2016.
197
reviewed to include those with a higher household income, and civil
servants. Ms. Ntabeni supported a loan, with repayment starting soon
after graduation or getting work. She said that black tax was not a reason
not to pay, as this was something most people had to assist with, and
that if somebody was supported, they should pay back. Free education
would not be sustainable.238
268. Equal Education began by referring to the still unequal school and
university education landscapes. They indicated that the differences
between historically white and black institutions have not been overcome,
and that participation by different race groups is not yet equal. As such,
when it comes to free education, EE indicated that as a historically
unequal society, immediate fee-free university for all students in South
Africa is not socially desirable, even if economically feasible. Free higher
education for all undergraduate students (irrespective of socio-economic
background) presents consequences: slashing the cost for the affluent,
while narrowing the pool of lecture theatre seats available to
impoverished learners. However, EE pointed out that while university
fees are low for some sectors of the population (sometimes lower than
school fees), for others, even the low fees of the HDIs are unaffordable,
and NSFAS cannot provide for all who need support. EE went on to
consider the percentage of GDP allocated to higher education, and how
this is lower than international averages. They argued that free education
could be afforded with a few simple changes, such as reducing the
238
Ms Ntabeni, 1 September 2016.
198
defence bill, cutting the state wages bill, and using the money allocated
to SETAs. EE argued that The financial strain of university expenses, as
well as the lack of return on investment due to future loan repayment,
demotivates students who are already struggling in their courses. Funds
need to be injected into NSFAS, or a new institution should be created
to provide bursary for low-income students, not based solely on
meritocracy. More funds must also be allocated to development
programmes that provide the proper tools and resources for students who
are struggling. EE concluded that state funding to higher education
should increase; student support at universities must be extended; no
student should be denied access on financial grounds; free education
should be focused on the poor initially; additional taxes on the most
wealthy should be considered; corruption and payments to state owned
enterprises should be investigated; and university spending needs to be
better understood.239
269. In their second presentation to the Commission, EE submitted that the
second series of protests highlighted the depth of the problem, and how
government was not taking it seriously. They also explained that when
government funding declines, HWIs can increase fees and find third
stream funding, but HBIs have few choices. Additional funding for these
institutions is required. Furthermore, NSFAS cannot continue as a loan.
When students leave university, they already have to struggle to find a
job and pull their families out of poverty. The burden of debt is too much
239
Equal Education, Presentation and submission to the Commission, 5 September 2016.
199
to carry. NSFAS should rather be a grant for the poor which is those
coming from no-fee schools. This should cover TVETs as well. EE also
called for businesses to contribute towards the grant scheme, with any
additional funding going towards the missing-middle.240
270. The Someleze Give Us Strength Women & Girl Education Rights
Movement presented to the Commission. They explained that while they
have compassion for the problems the students are facing, a sustainable
solution needs to be found that wont affect the quality and availability of
higher education. Someleze suggested that the instability in the higher
education sector would affect the universities negatively, and called on
students to look to other African countries where fees were removed.
Someleze recommended an income-contingent loan which would give
access to poor students but also show the student the value of the
investment, and ensure that they take responsibility for their studies.
Improving support programmes and success are key to sustainability.
Someleze stressed the importance of quality and inclusivity, with
bursaries and scholarships awarded on merit.241
271. Mr. Chikane was due to present to the Commission as an individual,
giving his own perspective as a student leader who had just completed
his studies at UCT, and was involved in the #Rhodes Must Fall, and later
the #Fees Must Fall Movements. While he couldnt make his presentation
240
Equal Education, Presentation to the Commission, 15 March 2017.
241
Someleze Presentation, 05 September 2016.
200
due to disruptions to the work of the Commission, his submission was
made available to the Commission. He explained that his focus on fees
began when an academically deserving friend was financially excluded,
and added that free education should be the gateway to opportunity. A
chance to better yourself, but more importantly your family. He explained
that too often, the solution is sought within the realm of economics rather
than that of sociology or politics. For whatever reason, when one speaks
of fees there is an automatic assumption that the solution lies in the
economics of the problem. He asked that rather than consider the best
economic solution, look for a solution that makes the most humane
sense for our country. He went on to explain that what needed to be
avoided was taking away money from other social priorities; excluding
international students due to increasing their fees; and maintaining
privileged access despite free education. He concluded that while he was
not going to try and answer the question of feasibility, he was of the view
that Free Higher Education, in the context of South Africas socio-
economic positioning, is a must. South Africa desperately requires skills,
young people dont have these skills, but universities can provide them.
Its the logic that drives the provision of free basic education in South
Africa. So why endanger their ability to access the skills made available
by these institutions?.242
272. Dr. Cosser is employed by the HSRC, but he presented in his personal
capacity. He emphasised how careful attention must be paid to the
242
Mr Chikane Presentation, 06 September 2016.
201
education sector as a whole, and the need for funding at the lower levels
(early childhood development). He argued for a long-term sustainable
solution, and suggested payment according to the students ability to pay.
This would require the calculation of each students household income
according to decile. This would still lead to a shortfall in fees, but would
be more equitable. He concluded that the size of the university sector in
relation to the education sector as whole, should be given attention.243
273. A group of academics, with Professor Vally presenting, gave their support
to free education for all. 244 They explained that we are faced with a
deep-rooted condition of unsustainable inequality, a government which
has prioritized education as a vehicle for expanding access to
employment and opportunity, but which has not funded Higher Education
sufficiently to allow for that priority to be effective. Vally stressed that,
given the students role in demanding free education, students must be
consulted before a final decision is made. Furthermore, the decision
should not be left to experts, advisors consultants and the agents of
institutions that represent a narrow fiscal driven approach to the provision
of public goods like higher education. Vally went on to describe higher
education as primarily a public good, which is essential to democratic
citizenry, social cohesion and the fight against socio-economic, political
and other forms of inequality. He rejected Treating higher education as
243
Dr MC Cosser, 10 November 2016.
244
Mondli Hlatshwayo (University of Johannesburg), Rasigan Maharajh (Tshwane University of
Technology), Zolisa Marawu (Nelson Mandela Metropolitan University), Enver Motala
(University of Fort Hare), Leigh-Ann Naidoo (University of the Witwatersrand), and Salim Vally
(University of Johannesburg), 08 November 2016.
202
a commodity [as this would] perpetuate inequalities and divisions,
impoverish our society and the potential of our citizens. 245
274. Regarding funding for higher education, Vally argued that the costs of
education are not easily reconcilable with narrow economic goals alone
or to the rates of return to individuals since the remit of education is
simultaneously individual, social and global and has qualitative attributes
which are not measurable in conventional ways. He stressed the
importance of access for those previously marginalised, and argued for
comprehensive funding for universities. Vally spoke in favour of full public
funding, rather than a user-pays model, but in relation to this he favoured
the idea of responsible public service and citizen work by the recipients
of its benefits. Vally argued that a system that does not differentiate
between rich and poor students would assist in building social cohesion.
However, he mentioned that individuals will not be equal when education
is made free, [but that] the spirit of such a policy must also have as its
priority the goal of ending the culture of individualism, corporatisation and
unnecessary managerialism that is pervasive in the university system.
The importance of quality higher education was highlighted. Vally went
on to discuss the underfunding of higher education compared to other
countries and the unequal nature of institutions in terms of size, donations
and grants received and student fees. In conclusion, Vally recommended
that the state should fund all study fees for all students, and that other
245
Technology), Zolisa Marawu(Nelson Mandela Metropolitan University), Enver Motala (University
of Fort Hare), Leigh-Ann Naidoo (University of the Witwatersrand), and Salim Vally (University
of Johannesburg), 08 November 2016.
203
costs could be covered for those in need by NSFAS and the Skills Levy.
Free education could be funded through freezing tax brackets rather than
adjusting these for inflation; additional taxation on high-net-worth
individuals; and by taxing the illicit financial flows of corporations.246
275. Oxfam argued for free education based on the Constitution and the
International Convention on Economic, Social and Cultural Rights
(ICESCR). They submitted that the current system violates the
Constitution in that working class families in order to send a family
member through education, need to sacrifice retirement savings, the right
to food, health care and an appropriate standard of living. They added
that the means test was faulty in that it was applied to the parent, not the
student. Therefore, they argued that transfers from the wealth and
incomes of working age individuals are the most effective and efficient
mechanism to finance higher education, and supported the introduction
of an education tax for all earning over a certain amount, to spread the
burden on fees across society. They suggested a system where the debt
would be rolled over from one generation to the next, but that this
generation would need to bear the initial cost. This could be done through
using the Unemployment Insurance Funds (UIF) surplus; increasing the
skills development levy (to 3%); increasing corporate tax (to 30%);
closing loopholes in the tax regime for companies; introducing a 0.001%
Financial Transactions Tax or Tobin Tax (FTT); adjusting the top
246
Technology), Zolisa Marawu (Nelson Mandela Metropolitan University), Enver Motala
(University of Fort Hare), Leigh-Ann Naidoo (University of the Witwatersrand), and Salim Vally
(University of Johannesburg), 08 November 2016.
204
marginal tax rate by 2%, and all other bands by a corresponding amount
to ensure a progressive structure; and by dealing with corruption in the
public service. 247 In their second presentation, Oxfam highlighted that the
state must introduce measures to realise free education. They
highlighted the full cost of study, and discussed different deciles in South
Africa, concluding that 90% of households cannot afford higher
education. They concluded that the issue is financing (not funding) higher
education, and that the fiscal space is available.248
276. Mr. Xhanti Payi in his presentation highlighted the need for government
to make decisions based on the scarcity of resources. He added that
there are many myths in the discussion about higher education funding,
and that governments funding for tertiary education as a whole is actually
about 5% of GDP. He also pointed to state expenditure, which is
consistently above revenue, and the effect this would have on South
Africa in the future. He pointed out that about 50% of the governments
spending is on redistribution, and that the number of people depending
on that state is large. In brief, he highlighted the need to consider the
budget and its limits when discussing free education.249
277. As would be expected, the views of civil society groups, researchers and
various individuals differ substantially. There are some who support free
education for all, others for the poor, and others who agree with deferred
247
Oxfam, 9 November 2016.
248
Oxfam, 16 March, 2017.
249
Mr Xhanti Payi, 20 February 2017.
205
payment. The issue of whether free higher education for all would benefit
the rich was raised by more than one presenter. There was no agreement
among these participants regarding whether higher education is a public
or private benefit, or both. Suggestions on how funds could be raised are
made, and the issue of corruption and wasteful expenditure was
mentioned (as with students). Sustainability and quality were highlighted
by many.
10 THE COST OF EDUCATION: THE RESEARCH REPORT ON THE
COSTING AND FINANCING OF THE WHITE PAPER ON POST-SCHOOL
EDUCATION AND TRAINING: SEPTEMBER 2016
278. This comprehensive report, the product of several years in the making,
provides a reality check for any assessment of the States ability to
provided fee-free higher education. The Commission heard no evidence
that lessened its effect or the force of its conclusions. We cite here those
Main Points250 which, on a conspectus of all the evidence we have heard
seem to be incontrovertible.
The Post School Education and Training (PSET) system makes a

major contribution to South Africas social and economic development. In
2014, they were about 1.9 million enrolments in public universities, TVET
and community colleges. Government spent R54.9 billion, which
represents about 70% of total expenditure on the PSET system.
250
Research Report pages (i)-(iii). Some of the detail has previously been referred to in
paragraph 158 above.
206
The White Paper for PSET seeks to increase enrolment to 5.1 million
by 2030 within universities, TVET and community colleges while at the
same time improving the quality of education and training programs.
This project models the cost of implementing the White Paper and the
funding available under three cost scenarios: Status quo (where all inputs
remain unchanged but enrolments expand to meet the policy targets), full
policy (where the enrolments increased rapidly and the quality of
education and training programs is improved substantially), mixed
scenario (which assumes moderate growth in enrolments with some
improvement in quality).
Under the full policy scenario, about R655 billion will be needed for the
public PSET system in 2030 (or R253.1 billion in real 2014 prices)
compared to a total expenditure of R64 billion on public PSET in 2014.
Whereas enrolments are expected to increase by 168% between 2014

and 2030, the total expenditure (in real terms) needed to achieve the
aims of the White Paper is expected to increase by 242%. Consequently,
expenditure on PSET as a percentage of GDP will rise from 2% in 2014
to 4.4% by 2030, if the policy targets are met.
The rapid expansion of the PSET system will result in expenditure

exceeding the funding available, if tax revenues grow in line with the
National Treasurys long-term fiscal projections. Under the full policy
scenario, a nominal shortfall of R370 billion in 2030 is expected. This
represents about 2.46% of GDP in 2030. Given the size of this shortfall,
there is an urgent need to determine whether the enrolment and policy
targets set out in the White Paper can be reasonably accomplished.
Fundamentally, the White Papers targets change the structure of the

PSET system; growing the share of enrolments in lower and mid-level
qualifications compared to university level qualifications. Therefore, the
share of enrolments in TVET colleges will account for about half of all
207
enrolments in PSET by 2030 whereas the proportion of university
enrolments will decline from 50% in 2014 to 31% in 2030.
The factors that influence expenditure estimates tend to differ by sector:
In the TVET sector, expenditure will rise from R8.7 billion to

R292.2 billion (or R112.4 billion in real 2014 prices) between
2014 and 2030. This increase is fueled by the rapid increase in
enrolments, improvements to the quality of current programs and
substantial changes to the mix of training programs offered at
colleges; effectively shifting from a predominantly partyear or
parttime to full qualifications.
The expenditure on the university sector does not grow as

quickly as the TVET sector. Expenditure will increase from R52.9
billion in 2014 to R334.3 billion in 2030 (or R129.8 billion in real
terms). Slower growth in expenditure reflects the fact that the
perstudent increase in costs due to quality improvements in the
University system is smaller; as universities throughput rates are
much higher and more stable than those in TVET colleges. The
factors that drive modeled expenditure in the university system
in the future are mostly policyrelated, and include, amongst
others, the increase in the number of enrolments, the higher
number of lecturers with a PhD (as articulated in the NDP),
increases in the number of PhD enrolments as a proportion of
total enrolments (to increase the number of PhD graduates to the
PhD graduate target as per the NDP) and a higher percentage of
students housed in university residences. In addition to these
policyrelated drivers of costs, there are other potential drivers
not explicitly targeted that could potentially improve performance
in the university sector. These include but are not limited to:
greater levels of student support (financial, academic and

psych social)
208
the introduction of bridging course and/or timeextended
programs
improvement of living conditions.
The White Paper creates a new type of institution the community

college to deliver a range of adult, vocational and skills training
programs. Estimating the cost of training in the community college sector
is difficult as there is much uncertainty around the types of programs that
will be delivered through these colleges. Nevertheless, we estimate that
by 2030 R26.8 billion will be needed by the sector to achieve the target
of 1 million enrolments.
The rapid expansion in visits by the White Paper cannot happen without
additional investment in infrastructure. Under the full policy scenario,
another R771.5 will be needed for infrastructure investment in the PSET
system between 2014 and 2030.
The low levels of debt collection by the NSFAS continues to threaten

the sustainability of the university sectors funding framework. When
Cabinet took the decision to make additional funding available for fees
through the NSFAS, the policy intent was for university students to bear
part of the cost of their education. Increasing the collection rates on the
NSFAS should be a key priority for government, though it is recognised
that this is dependent on increasing the proportion of NSFAS-funded
students who pass and obtain employment after graduating.
This report sheds light on the amount of resources needed to meet the
policy targets set out in the White Paper. The large estimated funding
shortfalls will pose a major challenge for government, and require some
hard decisions from policymakers. The options available to policymakers
are to:
Reduce planned increases in expenditure: by reducing

inefficiencies, reducing enrolment targets (or extending the
209
timeframe for achieving the targets), changing the mode of
delivery and decreasing spending per capita.
Increase funding to PSET: by increasing the amount of state

funding available through higher taxes, increasing non-state
sources (primarily fees) or accessing funding from alternative
sources.
It is likely that a combination of the above mentioned options will be

needed by government. There is however a strong case to be made for
revisiting the policy targets, particularly as the modelling work shows that
there are trade-offs between access and quality. If the levels of quality
and throughput remain low, particularly in the college sector, the benefits
of rapidly increased enrolments to either students or the economy will be
minimal.
11 NATIONAL STUDENT FINANCIAL AID SCHEME (NSFAS)
11.1 NSFAS LEGISLATIVE AND REGULATORY FRAMEWORK
279. The NSFAS succeeded the Tertiary Education Fund of South Africa
(TEFSA), which was established as an NGO to provide financial aid to
university students. 251 TEFSA was taken over by the state in 1999
through the promulgation of the National Student Financial Aid Scheme
Act (the NSFAS Act).252
251
TEFSA was set up in 1991 as an NGO funded through private funding, mainly donations
from international donors, to provide financial aid to university students in the form of loans
and bursaries. See transcript of the hearing held of 14 November 2016, p4 last paragraph
p5.
252
56 of 1999. See transitional arrangements set out in section 28.
210
280. The NSFAS scheme is established as a public entity under section 3 of
the NSFAS Act. It is a broader scheme than its predecessor in that in
extends financial aid to students at both public universities and TVET
colleges.253 The aim of the scheme is to provide financial aid to eligible
students who meet the criteria for admission to a further education and
training programme or to a higher education programme.254
281. Its broader objects are set out in the preamble as being to
281.1. redress past discrimination and ensure representivity and
equal access;
281.2. respond to human resource development needs of the nation;
and
281.3. establish an expanded national student financial aid scheme
that is affordable and sustainable.
282. Its functions are set out at section 4, and include to:
282.1. allocate funds for loans and bursaries to eligible students;
253
Section 2(1).
254
Section 2(2).
211
282.2. develop criteria and conditions for the granting of loans and
bursaries to eligible students in consultation with the Minister;
282.3. raise funds as contemplated in section 14 (1); and
282.4. recover loans.
283. The NSFAS is largely funded by public funds made up of:255
283.1. Monies appropriated by parliament for the DHET and
transferred to NSFAS; and
283.2. Ring-fenced and/or levy-funded grants from other organs of
state, including the Department of Basic Education (DBE),256
Department of Social Development (DSD),257 and the Sector
Education and Training Authorities (SETAs).
284. The balance of NSFAS funds are from universities, private donors and
recoveries from loans made to students.
285. Each benefactor prescribes rules and conditions to the funds allocated to
NSFAS.
255
NSFAS presentation dated 14 November 2016, slide (unnumbered)
256
The Fundza Lushaka grant for teacher training.
257
E.g. funds early childhood development programmes.
212
286. The NSFAS has made significant strides since its inception to meet its
mandate. In 2013, African students made up 70.1% of students in
universities from about 5% in 2000. NSFAS funded 24% of student in
2015. As at 2016, African students accounted for 87% of NSFAS
funding.258
287. According to the Department of Higher Education and Training, NSFAS-
managed funds have supported a total of 23% of all undergraduate
enrolments.259
11.2 RULES
11.3 RULES APPLICABLE TO UNVERSITIES
288. The DHET establishes the rules applicable to NSFAS funds allocated by
parliament.260
289. In terms of the rules applied to universities, NSFAS funds 261:
258 th
NSFAS presentation dated 14 November 2016, 35 page.
259
Department of Higher Education and Training submission dated June 2016, p25, fourth
paragraph.
260
Handbook
261
NSFAS presentation dated 24 August 2016, slides 5 & 6; presentation dated 14 November
th
2016, 29 page (slides unnumbered)
213
289.1. eligible students, being those with a mix of both academic
excellence and financial need.
289.2. first undergraduate degrees (including extended
programmes);262 diplomas, (B-Tech programmes that lead to
a professional registration and employment in a professional
field) and postgraduate qualifications; for the entire period of
the study programme plus two years (N+2);263
290. NSFAS funds the full cost of study (i.e. covering tuition fees,
accommodation fees, meals and learning support materials costs;
including allowances for students with disabilities):
290.1. there is no obligation to repay a loan during the course of
study;
290.2. the obligation to repay the loans arises only after the
beneficiary is gainfully employed264 and earning R30 000.00
per annum;265
262
Transcript of the hearing dated 16 November 2016, p46.
263
Transcript of the hearing dated 24 August 2016, p105 L5 11.
264
NSFAS presentation; Transcript of the hearing held on 24 August 2016, p94 L8 10. [poor
transcription]
265
NSFAS presentation; Transcript of the hearing held on 24 August 2016, p94 L20 21.
214
290.3. NSFAS converts up to 40% of the loan to a bursary on
condition that the student passes all the modules they
registered for in a particular academic year;266
290.4. should a student pass all the modules registered for in the final
year of study, the final-year loan is converted to a 100%
grant;267
290.5. the loan is interest free during the course of study, plus one
year. Thereafter, interest on the loan is levied at 80% of the
repo rate.268
291. According to NSFAS, almost 70 per cent of NSFAS funding is in the form
of bursaries, thus free.269
11.4 MEANS TEST TO ASSESS FINANCIAL ELIGIBILITY
292. The NSFAS means test is used in two ways:
266
267
268
NSFAS presentation; Transcript of the hearing held on 24 August 2016, p108 L4 10;
transcript of the hearing held on 16 November 2016, p12.
269
NSFAS presentation dated 14 August 2016, slide 6; presentation dated 14 November
th
2016, 30 page first bullet point; transcript of the hearing held on 16 November 2016, p12 -
13.
215
292.1. as a tool to identify which of the students applying for a NSFAS
award are most deserving of financial aid;270 and
292.2. to determine the size of the award.271
293. In rejecting the proposition that the NSFAS means test excludes students
falling within the missing middle category, NSFAS submitted that this
exclusion is the function of limited available resources with the result that
this category of students come second in terms of prioritisation to the
most needy students. In those circumstances, some universities have
introduced a threshold in order to curtail the number of applicants from
households that are better able to contribute to their childrens costs of
study.272
294. While in terms of its rules, NSFAS ought to fund the full costs of study, in
reality, it does not do so in respect of some students. That is because of
two main reasons:
294.1. NSFAS loans are capped. 273 As at 2016, the NSFAS cap
stood at R71 800.274
270
NSFAS submission dated 30 June 2016, p19 para 2.26.
271
272
273
274 th
NSFAS presentation dated 14 November 2016, 29 page. The cap has increased R20 000
to R67 200 between 20032015, representing an annual average growth above CPI of 11
per cent.
216
294.2. some universities have adopted the practice referred to as
topslicing.
11.5 IMPLICATIONS OF THE NSFAS CAP
295. The cap on NSFAS loans has resulted primarily in the underfunding of
students. By extension, it has contributed to historical and prevailing
student debt.
296. That is because different universities have responded to the NSFAS cap,
and the limited allocations in general, in various ways, including:
296.1. by topslicing and
296.2. by increasing the costs of study. This has enabled some
universities to cross-subsidise its poorer student population
who would otherwise be unfunded and excluded from
studying; or alternatively;
296.3. admitting fewer poor students.
11.6 TOPSLICING
297. As alluded to earlier, the practice of top-slicing was introduced by some
universities in the light of the insufficient NSFAS funding to increasing
217
numbers of qualifying students. Consequently, these universities opt to
thinly redistribute the NSFAS allocation across all qualifying students,
with the result that while all students receive some funding, they receive
a lower amount that that originally recommended for them by NSFAS
through the means test.
298. It follows, therefore, that the combination of top-slicing the NSFAS award,
which is already capped and sometimes below an institutions average
FCS for a specific qualification, serves only to dilute the already limited
NSFAS allocation, which is being outpaced by the increasing NSFAS
qualifying student enrolments.275
299. The primary consequence for the affected students is debt.276
300. Some institutions, rather than top-slice, thus leaving future debt for
students, have opted to allocate the entire NSFAS grant to NSFAS
beneficiaries, with the consequence that other qualifying students do not
receive the limited grant.
301. We deal with the issue of student historic debt later herein. Before doing
so, we address two issues:
275
NSFAS presentation dated 14 August 2016, slide 7.
276
NSFAS presentation dated 14 August 2016, slide 7.
218
301.1. the first relates to concerns raised regarding the
appropriateness of the means test and measures taken by the
NSFAS to deal therewith. The crux of the challenge, mainly
from students, to the means test is that it violates the
constitutionally enshrined right to dignity to the extent that they
are required to demonstrate poverty. Other criticisms are that
it is not context specific and is open to fraud;
301.2. the second relates to the contribution to NSFAS from other
sources.
11.7 SHORTCOMINGS OF NSFAS
302. All stakeholders accept that the current NSFAS model (and specifically
the means test employed) is out-dated and requires urgent review. This
is all the more urgent so as to enable students who belong to the missing
middle to qualify for funding.
303. Accordingly, we do not intend rehashing the evidence which deals with
the shortcomings of the NSFAS. Instead, we focus on measures
introduced by NSFAS in response to those structural deficiencies.
219
11.8 THE NSFAS STUDENT CENTRED MODEL
304. Historically, universities have been acting as agents of NSFAS, in terms
of agreements contemplated under section 20(1) of the NSFAS Act, for
purposes of administering loans and bursaries to students of the
respective institution on behalf of NSFAS. 277 The functions of the
institutions are set out in section 20(2) of the NSFAS Act and involve the
following process 278
304.1. to receive loan and bursary applications from students;
304.2. to consider and assess the applications in the light of the
criteria for the granting of loans and bursaries determined by
the NSFAS;
304.3. to grant loans and bursaries, if the criteria are met, after
ascertaining that funds are available;
304.4. to administer loans and bursaries granted to students of the
institution; and
277
Transcript of the hearing held on 14 November 2016, p13.
278
NSFAS, Transcript of hearing held on 24 August 2016, p91 L12 p94 L18; transcript of the
th
hearing held on 14 November 2016, p13; presentation dated 14 November 2016, 30
page, fourth bullet point.
220
304.5. to enter into a written agreement with a borrower or bursar in
accordance with the provisions of the Act, and on the terms
and conditions determined by the NSFAS.
305. The institution must also apprise the NSFAS on the progress made by a
borrower or a bursar with regard to the course of study followed by him
or her; and immediately notify the board if a borrower or bursar
discontinues his or her studies.279
306. On receipt of the agreement between a student and the institution,
NSFAS pays the institutions the NSFAS award in respect of that
student.280
307. Evidence was presented which demonstrates the administrative
challenges faced by institutions in carrying out these functions. In certain
circumstances, there has been fraud committed at some universities in
respect of the allocations; there have been communication challenges
between NSFAS and university financial aid offices on one hand and
NSFAS and students on the other; there have also been disputes on
allocations for tuition and other costs (accommodation, food etc.). All of
these have led to a re-think of the model.
279
Section 2(3).
280
Transcript of hearing held on 24 August 2016, p93 L1 11.
221
308. In 2014, NSFAS introduced the student-centred model. 281 The model
primarily shifts the administrative functions of the award away from the
institutions to NSFAS itself. It does so in the following principal
respects:282
308.1. NSFAS allocations are managed by NSFAS itself from the
application stage through to the funding decision;
308.2. recipients of funding are informed of the allocation prior to
registration;283
308.3. applicants apply online and only once, in respect of their
selected course of study;284
308.4. allowances for applicants are paid within 48 hours of approval;
308.5. returning students are not required to apply again, but are
rather ranked and confirmed after their results are received.
Thereafter, they are provisionally funded and the allowance is
again paid promptly and within 48 hours.
281 th
NSFAS presentation dated 14 November 2016, 16 page; transcript of the hearing held on
14 November 2016, p12, second last line p13 first line.
282 st rd
NSFAS presentation dated 14 November 2016, 31 33 page; transcript of the hearing
held on 14 November 2016.
283
Successful recipients must register at the relevant university before they can access the
st th
NSFAS loan. See NSFAS presentation dated 14 November 2016, 31 34 page.
284
On award, the student signs an online Loan Agreement.
222
309. The model was developed further in 2016 to give effect to the finding by
the Ministerial Committee on the Review of NSFAS,285 which found that
the means test and the way it was being applied by institutions was
inappropriate, inequitable and required revision, specifically to the extent
that it excluded prospective students from families that earn above the
R122 000 per annum qualification threshold, but who still cannot afford
to attend university (the missing middle).286
310. Significantly, the student-centred model represents a significant deviation
from the traditional means test by introducing proxies to determine a
students ability to afford costs of study.
311. The 2009 Report of the Ministerial Committee on the Review of the
National Student Financial Aid Scheme recommended three alternatives
(proxies) to the means test to determine who qualifies for fully-subsidised
higher education and training:287
311.1. students with a household income below the lowest threshold
of the SARS tax tables;
311.2. students who attended a Quintile 1 school and those who
received fee waivers at other public schools; and
285
2009 Report; NSFAS transcript of hearing held on 14 November 2016, p13.
286
page xv, para 2.2.5.
287
pages xxi - xxii, para 3.1.2.
223
311.3. students from the poorest municipalities.
312. The 2013 Report of the Working Group on Free University Education for
the Poor in South Africa recommended the following additional proxies to
identify student financial need:288
312.1. household income below the lowest SARS tax threshold; and
312.2. school or municipal poverty quintiles.
313. It proposes other considerations that could be easily used to characterise
poor students who require financial aid, which factors include:289
313.1. students who are first generation university students in their
families;
313.2. students from under-resourced and poorly performing schools
(which include quintile 1 3 schools); and
313.3. students from rural areas and from poor urban areas with
limited access to basic facilities.
288
p6 second last paragraph.
289
p31, middle of the page.
224
314. Accordingly, under the student-centred model, and in response to the
recommendations of the above-mentioned reports,290 students may be
means-test waived. The following will be used as proxies: 291
314.1. the quintile system; and
314.2. the SASSA grant.
11.9 RULES FOR NSFAS FUNDING TO TVET STUDENTS
315. In 2007, NSFAS began funding students in FET/ TVET colleges.292
316. NSFAS funding at TVET colleges relates to the 20% of the total
programme cost payable in students fees and only for students enrolled
in ministerially approved programmes. This means that the rest of TVET
college students must fund their studies by other means, failing which,
they are denied access to training.
317. Rules relating to NSFAS funding in TVET colleges are similar to those
applied at universities, with some minor deviations. As is the case with
universities:
290
NSFAS submission p21 para 2.32 p24 para 2.39.
291 rd
NSFAS presentation dated 14 November 2016, 33 page.
292
NSFAS presentation dated 14 November 2016.
225
317.1. qualifying TVET students are those that meet the criteria for
merit and financial need;
317.2. financial need is assessed using the means test;
317.3. in terms of funding norms for TVET colleges, 293 NSFAS
should fund students at full costs of study. Programme costs
are determined by the department.294
318. Unlike the case with universities students, NSFAS funding at TVET
colleges takes the form of full bursaries and not loans. As such, those
students receive fee-free education. There are, however, a large number
of unfunded NSFAS qualifying students, as well as underfunded
students, despite the obligation to fund at full costs of study.295
11.10 RULES REGULATING OTHER NSFAS SOURCES OF FUNDING
319. Different terms and conditions attach to funds managed by NSFAS on
behalf of various funders. To demonstrate, NSFAS manages funds on
behalf of the DBE. Those funds, under the Fundza Lushaka bursary
293
National Norms and Standards for Funding Technical and Vocational
Education and Training Colleges, 15 May 2015; DHET presentation dated
24 October 2016; slide 18.
294
NSFAS covers accommodation or travel costs for students who live 10 kilometres from the
institution they attend.
295
DHET submission dated June 2016, p32.
226
scheme, are meant to provide financial aid exclusively to students
pursuing a teaching degree, and the award takes the form of a bursary.296
11.11 VIEWS REGARDING THE NSFAS SYSTEM
320. Criticism of the NSFAS system is not new. In 2009 Minister Nzimande
appointed Professor Marcus Balintulo to lead a Ministerial Committee to
review the NSFAS system. The Committee reported in 2010 and
identified a number of achievements by the NSFAS, but also highlighted
challenges and made proposals for improving the scheme. Similarly, the
Report of the Working Group on Fee Free University Education for the
Poor in South Africa (2012) mentioned underfunding of NSFAS and some
inefficiencies with the system. Nonetheless, the achievements of the
scheme should not go unrecognised. Over 25 years, NSFAS has
assisted more than 17 million students to attend a university or TVET
college. Many of these individuals would not have had the opportunity of
further study without such a financial aid scheme. NSFAS numbers also
indicated the impact the scheme has had on transforming the student
body. The problems experienced with NSFAS, should not lead to a
complete rejection of the NSFAS model, although serious consideration
should be given as to whether the NSFAS structure is the appropriate
structure to minimise or eliminate the prevailing inefficiencies in the future
of student financial aid in this country.
296
DHET transcript of the hearing held on 12 August 2016, p83 L17 84 L6.
227
321. While it is not necessary to consider the Report of the Ministerial
Committee on the Review of the National Student Financial Aid
Scheme in detail, as it is in the public domain, a few points made by the
Committee should be highlighted. As heard by the Commission on many
occasions, despite budget increases, the growth in funds has not kept
pace with the ever-increasing demand. Even a fivefold increase in 10
years leaves NSFAS with a massive funding shortfall. It would probably
need to triple its budget to meet even current demand.297 The Committee
considered the state of the country in terms of unemployment, poverty
and NEETs, and suggested that the new policy framework for higher
education and further education and training envisages taking the next
step in the progressive realisation of the constitutional right of access to
education by providing free higher and further education to students from
poor and working-class communities. It also seeks to invert the current
ratio of the 760 000 students in higher education and the 223 000
(470 000) who are enrolled at further education and training (FET)
colleges.298
322. In highlighting the strengths of NSFAS, the Committee noted that NSFAS
has assisted in broadening access; the funds have grown considerably;
the means test has helped to ensure that the most needy are supported;
institutions are assisted with a 20% upfront fee payment; and The
provision of loans at a lower rate of interest than commercial educational
297
Report of the Ministerial Committee on the Review of the National Student Financial Aid
Scheme (2010), p. x.
298
Ibid.
228
loans, coupled with the income contingent nature of the loans, offers
students a potentially affordable loan on favourable repayment terms.
Linked to this is the incentive that NSFAS can convert up to 40 percent
of a loan to a bursary, based on academic performance.299
323. In terms of the shortcomings of NSFAS, the Committee highlighted the
fact that funding falls far short of demand.300 The Committee found that
NSFAS had less than half of what it needed to properly fund all qualifying
students. It also found that this shortcoming led to most of the other
challenges faced by NSFAS. The Committee also commented on low
throughput rates, especially for NSFAS students. The Committee
discussed the allocation formula and top-slicing, and the resultant
historical debt at institutions; problems with the administration (and fraud)
of the means test; and the exclusion of the missing middle. The
Committee also found that the scheme was not equipped to act as a
bursary manager; that there was dissatisfaction with the way NSFAS was
managing external monies; and that TVETS were generally dissatisfied.
Major concerns were raised regarding how NAFAS managed loan
administration; both in terms of processing and paying applications and
low recovery of loans; and also highlighted irregularities in terms of
interest charged. The Committee also commented on challenges with
management and governance, and the issue of unused funds.301
299
Ibid., xiii.
300
Ibid.
301
Ibid., p. xiii xix.
229
324. In their recommendations, the Committee suggested three components
to financial aid for higher education, including Full state subsidisation of
poor students and those from working class backgrounds, to be
progressively realised over a specific period and income-contingent
loans for the children of public sector employees (earning less than R300
000 per annum) and for students from lower middle-income families.302
The Committee noted that free higher education for the poor and working
class would require substantial additional funding, and that Budgetary
constraints may dictate that full subsidisation of poor and working class
students may not be possible in the immediate and short term but
suggested that if it is an accepted principle, then a progressive realisation
model could be adopted with a loan/ bursary mix in the interim. 303
Regarding the TVET sector, the Committee recommended fully-
subsidised education to all students registered for the NCV.304
325. In summarising their recommendations, the Committee suggested loan
repayment directly through the tax system; a simpler means test; bonded
bursaries which can be repaid through community or national service;
academic support; and the use of recovered funds to cover future
students. The committee did not support funding linked to priority fields
or funding for not-for-profit private institutions, and called for
302
Ibid., p. xxi.
303
Ibid., p. xxiv.
304
Ibid., xxvii.
230
acknowledgement that NSFAS cannot re-claim 100% of disbursements
due to the loan/ bursary mix and the low interest rate charged.
326. Similarly, the Report of the Working Group on Fee Free University
Education for the Poor in South Africa (2012) noted the escalating
costs of higher education and the need for interventions to ensure access
for academically deserving students who cannot afford it. The working
group discussed measures introduced thus far, as well as the proposals
of the NSFAS review Committee, the ANC resolutions, the NDP and the
White Paper. They recognised higher education as a public and private
benefit, and discussed cost-sharing models. In their recommendations,
they suggested a loan bursary mix for students from poor and missing-
middle households, where students repay their loans on an income-
contingent basis for 15 years. Only if and when a graduate (or a dropout)
reaches a minimum specified threshold of income, will they be required
to start paying back. The working group supported the notion of
collection of loans through SARS, but noted that current academic
performance rebates are very costly, representing 20% of gross loan
advances in terms of current NSFAS practice. This could be reduced to
10% under radically pruned assumptions which would release funds to
support a universal system.305
305
Report of the Working Group on Fee Free University Education for the Poor in South Africa
(2012), p. xii-xiii.
231
11.12 TESTIMONY BY NSFAS
327. The Commission heard from NSFAS regarding their mission, vision,
strategic plans and similar developments. As these are all in the public
domain, they will not be elaborated on in detail in this report. NSFAS
explained that at its inception in 1991 (as TEFSA) it supported 7 220
students with an average loan of R2 977 and a total budget of R21
million. By 2003, when the first task team was appointed to assess the
impact of what was by then NSFAS, it supported 96 552 students with an
allocation of R893 million. In 2007, new bursary funding was introduced,
such as that for TVETs, Fundza Lushaka bursaries and for Social Work
(funded by DSD). At this point, the allocation totaled R1.76 billion and
125 897 students were supported in that year. In 2014, 414 802 students
were funded (at both universities and TVETs) with R8.96 billion in
funding. The average loan was R21 906, and in this year the student
centred model was piloted at 6 universities and 11 TVET colleges.
Allocations to NSFAS have, clearly, increased substantially over the
years, as has the number of students funded each year. Despite this, as
indicated previously, the funding need still outweighs the available
funding. As a result of the students protests, NSFAS allocations
increased considerably. In their testimony to the Commission, NSFAS
indicated that in 2016 they would fund more than 405 000 students with
a grant budget of R14.6 billion. It must be remembered that this budget
includes allocations from other Departments, SETAs etc. and includes
232
students in both TVETs and universities.306 Some of the achievements
highlighted by NSFAS were that by 2015, they funded 24% of students;
and that the total university population had been transformed from 5%
African to 70% African (2013), with African students constituting 87% of
NSFAS students.307
328. The NSFAS also explained the differences between the old model of
application (paper-based and through the university Financial Aid
Offices), and the new student-centered model (online applications where
students apply directly to NSFAS, and not the FAO). It hoped that some
of the problems identified by the students (as was recommended by the
2010 review of Balintulo) would be resolved through this new model
(including applying once for all years of study, and knowing the outcome
of the application prior to registration), to be fully implemented in 2017.308
We have been advised that the experience of the 2017 registrations has
shown that it did not go as smoothly as hoped, but this advice requires
confirmation.
329. NSFAS also explained the eligibility criteria, the means test and the
calculation of the NSFAS allocation. An important element of this is
determining the expected family contribution (EFC). NSFAS focuses on
both financial need and academic merit, but does not fund short courses,
BTech qualifications or anything for non-degree purposes, nor students
306
307
308
233
in receipt of other bursaries or loans covering the full cost of study. For
the purpose of application (and means test), applicants must submit proof
of income of their parents/ guardian; copies of ID documents (own,
parents and all members of household); and copies of registration of a
sibling at another tertiary institution. The online system waives the need
for a means test for those receiving a social grant or from a quintile 1 or
2 school. For this purpose, NSFAS checks with the systems of Umalusi
and SASSA.309
330. NSFAS also explained that interest on loans is charged at 80% of the
repo rate, and is not charged during the period of study or for 12 months
after graduation or dropout. This is a hidden subsidy. Furthermore,
depending on performance, up to 40% can be converted to a bursary at
the end of the academic year, and 100% of the final year can be
converted to a bursary on completion in regulation time.310 NSFAS also
discussed the problems with recouping loans. They explained that the
student will start paying once they earn above thirty thousand rand per
annum. That is the condition, it is incumbent upon the debtor to notify
NSFAS when they are no longer employed. So they get employed the
first month; they start paying; for unforeseen reason they lose
employment; it is incumbent upon them to notify us and tell us that they
are no longer employed. They explained further that, as tax is not
charged at this level of income, SARS cannot assist in this regard and
309
310
234
students are expected to inform NSFAS. The sliding scale of deduction
based on your salary is 3-8 %. NSFAS explained that for the scheme to
begin to make a material impact on the funding of students [and to be
sustainable] well have to collect 70 times more.311
331. The funding of those with historical debt was discussed. It should be
noted that historical debt was as a result of over-claims on NSFAS by
universities, arising from the pressure of high demand for financial aid by
qualifying students on the one hand, and rising fees, as subsidies
declined on the other hand. After the Presidential Task Team in
December 2015, universities submitted lists of NSFAS-eligible students
with outstanding debt from 2013 to 2015 to the DHET. This was a total of
71 753 students owing R2.543 billion. This money was made available
through NSFAS after the re-allocations were done within the government
in order to circumvent possible disruptions at the beginning of 2016.312
11.13 TESTIMONY TO THE COMMISSION ON NSFAS
332. Concerns relating to the NSFAS system were raised by a number of
stakeholders including government, PSET institutions and PSET
students. In many cases the issues overlapped, and for this reason this
section will focus on the challenges with NSFAS, rather than on the
individual or organisation holding a particular opinion. It must also be
311
312
235
remembered that NSFAS has introduced changes over the years to
improve its service.
11.14 GOVERNANCE AND ADMINISTRATION OF NSFAS
333. Concerns about the way that NSFAS functions originated from a number
of stakeholders. Students complained about not being able to contact
NSFAS easily, about the slow outcome of applications for funding, about
being declined for a loan without being given a reason, and about
receiving money late into the year. Students also commented on the need
to re-apply for NSFAS annually, which left them in a state of uncertainty
and insecurity every year. This is made worse when students need to sit
supplementary or late examinations, as their results are delayed and so
is their communication from NSFAS. A student also raised a concern
about unused money being returned to NSFAS at the end of the year,
without the loan agreement recognising this amount as returned. While
this indicates the need for better communication with the student, it also
highlights the levels of distrust.
334. The timing of payments was also an issue raised, and many students
commented on the difficulty of paying registration fees before NSFAS had
released their grant or loan. This leads to some students missing the start
of the academic year, and important interventions like first-year
orientation.
236
335. Students also raised the issue of NSFAS needing to be more proactive
in its communication with high school learners: many are not aware of
what needs to be done and do not meet time limits for applications.
336. Universities commented on the formula for allocation to universities (prior
to the student-centred model), about late payments from NSFAS, and
about lack of communication regarding student applications.
337. Government commented on a lack of data from NSFAS, governance
challenges, poor recovery of student loans, and lamentable throughput
of NSFAS students.
11.15 UNIVERSITY FINANCIAL AID OFFICES
338. There was conflicting opinion regarding these support offices. Some
students complained that the staff at the offices were not willing to help,
that they were under-staffed and that there was corruption. Other
students complained that with the student-centred model they could no
longer get the assistance of these offices and that it was now harder to
find out about the approval of an application.
339. Students also complained about the long queues when applying, and the
many forms and agreements that need to be signed, often without clear
explanation.
237
340. There appears to be some tension between these offices and NSFAS,
especially in the new student centred model, with lack of clarity regarding
roles. According to FAPSA, communication was much better prior to
2010. After 2010, there has also been a rapid increase in applications
and protests, changes have been made to the bursary/loan mix, and a
number of additional donors have been added to the NSFAS bundle.
FAPSA also complained about needing to complete additional forms,
often with short deadlines, high turnover at the NSFAS office, and
changing policies without sufficient notification.
11.16 MEANS TESTING
341. The means test is very unpopular with students. It was characterised as
a humiliating exercise where students are required to plead poverty or
commit fraud in order to access a loan. It was explained how the
requirements are personal, and that some students dont apply as they
cannot prove where their father is or that they are part of a family (as they
were never formally adopted). As one student testified The system
operates on a process of mistrust: one implicitly premised on the
humiliation of Black students.313
342. There were also various claims about fraud at this level, resulting in richer
students receiving money and poorer ones being denied.
313
Lerato Motaung, Testimony to the Fees Commission, 17 November 2016.
238
343. The means test is also a costly exercise, which is hard to implement fairly
in a country like South Africa where data and administrative ICT systems
are not well-integrated. The evidence suggested to the Commission that
the ability and desire to confirm information provided by students is
lacking.
344. Suggestions were made to simplify the test and NSFAS commented on
making use of school quintile and grant recipients as proxies.
11.17 INSUFFICIENT FUNDING
345. This was another general complaint, with different permutations.
346. First, students complained that the size of a loan was insufficient to cover
the full-cost of study (especially at HWIs), leaving them without
accommodation or food, and with large debts. Students mentioned that
private accommodation is not funded or not funded sufficiently. Students
also complained about the S-Bux card, and the limit it places on where
students can shop. Some complained that it doesnt cover photocopies
and similar academic expanse: others complained that they have to buy
from supermarkets and cannot purchase from a person selling food on
the side of the road. Still others referred to fraud with students buying
goods on their cards and re-selling to raise money for other items.
Institutions also mentioned problems with the S-Bux and late payments.
239
Students also highlighted the need for access to academic study material
and ICTs and lack of funding in this regard.
347. Secondly, universities complained about not receiving the amount of
money requested, resulting in the practice of the top-slicing of loans.
Other universities rejected top-slicing, but then could only fund a smaller
number of students. All universities tried to find other bursaries or loans
to support students due to a lack of NSFAS resources but this is
especially hard at HDIs where a large percentage of students are NSFAS
funded. Universities complained about large debts owed to institutions,
making them financially unhealthy. Many of these loans are due to
NSFAS students not receiving enough to cover tuition and residence
fees, hence the accumulation of historic debt.
348. Thirdly, is the situation of the missing-middle, that has been brewing
over a number of years at universities. With insufficient money to support
poor students, NSFAS has not been able to increase the limit imposed
by the means test (based on expected family contribution), meaning that
in practice only students with household incomes of below approximately
R122 000 are funded. This means that a large group of students are
excluded from financial aid, but cannot access bank loans and other
funding due to a lack of capital and low salaries. The missing-middle have
also placed a huge burden of debt on universities, as they register
students who later cannot pay their fees. This situation is unsustainable
240
for both students and universities. Ensuring access to funding for the
missing-middle is a key concern for the Commission.
349. Finally, and linked to the above points, is concern about the total funding
to NSFAS. Despite substantial growth in NSFAS allocations as discussed
above, there are annually a number of qualifying students who do not
receive NSFAS funding (even with the current low means test). This is a
major problem for returning students.
11.18 STUDENT SUCCESS
350. The problems of student success were raised by all stakeholders. It was
highlighted how inefficient it is to fund large numbers of students who do
not complete their studies. Students indicated the need for academic
support, but also argued that full funding would reduce financial strain
and allow students to focus on their studies. Some students asked for a
longer period of funding to allow for completion. Treasury argued that a
more efficient system was needed before more money could be allocated
to the sector. Preliminary data suggest that NSFSAS students
throughput is lower than that of the student body as a whole. It is worth
noting that this situation has an adverse impact on the second eligibility
criterion (academic merit) in order to qualify for further funding. This is
not the same as the situation reported by the NRF with regards to the
students they fund, where the performance of the funded students is
better. This may indicate the need for better monitoring of NSFAS
241
students, and stricter academic requirements for continued funding. This
would include internal monitoring of students by higher education
institutions, in order to intervene and provide support as soon as
challenges are identified. The process of introducing such monitoring and
early-intervention mechanisms is underway, with funding from the
teaching development grants allocated by the DHET. It should also be
noted that lack of success also means that students are less likely to earn
an income of the level required to repay their loan, and this impacts on
the sustainability of the loan system.
11.19 COLLECTION OF LOANS
351. There is widespread criticism of the system in place to recover loans from
students who have graduated and are now working. The graph below
highlights the decline in recoveries after 2009, although there has been
some improvement more recently as new systems have been put in
place. It has been suggested that any loan system would need to work
with SARS for the purpose of recovery.
NSFAS loan recoveries versus a normal growth trajectory314
314
CHE (2016) Kagisano 10: Student Funding, p.21.
242
352. Furthermore, research submitted to the Commission also highlighted
how the growing bursary component of NSFAS is affecting the long-term
sustainability of the fund.315 Obviously, as a larger portion is allocated as
bursaries, the benefit of recovering money reduces. In 1991, all money
was allocated as a loan, in 2000 the bursary component was 25%, while
in 2012 the bursary component amounted to 53%. The research
indicated that This is not a sustainable situation in a context of increasing
pressure on NSFAS funds. 316 Additionally, the recovery of loans was
compounded by the repeal of section 21 of the NSFAS Act which meant
that garnishee orders could not be issued; secondly, the promulgation of
the National Credit Act required positive consent from debtors. These two
developments, together with NSFASs lack of administrative capacity to
intensify the collection of loans resulted in the failure to collect loans as
projected.
315
Ibid., pp. 39-114.
316
Ibid., p. 63.
243
11.20 LOANS AND BLACK TAX
353. Students complained about the burden placed on them with a loan
system. It was argued that black tax already places a greater burden on
the previously disadvantaged, as they are expected to support their
families as soon as they are earning an income. The added pressure of
loan repayments means that these newly employed graduates cannot
maintain the same standard of living as their peers, with no loan and no
black tax. As such, the loan repayment adds to the pressure of
generational poverty.
354. A counter argument to this was the suggestion that it would be more
efficient for government to focus on poverty alleviation measures for all
the population, than for it to fund free education for the few in the hope of
them alienating the poverty of their family. This would also be more
equitable. Related to this, is the argument that black tax affects the
majority of the working population of South Africa, and not only university
graduates. In fact, as a result of their higher earning power, the overall
financial impact is more bearable than that on, for instance, a domestic
worker who is also expected to support her parents and siblings on a
much smaller salary. This again highlights the importance of universal
poverty alleviation measures, rather than for a small section of the
population.
244
11.21 CONCLUSION
355. While there has been much criticism of NSFAS, their achievement in
terms of broadening accessing and changing the demographics of
universities should not be forgotten. That said if it is considered that
NSFAS should be retained in any form, there are a number of ways in
which the financial aid system could be made more efficient, more
sustainable, more user-friendly, and more equitable.
356. In determining a future financial aid system, it should also be
remembered that two of the major criticisms of the current model are
underfunding and ease of use. In terms of the second, major issues
include speed of pay out; difficulty with application and communication;
the means test; and difficulty for first time users. Another issue which
needs careful consideration is student success, as the sustainability of
the sector as a whole is impacted by low throughput and high dropout
levels. The fundamental question is whether pouring money into the
problem alone, is sufficient to improve the performance of the system
without giving consideration to the broader picture of rising poverty levels,
unemployment, early childhood development and other societal
challenges.
357. As will be seen, the Commission recommends that NSFAS be retained
but only as the conduit for the funding of TVET students.
245
12 PRIORITISATION OF HIGHER EDUCATION AND TRAINING
358. It will be recalled that one of the principal aims of the budget is to ensure
that public resources are allocated to meet government priorities.317 The
question of the extent to which higher education and training was
prioritised in the preparation of budgets featured prominently in the
Commission.
359. Although the MTSF and NDP do not in their terms refer to higher
education and training as being an apex priority, the evidence
demonstrates that it is.
359.1. Professor Makgoba testified that education is apex number
one in the country.318
359.2. Both the Minister of Higher Education and Training and
National Treasury acknowledged that the higher education
and training sector as a whole is an apex priority for
government.319
359.3. Mr. Michael Sachs from National Treasury also testified that
there was a decision taken at the Cabinet Lekgotla of July
317
National Treasury presentation dated 12 August 2016 slide 33.
318
Transcript of the hearing held on 3 October 2016, p21.
319
Minister of Higher Education and Training, transcript of hearing held on 13 October 2016,
p53 & 74 77; National Treasury, transcript of hearing held on 7 October 2016 p35.
246
2016 recognising higher education and training as an apex
priority.320
359.4. The erstwhile Minister of Finance, Mr. Gordhan, testified that
education as a whole is an apex priority of government as
reflected in both the NDP and the MTSF.321 He suggested that
the demand in universities fragments the value chain that is
education. This speaks to the evidence that PSET should be
approached as a sector. The government allocated the bulk of
funding to universities and this is projected to continue over
the MTEF. The DHET by the manner in which it has dealt with
the 0% increase in university fees at the expense of TVETs
has not dealt with the issues in a sectoral context but
continually elevated the universities over TVETs.
360. The evidence clearly points to higher education and training being an
apex priority322. but not the only one. To the extent that this is correct, the
question that arises is how the elevation of higher education and training
to being an apex government priority translates in the process of
budgetary allocation and in the ultimate allocation to the DHET and
NSFAS.
320
National Treasury, transcript of hearing held on 7 October 2016, p36.
321
National Treasury, transcript of hearing held on 7 October 2016 p35.
321
National Treasury, transcript of hearing held on 3 March 2017, p43.
322
Understanding of students along these line, see Nelspruit transcript of 22 Aug p 45; 52.
247
13 THE BALANCING PROCESS
361. In his testimony, Mr. Gordhan, testified to the realities while drawing a
link between accelerated transformation and inclusive economic growth.
The essence of his testimony is that the budget plays a central role in
transformation by promoting redistribution and directing scarce resources
towards catalytic investments in human and physical capital.323
362. A large part of the testimony of the National Treasury emphasised that
where the revenue does not meet demand, the issue becomes one of
balancing various competing interests.
14 THE HISTORICAL NATIONAL BUDGET AND FUTURE FINANCIAL
OUTLOOK
363. A significant portion of the evidence presented by the National Treasury
is dedicated towards articulating the direct relationship between
economic growth, revenue growth and expenditure.
364. In its simplest form, the correlation between the three components is
represented by the equation:324
Expenditure = Revenue + Borrowing.
323
National Treasury, transcript of the hearing held on 3 March 2017, p34 37.
324
Presentation by Minister Pravin Gordhan dated 3 March 2017, slide 9.
248
365. The mainstay of that evidence is that the South African economy reached
its lowest growth level in 2016, at 0.9 per cent as a percentage of GDP
since 2000,325 having recorded its highest growth level of 5.6 per cent in
2007.326 The evidence indicates that the economy has been consistently
contracting since 2008 (registering a GDP growth level of 3.6 per cent),
registering negative growth in 2009 of -1.5 per cent in 2009. The
likelihood of significant increase in the short to medium term is small.
366. The plain consequence of this downward trend is that there is less
available government revenue, in the face of an increasing budget deficit
or government debt over the current METF, 327 at the cost of desired
government expenditure. 328 Willy-nilly, priorities become ranked with
also-rans in the allocation of reduced resources.
367. The main source of government revenue is taxation in all its
manifestations.329
368. Borrowing, as further source of revenue, is itself dependent on various
factors including economic growth complemented by stability, interest
rates, credibility and the ability and willingness to pay debt.330
325
When the economy recorded a percentage growth of 4.2 per cent.
326
National Treasury presentation dated 12 August 2016, slide 9.
327
328
329
Such as personal income, corporate and wealth tax.
330
Above.
249
369. During his evidence, Mr. Michael Sachs 331 , testifying on behalf the
National Treasury, spoke to this relationship. What appears from his
evidence is the following:
369.1. From 1999 to about 2000, there was a reduction in public
spending as a percentage of the Gross Domestic Product
(GDP).332
369.2. The period between 2003 2008 saw improved growth in the
economy, at a rate of 5 per cent of GDP, against the back of
a buoyant tax revenue.333 The average growth rate between
2000 2007/2008 is recorded at 4.3 per cent.334
369.3. Strong revenue collection allowed government in 2008/1009
to increase its public spending per capita on social
programmes, such as education, which increased from about
R3 000.00 per South African in 2000 to about R5 000.00 per
South African in the 2012/2013 financial year.335
331
In his capacity as the Deputy Director General for the Budget Office.
332
National Treasury presentation dated 12 August 2016, slides 4 and 6; transcript of hearing
held on 12 August 2016, p12 L5 6.
333
National Treasury, transcript of hearing held on 12 August 2016, p12 L20 25.
334
National Treasury presentation dated 12 August 2016, slides 9; transcript of hearing held
on 12 August 2016, p17 L24.
335
National Treasury presentation dated 12 August 2016, slide 4 & 6; transcript of hearing
held on 12 August 2016, p4 5; 12 L5 6.
250
369.4. Between 2002 to 2014/2015, this translated to an almost
doubling in governments real non-interest spending per capita
from R12 000.00 in 2000 to R21 000.00 in 2014/2015.336
369.5. Spending as a percentage of GDP also saw an increase in
government non-interest public spending from about 22% in
1996/1997 to about 27% in 2010/2011.337 During this period,
National Treasury was reducing some tax rates against the
increasing revenue.338
369.6. The increase in social spending can be attributed to two
identifiable factors:
369.6.1. an expanded public purse through the increased
employment of civil servants such as teachers, nurses
and police officers significantly expanded recipients of
social grants;339 and
369.6.2. prioritisation resulting in the shifting of allocations
from one department to another, as was the case with as
336
National Treasury presentation dated 12 August 2016, slide 5; transcript of hearing held on
12 August 2016, p6 L3 18. These figures are based on the consolidated budget as
opposed to the main budget. Based on the main budget, social spending per capita
increased from about R11 000.00 in 2000 to about R20 000.00 in 2014/2015.
337
12 August 2016, p12 - 11 L23 p 13 L1.
338
339
National Treasury, transcript of hearing held on 12 August 2016, p10 L15 p 11 L 2.
251
the Department of Defence, which enabled government
to expand social spending and specifically social
grants.340
369.7. The gap between revenue and spending was forecast to

341
converge during 2016/2017. This, however, did not
materialise partly as a result of the 2008 global financial crisis.
369.8. The consequence of that crisis was a negative growth rate of
-1.5 per cent in 2009.342 Pointedly, the impact on the national
budget presented in the form of reduced revenue (which fell
from a high point of about 26% of GDP in 2007 to a low of
about 23% of GDP in 2009, once again opening the
revenue/expenditure gap).343
369.9. Because of the disparity between revenue and expenditure
South Africa found itself unable to continue to raise sufficient
revenue to maintain the level of government spending on
social programmes.344 In these circumstances, it had to resort
340
341
342
on 12 August 2016, p18 L1 3.
343
12 August 2016, p13 L3 7.
344
252
to other sources of revenue, namely borrowing and increased
taxation.345
370. In response to the deteriorating economic outlook, National Treasury
introduced fiscal consolidation measures in an attempt to balance the
debt-to-GDP ratio over the MTEF. This entailed three main steps:346
370.1. lowering the expenditure ceiling;347
370.2. increasing tax revenue;348 and
370.3. reprioritisation.349
371. The National Treasury opted to increase revenue through increased
taxation as the main source of increasing revenue, as opposed to
borrowing. Consequently, National Treasury has steadily increased
personal taxation from 23 per cent in 2009 to about 26 per cent in
2015/2016.350
371.1. Despite the fiscal consolidation measures, the evidence
shows that South Africa is nevertheless spending more than
345
346
National Treasury, written submission dated 30 June 2016, p2.
347
By R10 billion in 2017.2018 and a further R15 billion in 2018/2019.
348
By raising an additional R18.1 billion in 2016/2017 and a further R15 billion in the balance
of the MTEF.
349
In the amount of R31.8 million over the 2017 MTEF.
350
National Treasury, transcript of hearing held on 12 August 2016, p13 L10 p 14 L1.
253
its income. Barring 2006/2007 and 2007/2008,351 South Africa
has been experiencing a budget deficit (since 2002/2003). The
deficit, which at worst is structural,352 is projected to continue
through the 2016 2019 medium term, measured between 3.5
to 4 per cent.353
371.2. Government debt increased from about 22.3% of GDP in
2007/2008, to about 44.3% of GDP in 2015/2016. This
translates from a debt of about R483 billion in 2007/2008 to
about R1.8 trillion in 2015/2016.354
371.3. As at 2016/2017, South Africas debt stands at over R2 trillion,
which is about 50% of the current GDP, which sits at about R4
trillion.355 The current debt is projected to increase to about
R2.3 trillion in 2018/2019, being 46.2 per cent of GDP.356
371.4. Although the economy has taken steps to recover from the
2009 deficit,357 the evidence shows that the economy grew by
351
During which period there was sufficient revenue surplus which had to be spent. See
12 August 2016, p14 L9 14.
352
Indicative of a permanent state of economic stagnation/deficit and borrowing. See
transcript of the hearing held on 15 August 2016, p14 L14 p15 L8; p19 L1 9; p25 L12
20.
353
12 August 2016, p14 L9 p15 L8.
354
12 August 2016, p16 L14 24.
355
356
Above note 53.
357
Recovering in 2011 to the 2008 level at 3.6 per cent. See National Treasury presentation
dated 12 August 2016, slides 9; transcript of hearing held on 12 August 2016, p18 L3 4.
254
an average rate of 2.1 per cent between 2010 2016 (from
4.3% in 2007), and growth thereafter, year on year, has been
slow.358 This is against a growth target of 5 per cent in the
NDP.
371.5. The economy is projected to grow by only 2.4 per cent in

359
2019. The IMF projects growth at 1 per cent for
2017/2018. 360 National Treasury projections for the same
period place growth at double the rate of the IMF, at around 2
per cent.
371.6. The main response of National Treasury to this situation has
been to introduce fiscal consolidation measures, which entails
stabilising of debt as a means to control the budget deficit
whilst maintaining social spending in a progressively
weakening economic environment.361
371.7. While the National Treasury intends to maintain the current
levels of public social spending, it estimates that the current
358
on 12 August 2016, p17 L25 p18 L5.
359
on 12 August 2016, p18 L6 19.
360
National Treasury representation dated 15 August 2016, slide 10. The IMFs forecast is a
forecast for global growth. See transcript of 15 August 2016, p22 L7 9.
361
National Treasury, transcript of the hearing held on 15 August 2016, p16 L 19 p17 L2;
p26 L5 10. A according to National Treasury, a countrys ability to contain debt is a factor
considered by lenders when deciding whether or not to advance loans. See transcript of
12 August 2016, p17 L3 8.
255
levels of spending can only be maintained if economic growth
returns to its historic average being three and a half
per cent. 362 Given the projected growth of two per cent,
revenue will be in line with that low growth.
372. This situation will undoubtedly impact on government expenditure on the
PSET sector. Furthermore, an analysis of National Treasury testimony
reveals that there is no extra money available to be used for PSET. Thus,
if there needs to be an increase in the PSET budget, such funding would
have to come from re-prioritising.
373. We turn at this point to interrogate how the national budget has
historically dealt specifically with the function of higher education and
training.
374. PUBLIC FINANCING OF HIGHER EDUCATION AND TRAINING
375. It will be recalled that South Africa has adopted a three-stream model of
funding higher education and training.
375.1. The first stream represents government funding in the form of
block and earmarked grant. Historically, government subsidies
362
256
have represented the largest single component of the total
income of institutions and universities in particular.363
375.2. The second stream consists of tuition fees paid by students
(and of NSFAS on behalf of qualifying students), and has been
increasing, partly as a result of the declining state subsidy.364
375.3. The third stream represents own funding, that is funding
raised by the institutions from various sources such as
donations and research activities. Universities are finding it
increasingly difficult to raise these stream funds given the
financial situation.365
376. Government spending on higher education and training can be measured
either as a percentage of gross domestic product (GDP) or as a
percentage of the State budget.
377. GDP represents the total income or value, in the case of South Africa,
the Rand value, of all goods and services produced in the country over a
specific period of time, normally annually. In simple terms, it represents
363
364
365
257
the size of the economy and is one of the primary indicators to assess
the health of a countrys economy.366
378. Government revenue is linked to a percentage of GDP (which is then
translated into State budget), and other sources such as borrowing. That
revenue is collected by government in the form of taxation.
379. The 2016 budget amounted to around R1.3 trillion.367
380. There is little before the Commission to suggest that the budget amount
as a share of GDP is inappropriate. In those circumstances, we proceed
on the basis that the revenue for social spending represented by the
budget is appropriate.
381. In 2016/2017, the total State finance for universities was nearly 30% of
GDP.368
382. In what follows, we first deal with government funding of higher education
and training as a percentage of GDP. We then address government
funding of higher education and training as a percentage of the State
budget.
366
National Treasury, hearing held on 12 August 2016, p11 L22 25; Xhanti Payi, transcript
of the hearing held on 20 February 2017, p5 L16 24.
367
National Treasury presentation dated 7 October 2016, slide 4.
368
DHET: University State Budgets, March 2016, Table 1.2.
258
15 GOVERNMENT FUNDING ON HIGHER EDUCATION AND TRAINING AS
A PERCENTAGE OF GDP
383. A significant amount of evidence before the Commission was dedicated
to government allocations to universities to demonstrate the historical
underfunding and constant decline of funding in the higher education
sector. 369 Departmental funding to universities in 2014 accounted for
38.4% of total university income, having fallen from 49% in 2000.370
384. Relying on 2014/2015 figures, the evidence presented by the Department
of Higher Education and Training shows a disparity in funding within the
sector itself.371
385. The government contribution (DHET transfers) to universities was 59
per cent, while the transfer to TVET Colleges was 14 per cent, despite
this sector experiencing significant enrolments, in pursuit of the NDP
targets.372
369
Vital Stats 2013, p91, figure 148. The figure shows that universities funding allocated to
universities as a percentage of GDP has been increasing since 2008/2009, falling slightly
in 2013/2014 to 0.75 per cent of GDP from 0.76 per cent in 2012/2013. Funding as a
percentage of State budget has also been increasing during the same period, decreasing
slightly in 2013/2014 to 2.49 per cent from 2.5 per cent in the previous financial year.
370
DHET submission dated June 2016, p16, figure 2; CHET presentation dated 11 August
2016, slide 4.
371
DHET notes that the current funding in the TVET sector is not only insufficient, but also
inequitable because State grants are based on historical provincial allocation. See DHET
presentation on the funding of TVET and CET Colleges dated 24 October 2016, slide 30.
372
DHET presentation on the funding of TVET and CET Colleges dated 24 October 2016,
slide 5.
259
386. Moreover, the estimated shortfall in budget allocations to TVET Colleges
has been increasing. In 2013/2014, the shortfall stood at 19% of the
allocated budget. The shortfall has increased to a high of 44 per cent in
2016/2017 and is projected to increase to 47 per cent in 2017/2018.373
Staff compensation takes up a significant portion.374
387. An issue which emerged strongly in evidence is that when considering
the question of fee-free higher education and training, the post school
education and training sector must be considered holistically.
388. Evidence was presented which indicated that South Africas expenditure
on higher education and training as a percentage of GDP is well below
what other countries spend on the sector. CHET demonstrated this point
by reference to OECD 2012 data which shows that South Africa was
spending 0.71 per cent of GDP on higher education and training. The
only other countries that spend less than 1 per cent of their GDP on
higher education and training were Chile and Brazil, both spending
around 0.9 per cent. The majority of other comparators contributed over
1% of GDP on the sector. Cuba spent the highest, at 4.50% of GDP.375
The Commission is advised that the selection of countries for this
purpose is subject to various interpretations since there were, at the time
373
DHET presentation on the funding of TVET and CET Colleges dated 24 October 2016,
slides 7 and 31.
374
See also DHET presentation on the funding of TVET and CET Colleges dated 24 October
2016, slide 11 which indicates that of the total 85% government allocation to TVET
Colleges, DHET transfers 60%; while the balance is made up on NSFAS bursary funding
(20%), and that too is underfunded and 5% from the NRF for project funding.
375
CHET presentation dated 11 August 2016, slide 12.
260
of this comparison, other countries whose spending as a percentage of
GDP was less than South Africa. The United Kingdom is one such
example. It is therefore prudent to take into account the size of the
system, socio-political and economic circumstances etc. Nevertheless,
an increase from current levels is justified for South Africa as a result of
the systematic decline in spending over time.
389. According to National Treasury, government spending per student
relative to GDP per capita sits at 38.3 per cent, well above the world
average of 30.5 per cent. 376 Once again, Cuba is the higher at 63.0
per cent, followed closely by India, Denmark, Norway and Vietnam.377
390. National Treasury testified further that as at 2016/2017, South Africa
spends about 1.5% of GDP on higher education and training, up from just
over 1% in 2008.378 This is made up of all sources of funding, namely
university subsidies, NSFAS allocations to universities, other sources of
NSFAS, TVET and ABET, SDL and other sources.379
391. Of the 1.5% of GDP spent on higher education and training, just over
0.6% represents state subsidies to universities in 2016/2017.
376
National Treasury, presentation dated 7 October 2016, slide 11.
377
Above.
378
National Treasury, presentation dated 3 March 2017, slide 19; presentation dated
7 October 2016 slide 10; Xhanti Payi, transcript of the hearing held on 20 February 2017,
p8 L6 p9 L18; p16 L7 20. See also DHET presentation on the funding of TVET and
CET Colleges dated 24 October 2016, slide 4 which indicates that the total expenditure on
the PSET sector for financial year 2414/2015 was at 1.7% of GDP.
379
261
392. There are two main factors which have attributed to the decline in the
state subsidy. The first relates to linking the subsidy to the consumer
price index. The second factor is that the subsidy has failed to keep pace
with the growing student enrolments.
16 STATE SUBSIDY IN LINE WITH CONSUMER PRICE INDEX (CPI) V THE
HIGHER EDUCATION PRICE INDEX (HEPI)
393. The evidence shows that HEPI is applicable to the sector and is on
average 2 per cent higher than the CPI.380 The result is the erosion of the
subsidy through inflation.
394. It has been noted that the current subsidy, including the NSFAS
allocation, is growing at CPI. Institutions have indicated that the
applicable inflation in the sector is the HEPI, which was 9,2% (in 2014)
when CPI was 6%.381 On average, the HEPI is, at any given time, 2%
higher than CPI. This in itself makes inroads to the subsidy.382 It has thus
been proposed that the budget allocation to higher education institutions
should match the HEPI.
395. On the other hand, evidence was presented challenging the
appropriateness of applying the HEPI uniformly across the cost items of
380
DHET submission dated June 2016, p17 18.
381
PBO presentation (undated), slide 25 which places HEPI at 9.8 per cent.
382
This phenomenon extends to the NSFAS allocation in that it widens the gap between FCS
and the NSFAS cap. See NSFAS presentation, Set 4, Day 3, dated 16 November 2016,
p18 19.
262
the institutions (e.g. from equipment to operational and fixed costs such
as staff salaries), and without further interrogation as to which services
or products it applies. For example, there may be questions about
applying the HEPI to staff salaries.
17 ENROLMENTS OUTPACE THE SUBSIDY
396. While enrolments have increased (as per enrolments plans determined
with the DHET), government allocations have not in turn swelled to meet
those numbers, resulting in lower funding per capita. The FFC notes that
the States current MTEF projections only provide for a standstill student
enrolment growth.383
18 THE APPROPRIATENESS OF USING GDP AS A MEASURE TO ASSESS
THE LEVEL OF GOVERNMENT FUNDING
397. Concerns were raised that the current amount allocated to higher
education and training as a percentage of GDP is not a true reflection of
what government actually dedicates to higher education and training.
That is because the current 1.5 per cent of GDP allocated to higher
education and training includes 2016 bailout384, being the once-off R2,
383
FFC presentation dated 2 March 2017, slide 37.
384
CHET presentation dated 11 August 2016, slide 11 para 3.
263
543 billion injected by government in 2016 to address historic student
debt relief.385
398. Several stakeholders testified that in the light of what other countries
spend on the sector as a percentage of GDP, South Africa is essentially
under-spending on the sector. There are proposals that South Africa
ought to raise the share of government funding to at least 1 per cent.
399. The appropriateness of utilising GDP as a beacon against which to
assess the sufficiency or not of public funding of higher education and
training arose in evidence.
400. Mr. Xhanti Payi testified before the Commission in his capacity as an
expert witness and economist.386
401. His evidence is in line with that of National Treasury, indicating that South
Africas expenditure is above its revenue and has to borrow in order to
supplement its revenue.387
402. It also pointedly highlights the fact that benchmarking what South Africa
spends on higher education and training and a percentage of GDP to that
385
DHET Universities Budgets March 2016, Table 2.13 para 1.
386
On 20 February 2017.
387
Xhanti Payi, transcript of hearing held on 20 February 2017, p6 L12 p7 L13; National
Treasury
264
of other listed countries, particularly the OECD countries, 388 is not
appropriate. That is principally because South Africa is being
benchmarked against incomparable countries since these countries are
at different levels of economic development (and demonstrating a higher
level of GDP) and yield higher revenue due to higher taxation.389
19 GOVERNMENT SPENDING ON HIGHER EDUCATION AND TRAINING AS
A PERCENTAGE OF STATE BUDGET
403. In general and in spite of the decline in GDP growth, government social
spending has been increasing year-on-year, save for the defence
function.390 Evidence presented showed that South Africa spends about
50 per cent of its budget on social spending. 391 National Treasury
indicated that about two-thirds of the 2017 budget is allocated to functions
dedicated to realising constitutionally mandated social rights, including392
education.
388
The Organisation of Economic Cooperation and Development (OECD) is comprised of 35
countries and is established as a forum within which governments of member states
discuss and develop economic policies.
389
Xhanti Payi, transcript of hearing held on 20 February 2017, p8 L3 7; p9 L20 P10 L24.
390
391
Xhanti Payi, transcript of hearing held on 20 February 2017, p7 L14 p19.
392
National Treasury presentation dated 3 March 2017, slide 16.
265
404. Historically, education as a whole accounted for the majority of
allocations from the State budget.393 The largest portion of the education
allocation is dedicated to basic education.394
405. The 2016 budget was estimated at R1.3 trillion. This represents the
resources available for government expenditure on various programmes.
Post-school education and training was allocated 5.2 per cent of that
395
budget, amounting to an estimated R64.2 billion. The sector
experienced the largest nominal expenditure growth by function between
the relevant MTEF periods,396 second only to debt-servicing costs.397
406. The current budget allocation to the sector must be understood in its
historical context.
407. The Department of Higher Education and Training was established in
May 2009 and became operational in April 2010. It came about as a result
of splitting the higher education, further education and training (TVETS)
and Adult Education functions from the erstwhile Department of
Education.398 The TVET and Community Education and Training (CET)
393
394
National Treasury presentation dated 3 March 2017, slide 16. As at 2017/2018, education
accounts for 21% of the budget. Basic education receives 16% of the budget, while 5% is
allocated to post-school higher education and training.
395
National Treasury presentation dated 7 October 2016, slide 4.; presentation dated 3 March
2017, slide 16.
396
2013-2016 & 2016-2019 per National Treasury presentation dated 12 August 2016,
slide 18.
397
398
The Skills Development functions were simultaneously moved from the Department of
Labour to the newly formed Department of Higher Education and Training.
266
functions remained a provincial competence until they were moved in
April 2015 to the Department of Higher Education and Training.
408. The first budget allocation for the newly formed Department of Higher
Education and Training was for the financial year 2010/2011. According
to the evidence of the Department of Higher Education and Training, this
shift in functions has had an adverse impact on the Departments
baseline allocation from National Treasury.399 This has had the result that
the Departments allocation reflected an annual growth of 7.9% between
the financial years 2012/13 and 2015/16.400
409. It was only during the 2016 MTEF that the National Treasury adjusted the
Departments baseline allocation with an amount of about R17.4 billion
to support the 2016 zero per cent fee increase at universities. The
majority of this additional amount, in the sum of about R16.2 billion, was
directed at resolving the historic NSFAS student debt challenge and to
offer financial support to continuing and new NSFAS students.
399
DHET submission dated June 2016, p10 para 4.1. according to the Department of Higher
Education and Training, since the 2012/2013 financial year, National Treasury adjusted its
original allocation to reflect the data inherited from the TVET and CET sectors in order to
ensure comparison between the years.
400
Excluding direct charges from the skills levy from the Sector Education and Training
Authorities (SETAs) and the National Skills Fund (NSF). See DHET submission dated June
2016, p10 para 4.1. 11 Table 1.
267
410. That being said, evidence presented by National Treasury shows that
allocations for the higher education and training sector have, at least over
the past 6 years, grown faster than budgets for other functions.401
20 IMPROVEMENTS IN THE BUDGET
411. Given the recent student demands, the question arises as to whether
increases in NSFAS allocations are a natural progression in line with the
commitment to prioritise the sector, or whether they are a response to
pressure.
412. National Treasury indicated that in the context of the present fiscal
framework which introduced consolidation measures aimed at controlling
spending and debt, expenditure per capita has stabilised since the 2008
recession. Spending appears to have tapered off since 2011/12 and is
projected to decline over the 2017/19 METF.402
413. This suggests that any growth in the PSET allocation will probably be the
result of reprioritisation as opposed to national budget expansion. In the
light of the evidence by the National Treasury to the effect that the
expansion of the sector to meet NDP targets and providing fee-free
education to the poor would mean an addition of 2 3 per cent of GDP
401
National Treasury presentations dated 7 October 2016 and 3 March 2017, slides 9 and 18
respectively.
402
268
to public spending, South Africa would have to resort to borrowing in
order to meet the NDP targets.403
414. National Treasury estimates that non-interest expenditure will grow at an
average of 7.1 per cent on average over the medium term. Of this:404
414.1. subsidies to universities are set to grow at 10.9 per cent
annually; and
414.2. transfers to the NSFAS are set to increase at 16.1 per cent.
415. In total, the PSET allocation is set to grow to just over 1.6 per cent of
GDP by 2019/2020,405 which is a total spend of R89.8 billion.406
416. The largest improvement in the recent 2016 budget appears to be as a
result of additional funds injected to address the zero per cent increase
in university fees for the 2016 academic year. In this regard, a total of
R21.1 billion is added to allocations to the sector over the MTEF, to
include 407
403
National Treasury presentation dated 12 August 2016, slide 12; transcript of the hearing
held on 12 August 2016, p26 L23 p28 L1.
404
405
Amounting to an annual growth rate of 9.2 per cent over the medium term. See National
Treasury presentation dated 3 March 2016, slide 19 20.
406
407
269
416.1. R5 billion provisional allocation in 2019/20;
416.2. R7.3 billion towards compensating institutions for the shortfall
resulting from the 2016 no fee increase for missing middle
students;
416.3. an additional R7.7 billion to NSFAS over the MTEF to assist
unfunded qualifying students from 2016 academic year to
continue their studies;408
416.4. NSFAS allocations are projected to increase by about R2.5
billion in 2019/2020; while
416.5. Government has allocated R4.2 billion over the medium term
to cater for capital and operational costs at the two newly
established universities.409
417. The above shows that the NSFAS allocation started to increase prior to
the demands from students. This is supported by evidence to the effect
that NSFAS more than tripled in funds per learner from 2005 to 2014.410
408
409
410
TIPS presentation dated March 2017, slide 21.
270
21 FUNDING OF INSTITUTIONS IN THE POST SCHOOL EDUCATION AND
TRAINING SECTOR (PSET)
21.1 INTRODUCTION
418. This Chapter deals with the funding of institutions in the Post School
Education and Training Sector, specifically Universities, TVET Colleges
and Community Colleges.
419. This subject will be dealt with in the context of the income streams of
these institutions such as government grants, student fees, donations
and funding that these institutions generate by themselves. The chapter
will further look at the real cost of running a PSET institution.
420. The Commission in its investigations considered the competing demands
on institutions including inter alia the day to day operational costs;
research-focused prerogatives; staffing (academic and support staff
appropriations); transformation imperatives, including factors affecting
historically disadvantaged institutions; curriculum reform; staff
development (including career progression); student accommodation;
access and throughput.411
411
Structure of Oral Hearings, Pg. 3
271
21.2 REGULATORY FRAMEWORK412
421. The Higher Education Act (No. 101 of 1997)413 makes provision for the
funding of higher education. The Act outlines that the intentions of
government with regard to higher education, include the following:
421.1. the redress of past discrimination;
421.2. ensuring representativeness and equal access;
421.3. providing optimal opportunities for learning and the creation of
knowledge;
421.4. promoting the values that underpin an open and democratic
society based on: dignity; equality; freedom; respect for
academic freedom; the pursuit of excellence; the promotion of
the potential of every student; and appreciation for diversity.
422. The Higher Education Act further specifically addresses the funding of
higher education when it states that the Minister must, after consulting
the CHE and with the concurrence of the Minister of Finance, determine
the policy on the funding of public higher education, which must include
413
Chapter 5
272
appropriate measures for the redress of past inequalities, and publish
such policy by notice in the Government Gazette.414
423. From broad policy perspective, the following documents also address the
issue of institutional funding: -
423.1. Education White Paper 3 (DoE 1997);
423.2. National Plan for Higher Education, or NPHE (MoE 2001);
423.3. Green Paper for Post-School Education and Training (DHET
2012d);
423.4. National Development Plan 2030 (NPC 2012);
423.5. 2013 White Paper.
424. The transformational goals for higher education articulated in Education
White Paper 3 and the National Plan in Higher Education, and whose
realisation is steered through the funding framework and other steering
mechanisms, are as follows:
424.1. improving access opportunities;
414
Section 39 (1)
273
424.2. increasing participation of disadvantaged students and of
women;
424.3. ensuring that enrolments increase in academic programmes
linked to economic development and in postgraduate
programmes at masters and doctorate level;
424.4. improving the quality of teaching and research through
enhancing the qualifications of academic staff;
424.5. increasing the numbers of graduates produced by the
university system. 415
425. The current funding framework416 for Universities was introduced by the
then Ministry of Education in 2003.
426. The framework came into effect in the 2004/05 financial year and was
fully implemented in the 2007/08 financial year and replaced the SAPSE
funding framework which was implemented from 19832003 417
415
Report of the Ministerial Committee for the Review of the Funding of Universities, 2013,
Page 95
416
Funding of Public Higher Education, November 2003
417
Page 57
274
21.3 THE MINISTERIAL COMMITTEE FOR THE REVIEW OF THE FUNDING
OF UNIVERSITIES
427. The Ministerial Committee for the Review of the Funding of Universities,
2013 reviewed the funding framework since it was important to determine
if the frameworks implementation had met the transformation
requirements set out the 1997 Education White Paper.
428. The Committee made wide ranging recommendations. We summarise
those that we consider that remain pertinent to the investigation of the
viability of fee-free education:
428.1. The funding for higher education should be increased to levels
of comparable international expenditure.
428.2. Enrolment planning should remain a key steering instrument
for determining the size and shape of the higher education
sector with negotiated targets linked to the funding of
universities.
428.3. In instances of poor success and throughput rates more
attention should be devoted to improvement than to growth.
275
428.4. Where growth is appropriate it should be aligned with
institutional capacity, human resources, fiscal availability,
infrastructure and student accommodation.
428.5. The monitoring and evaluation capacity of the DHET in regard
to funding efficiency and effectiveness and the financial health
of universities requires enhancement.
428.6. The Minister of Higher Education should establish a funding
committee to oversee annually the funding allocations to
universities.
428.7. The formula-based approach to funding and the system of
block grants and earmarked grants should be retained.
428.8. All universities must offer quality undergraduate education.
428.9. The university sector is an integral part of the post-school
system. Inter-institutional and inter-system mobility for
students and staff is also integral to the system.
428.10. There is a need to reward equally the different roles of higher
education vis teaching and learning, research, and community
engagement.
276
428.11. Each university should develop and participate in research
and innovation, adequately funded. The resources of the
DHET, NRF and donors should be employed to establish
centres of excellence (niche areas) at under-developed
universities.
429. The Committee made specific recommendations in relation to Historically
Disadvantaged Institutions. These included:
429.1. The introduction of an institutional factor grant amounting to
2% of the black grant allocation;
429.2. Prioritising the provision of infrastructure development grants
to eliminate backlogs so as to place all universities on a par in
offering quality teaching and learning for undergraduates;
429.3. Increasing funding allocations for foundation programmes,
implementing the recommendations of the NSFAS review
committee, and strengthening the institutional grant
component for disadvantage.
430. The Committee made itemised recommendations in relation to funding of
veterinary sciences, the developing of African languages, access for
students with disabilities, research and innovation, work-integrated
learning, and foundation programmes (until the inadequacy of basic
277
education has been overcome). All of these involved increased and
ongoing funding.
431. To provide in part financial resources for the implementation of its
recommendations the Committee advised that an earmarked university
development grant be allocated to include funding for development of
teaching, research, and the new generation of academics. It laid out the
proposed scope and implementation of development funds in details.
432. The Committee considered that the funding of universities should be
predicated on State subsidies and tuition fees, with provision for
financially needy students. [Much reduced provision will be needed if the
Commissions advice hereunder is accepted.]
433. The Committee was opposed to fee-capping fearing that the quality of
higher education might suffer and universities would be unable to cross-
subsidise financially needy students through university funded student
bursaries. [Fee-regulation as opposed to fee-capping has been fully
reported on by the CHE.]
434. The Committee recommended steep increases in NSFAS funding and
greater academic support for NSFAS recipients. [The Commission has a
vision of NSFAS limited to the TVET sector with a substantially reduced
funding function.]
278
435. The Committee appears to have focused almost entirely on public
(state) funding for universities and sought its remedies only in the
public sphere. It is the advice of this Commission that a much
broader view of the social responsibility of the private sector to
assist financially and otherwise in the funding and support of
students is justified. Such an approach will in the view of the
Commission free the state from the primary burden of student
funding. Instead such funds as would have been expended for that
purpose may be redirected to the fulfilment of the funding goals in
the wider education sector identified by the Commission in its
recommendations.
21.4 INCOME SOURCES OF PUBLIC HIGHER EDUCATION INSTITUTIONS
436. The income sources of public universities are divided into three
streams, which are government funding, student fees and private
income.418
21.5 FIRST STREAM
437. This stream consists of the total of block grants as well as earmarked
grants that are paid by DHET in the form of subsidies.419
418
Rolf Stumpf Presentation
419
DHET Presentation, 4 October 2016, Pg. 8
279
438. Block grants are meant to cover expenses relating to the institutions day-
to-day operations, which are linked to the provision of activities related to
the institutions core activities:
438.1. Teaching and learning;
438.2. research; and
438.3. community engagement.420
439. The block grant may be spent at the discretion of the council of each
institution and reporting on the use of the block grant is mainly through
the universitys annual report, submitted to the DHET.421
440. The Higher Education Act gives the Minister the power to determine what
proportions of the higher education budget are to be allocated to block
and earmarked grants respectively.422
420
Page 58
421
This reporting must be done in terms of the Regulations for Reporting by
the Public Higher Education Institutions (Government Gazette No. 37726,
Notice 9 June 2014).
422
Page 58
280
441. The Minister of HET divides, on a three-year rolling basis, the higher
education budget into its various components. The block grant
components of the funding framework are as follows:
441.1. Teaching input funding, which funds universities for delivering
teaching services and the supervision of postgraduate
masters and doctoral students.423
441.2. Teaching output funding, based on the number of graduates
(excluding research masters and doctoral graduations),
thereby encouraging increased success and throughput rates
as a result of universities ensuring that students complete their
studies.
441.3. Research output funding, based on the number of publications
in accredited journals and in approved, peer-reviewed books
and published conference proceedings, as well as the
graduation of research masters and doctoral students.424
441.4. The institutional factor grant, which consists of two
components, the institutional factor for size, and the
423
The teaching input grant uses a funding grid for the distribution of grants to
universities. The funding grid is based on the relative cost of offering
teaching and research supervision in various fields of study.
424
The category of doctoral graduates receives the highest funding weight, as
an incentive to produce much-needed graduates for research and
innovation as well as the next generation of academic staff.
281
institutional factor for disadvantage. The institutional factor for
size allocates additional funding to universities with a FTE
enrolment of less than 25 000, due to the fact that it is more
expensive to provide the full range of services at a small
university than at a larger university that has the benefits of
economies of scale. The institutional factor for disadvantage
was introduced to provide an incentive for universities to enrol
more Black South African students as part of the redress drive.
442. Earmarked grants are funds that may only be used for specific purposes
designated by the Minister. Earmarked Grants are intended to steer the
sector in line with policy goals and priority areas, and broadly consist of,
NSFAS, Teaching Development, Foundation Provisioning, Veterinary
Science Grant, Infrastructure and efficiency, Research Development,
HDI Development Grant, Clinical Training Grant.425
443. The accountability for the use of earmarked funds is through the provision
of progress reports and audit certificates, which are provided on an
annual basis by the universities. The types of earmarked grants can be
summarised as follows:
443.1. NSFAS funding provides assistance to students with
academic potential who cannot afford university education.
425
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282
NSFAS is a statutory body that receives an annual allocation
of funding from the National Treasury through the Ministry of
Education. NSFAS also raises funds from South African and
international donors.
443.2. The infrastructure and output efficiencies funding is intended
to increase the capacity of the university system to cope with
the growth in student numbers, to provide the necessary
infrastructure and equipment for improving the quality of
teaching and learning and student success and completion
rates. It is also aimed at equipping universities to give effect to
national goals and priorities by providing incentives to
universities to deliver on the PME targets of the Minister.
443.3. The clinical training earmarked grant provides funding to
universities to fund the clinical component of health
professional students, which is also a national priority area.
443.4. The foundation programme grant provides funding for
extended programmes aimed at addressing the under-
preparedness of students and improving their chances of
success at university.
443.5. Teaching development and research development grants
provide financial assistance to universities to develop support
283
programmes that enhance their ability to increase student
success and completion rates, as well as to enhance their
capacity to produce research outputs.
443.6. The merger multi-campus grant provides funding to merged
universities in support of the cost of running additional
campuses as a result of the mergers.
443.7. The veterinary sciences earmarked grant provides funding for
the clinical training component of veterinary sciences
programmes and to support the cost of running an animal
hospital at the University of Pretoria.
443.8. The other examples of earmarked grants are as follows:
443.8.1. National Institutes in Mpumalanga and the Northern
Cape, which receive funding for the co-ordination of
university education in these provinces;
443.8.2. establishment of universities in Mpumalanga and the
Northern Cape, which provides seed funding for the
establishment of two new universities in these provinces;
443.8.3. interest and redemption on loans that fund former
agreements made for government contributions for the
284
establishment of university infrastructure by means of
government-guaranteed loans; and
443.8.4. The African Institute for Mathematical Sciences,
which funds a special project aimed at producing
postgraduate students in mathematics from formerly
disadvantaged groups.
21.6 SECOND STREAM
444. This is reference to student fees, which includes all tuition and residence
fees paid by (or on behalf of) students to the universities. NSFAS funding
to institutions forms part of its second stream income.
445. The current approach to student fees is in terms of the cost sharing
model expressed in White Paper 3. Currently university students do pay
fees. Student fee income in 2014 made up 32.9% of the university
systems income.
446. The reliance on fee income differs across the sector, as is affected by the
ability of the university to attract third stream funding and by the fees
charged. Student fees differ substantially across the sector.
447. The #FeesMustFall campaign highlighted the cost of university education
saying that it was unaffordable and very expensive for individuals and
285
their families. The constitutional principle suggests that fees need to be
affordable and that academically deserving financially needy students
should not be denied access on the basis of their inability to pay.426
448. USAf shares this view and stated that the annual real increases in fees
are placing the possibility of higher education outside the means of the
majority of the students and their parents. It is evident that financially
needy students are not able to afford these rapidly increasing tuition
fees.427
449. USAf further submits that another reason for fees increasing at double
digit percentages is the unrecoverable debt, which in turn is financed from
higher fees. This fuels the upward spiral in tuition fees
21.7 CONSIDERATIONS WHEN SETTING FEES.
450. One of the central issues considered by the Commission was how
Universities determine their fee structures as well as annual fee
increases.
451. In order to shed light on this issue, a questionnaire was distributed to
several universities.
426
DHET Presentation, 10 August 2016, Slide 29
427
Paper by the Funding Strategy Group on the Review of the Funding of,
Universities USAf Board of Directors Workshop July 2015, Pg. 3
286
452. From the responses to this questionnaire, it became clear that the main
factors affecting fees are the costs for salaries, services, academic and
technical material, and utilities. For most of these, the rate of increases
cannot be negotiated by the University, the items are essential, and
annual increases are further affected by factors such as exchange rates
and not only CPI.
453. The cost base of universities has been increasing well in excess of CPI
due to various reasons, some of which universities have very little control
of. Below is the list of some of these costs:
453.1. electricity costs,
453.2. municipal rates and taxes,
453.3. building costs which rise at a rate higher than inflation,
453.4. depreciation in the Rand which affects, amongst others, the
following resources and expenses:
453.4.1. library resources in the form of journals, books etc.
(both printed and electronic forms);
453.4.2. research equipment;
287
453.4.3. research and laboratory consumables;
453.4.4. computer software and peripherals; and
453.4.5. computer hardware.428
454. In parallel with the expenditure base, it is also important to consider the
taxes the universities are paying in national, provincial and municipal
taxes, which, at a macro level have to be considered in any subsidy paid
from the national tax income. These taxes include:
454.1. Employment Tax (PAYE) on the remuneration of all
employees;
454.2. Value Added Tax (VAT) paid on all transactions performed by
the universities, which cannot be claimed back as per the
VAT Act;
454.3. import and excise duties on certain imports which is necessary
for the functioning of the university;
454.4. municipal rates and taxes.
428
Paper by the Funding Strategy Group on the Review of the Funding of,
Universities USAf Board of Directors Workshop July 2015, Pg. 3
288
455. The Commission has heard evidence that another consideration in
attempting to ease the burden on University Budgets is to make them
exempt from taxation.
456. It is also said that cross-subsidisation between programmes varies
annually and it not at a set rate.
457. Institutional budgets are determined rather than individual programme
costs. An Illustration of this would be that in most of these institutions,
BCom programmes tend to bring in money to support other programmes.
The allocation to Departments is on a different formula and takes into
account research output and other academic activities, which the
institution wants to encourage.
458. Comparing the BEd Foundation Phase programme at 2016 prices across
three institutions:
458.1. at the University of Venda, the cost increased from first, to
second and to third year;
458.2. at NMMU it decreases as one progresses;
458.3. at Stellenbosch University, it remains the same.
289
458.4. the first-year costs only R19 790 at UV, compared to R25 700
at NMMU and R31 704 at SU. However, when adding the
costs for the full three years, it costs R90 410 at UV; R73 810
at NMMU; and R95 112 at SU. Fourth year changes and it is
charged as Honours by some institutions.
459. The aforesaid indicates that comparing fees across institutions is not as
simple as it may initially appear; and high fee differentials may at times
be over-estimated when the full programme is taken into consideration.
21.8 THIRD STREAM
460. Third stream income refers to university income from sources external to
the DHET and student fees. These include:
460.1. research funds from various sources, including the
Department of Science and Technology (DST) and the
National Research Foundation (NRF);
460.2. other Government Departments;
460.3. private entities and the private sector;
460.4. contracts;
290
460.5. rendering of services;
460.6. private gifts; and
460.7. donations.
461. Some analysis of third stream funding includes income from interest.429
21.9 AVAILABILITY OF THIRD STREAM FUNDING ACROSS ALL
INSTITUTIONS
462. There is severe competition between universities for third stream
income.430 For instance, the University of Venda has established a third-
stream income generating entity in 2010 in order to have a practical and
sustainable means of generating extra income.431
463. There is however a large discrepancy between the third-stream income
received by HDI institutions and the more affluent HA institutions. This is
on account of a number of factors such as their research capacity, their
more affluent alumni and being located in metropolitan areas.
429
Presidential Task Team on Short Term Student Challenges at Universities, Page 7
430
Presentation by Prof Stumpf, 18 October 2016, Page 13
431
Univen Presentation, 21 October, Slide 21
291
464. An illustration of this would be that in 2015, third stream income as a total
of institutional expenditure in institutions was as follows:432
464.1. UCT 41%
464.2. Stellenbosch University 44%
464.3. Wits 39%
464.4. University of Fort Hare 15%
464.5. University of Venda 14%
464.6. University of Zululand 17%
22 FUNDING FRAMEWORK FOR GOVERNMENT
22.1 ANALYSIS
465. A funding formula provides financial stability in so far as its elements are
fixed and institutions are able to rely on these in their planning.
466. By contrast, the current South African subsidy system is based on a
funding framework. Although in many respects the framework shares
432
VitalStats 2015, pp. 95
292
the characteristics of a formula (and the terms are generally used
interchangeably), the frameworks parameters may be altered by the
Minister through publishing a Ministerial statement (subject to the
criteria of the Higher Education Act).
467. The funding framework therefore does not offer institutions the longer-
term stability of a formula.433
468. As stated above, the current funding framework was introduced in 2003
and came into effect in 2004/05 and was a response to the limitations of
the SAPSE funding framework which was implemented from 19832003.
It is under revision.
469. The key features of the current funding framework are as follows:
469.1. Affordability: Government first decides how much it can afford
to spend on higher education and then allocates funds to
institutions, according to the formula and according to national
needs and priorities.
469.2. Distributive mechanism: The funding framework becomes a
distributive mechanism to allocate government funds to
individual institutions, in accordance with the budget made
433
293
available by government, governments policy priorities and
approved national higher education plans.
469.3. Cost sharing: The principle of cost sharing of higher education
by government, students and families has been retained in the
current funding framework.
470. The current funding framework, therefore, links government higher
education funding to national and institutional planning, priorities and
performance.
22.2 CRITIQUE OF THE FUNDING FORMULA
471. There are some views that this formula should have been given more
time to mature before a review was undertaken.434
472. USAf has indicated its concern in relation to the HDI grant in that it is
important that the HDI grant does not erode the already thin block grant
allocated to the sector, but that new money should rather be found to
finance the grant. At the current inadequate funding levels such a drastic
shift in resources without new money will negatively influence non-
HDIs.
434
Paper by the Funding Strategy Group on the Review of the Funding of, Universities USAf
Board of Directors Workshop July 2015, pp. 8
294
473. The Commission has heard testimony from different institutions that the
current funding formula favours HAI in that they receive more due to their
research capacity. The Commission also heard evidence regarding the
cost of supporting and conducting research, and that the current funding
allocation to research does not sufficiently support this function.
474. The funding model also incentivises increased enrolment due to a
heavier teaching input grant, which can compromise quality and student
support. This problem is recognised in the Review of the funding
framework, and enrolment planning limits the negative impact of this
element. Discussions have suggested that the sector is not yet ready for
a more output focused formula, as this could negatively affect HDIs, and
could incentivise the lowering of standards to increase graduation rates.
22.3 STEERING MECHANISMS
475. Government steers the higher education system, mainly through three
instruments, as follows:
475.1. The funding framework, which provides financial incentives to
achieve the goals set for higher education. Accordingly, the
current funding framework has been designed to give the
Minister the ability to reprioritise funding allocations in line with
priority areas and policy incentives.
295
475.2. Quality assurance and the programme approval process. The
programme approval process gives the Minister the leverage
to phase out inefficient and expensive duplications, improve
the quality of programme offerings, align programme offerings
with institutional capacity and ensure that programme
offerings are aligned to economic needs. The Minister has to
approve the Programme Qualification Mix (PQM) of each
university for subsidy purposes, while the CHE has to accredit
programmes to ensure that both the programme content and
the university resources will ensure a quality programme
offering.
475.3. The enrolment planning process (linked to the funding
framework), which aims to ensure that student enrolment
growth in the system is aligned with broader social and
economic needs, the capacity of the system in terms of human
and capital resources, and the fiscal resources available.
22.4 PROCESSES UNDERWAY
476. The annual Ministerial Statement by the Minister of Higher Education and
Training outlines the funding instruments to steer the university sector,
and is issued in accordance with the requirements of the Higher
Education Act, 1997 (Act 101 of 1997 as amended) and the funding
296
framework for universities (Government Gazette, No 25824 of 9
December 2003).
477. Universities are required to put in place efficiency measures to ensure
that available funding is effectively utilised. These measures could
include:
477.1. reducing overheads relative to the core functions of
universities;
477.2. collaboration amongst universities in order to save on
spending;
477.3. improving debt collection; and
477.4. putting in place processes to generate additional third-stream
income (including sourcing additional donor funding).
478. Phasing out of research grant and teaching infrastructure grant
479. One outcome from the funding review process as set out in the Report of
the Ministerial Committee for the Review of the Funding of Universities,
2013, is a proposal that the Teaching Development Grant (TDG) and the
Research Development Grant (RDG) are consolidated and replaced by
297
a University Development Grant (UDG) as a result of overlap between
the TDG and the RDG.
480. The UDG, to be implemented in 2017/18, will take forward the purposes
of the TDG and RDG in a more streamlined and systematic fashion. The
UDG will be designed to address the developmental needs of the higher
education sector in relation to its core functions of teaching, research and
innovation, and social responsiveness related to these functions.
481. A clear distinction will be drawn between core, recurrent activities and
developmental initiatives, with the development grant clearly focused on
developmental activities.
482. Importantly, the UDG is envisaged to become the main vehicle through
which the Staffing South Africas Universities Framework (SSAUF) is
implemented. This will mean that a proportion of the UDG will be
allocated for SSAUF activities. From early 2016, the Department will work
with the sector to develop policy guidelines for the management and
utilization of the University Development Grant.435
483. The grants for merger multi-campuses have been phased out and have
been absorbed into the block grant. The multi-campus grant was
introduced following the merger of universities and has served its
purpose, which was to make up for the loss of some universities following
435
Ministerial Statement, June 2016, Page 3
298
the mergers. Detailed reasons about this decision were provided in the
2011 Ministerial Statement on University Funding and the sector has
been kept updated about the phasing out of this grant in the various
ministerial statements since then.
23 STUDENT HOUSING
23.1 INTRODUCTION
484. This Chapter will deal with Student Housing in the PSET sector. This
refers to accommodation used by students during the duration of their
studies.
23.2 OVERVIEW OF STUDENT ACCOMMODATION IN THE PSET SECTOR
23.2.1 UNIVERSITIES
485. In 2010, a Ministerial Committee was appointed to investigate student
accommodation at contact Universities in South Africa. The Ministerial
Committees findings culminated in the Report of The Ministerial
Committee for the Review of the Provision of Student Housing at SA
Universities, 2011.
485.1. The Report showed that in 2010, 20% or 107 598 students
were accommodated in on-campus accommodation and that
299
only 5.3% of first year entrants were accommodated. A target
had been set that in 10 years (i.e. 2020/21) at least 30% of the
total residence capacity must consist of first year entrants.436
485.2. Bed shortage in 2010 was estimated at 195 815 and this was
projected to increase to a shortage of 207 800 beds by 2013.
These numbers were based on the recommended coverage
of 50% of enrolments for urban campuses and 80% for rural
campuses.
485.3. The cost (in 2010 prices) of providing the recommended
residence spaces over a period of 10 years was estimated at
R82.4 billion or R109.6 billion over 15 years.
485.4. The estimates are based on the cost of R240 000 per bed. The
10-year estimate translates to R147 billion when inflation
escalations are included.
485.5. To deal with the backlogs in student housing and university
infrastructure in general, the Earmarked Infrastructure Grant
(EIG) was introduced in 2006/07 when there was a
realisation that the university sector was growing without
sufficient emphasis on the development of infrastructure.
436
300
485.6. From 2006/07 to 2014/15, Government invested more than
R13 billion over three funding cycles.
485.7. Of the R13 billion investment by government, R1.69 billion
was allocated to student accommodation of which (R 1.443
billion (85%) was allocated to Historically Disadvantaged
Institutions (HDIs) and R247.3 million (15%) was allocated to
Historically Advantaged Institutions, together with co-funding
from universities in the sum of R670 million.
485.8. This investment into student accommodation enabled 9000
new beds and the refurbishment of old residences.
485.9. Some universities such as the University of Stellenbosch have
also experimented with Innovative Building Technology (IBTs)
for residences, which are not funded by the IEG.
485.10. A decision by DHET has been taken to focus on the provision
of university owned student accommodation. 437
485.11. For 2015/16, an amount of R850 million was allocated to
student accommodation.
437
Impacts on suggestion that UIF help build residences.
301
485.12. In the current cycle 2016/17 to 2018/19, R7.5 billion is
available for infrastructure development. It is envisaged that
50% of the R7.5 billion will be invested in student
accommodation while the other 50% will go towards
addressing other infrastructure needs.438
485.13. From 2015/16, there has been a change in the process of
allocating the EIG. The need for an integrated planning
approach was identified by means of a macro infrastructure
plan for the system to help steer infrastructure development.
485.14. All institutions are required to have campus master plans;
maintenance audits; disability audits and IT audits.
485.15. As a whole, the university system has an estimated
maintenance backlog of R25 billion.
485.16. Of the R25 billion, universities estimate the value of the current
national maintenance and refurbishment backlogs on student
accommodation at R2.5 billion.
485.17. Further to the R2.5 billion, an additional R1.9 billion is required
to modernise existing residences so that they are fit for
purpose, meaning that the residences must comply with The
438
DHET Presentation, 20 October 2016, Page 6.
302
Policy on the Minimum Norms and Standards for Student
Housing at Public Universities, September 2015, the contents
of which will be dealt with later in this Chapter.
23.2.2 TVETS
486. There is limited data relating to TVET student accommodation.
487. The Report on the Ministerial Committee for the Review of the Provision
of Student Housing at SA Universities focused entirely on universities.
488. The Commission has heard evidence to the effect that it may have been
an oversight not to conduct a study on student housing for TVETs. The
likelihood is that the housing deficit in relation to TVETs is worse than the
deficit in the university sector.439
489. The housing shortage in TVET institutions was confirmed by the Minister
when he stated that DHET carried out a survey of the 50 public TVET
Colleges in 2015. The survey showed that for the 710 000 college
students, there were only 10 120 beds.
439
26 January 2017 transcript, Page 6
303
490. TVET Colleges can provide accommodation for only 1.4% of students;
that is 1 in 70 students. Many of those students travel hundreds of
kilometres from their homes in rural areas to the nearest college.
491. DHET estimates that there is a need for at least 100 000 student beds in
TVET Colleges to meet the immediate demand. 440
23.2.3 FINDINGS OF THE COMMITTEE
492. After analysing all the data available, the Ministerial Committee
concluded that none of the critical issues for the provision of student
housing were currently being adequately addressed, being: -441
492.1. Access/equity/redress:
The Committee found that throwing open the doors of
learning without providing the minimum support required to
ensure a reasonable chance of success is not only
irresponsible but also dehumanising, and is negating the
very intention of increasing access to higher education.
440
http://www.lmip.org.za/sites/default/files/documentfiles/CollegeTimesVol46%20%282%29_0.p
df
441
Report on The Ministerial Committee for The Review of The Provision of
Student Housing at SA Universities, 2011. Pg. 129
304
492.2. Learning/success:
Academic learning and success are being severely
constrained and hampered by the overcrowding caused by
the shortage of student housing.
492.3. Inclusion/integration:
The current state of student housing provision hampers and
prevents students from inclusion and integration into the
workplace and thereby constrains participation in the
economy of the country.
492.4. Quality/standards:
Basic health and safety norms and standards are being
violated every day by the current poor quality of student
housing provision.
492.5. Governance/management:
Due to sheer pressure of numbers and the strain on
infrastructure, facilities and amenities, student housing
management structures and mechanisms are being sorely
305
tested on all campuses; in some instances, management
structures and mechanisms have entirely failed.
492.6. Cost/financing:
The administrative failings of NSFAS funding for student
accommodation are imposing severe hardships on
precisely those students who are most vulnerable, and the
poor housing conditions are undoubtedly a factor in
students poor academic performance and high dropout
rates.
493. The Committee made recommendations on:
493.1. Policies for residents, admissions and allocations;
493.2. Minimum standards for students housing and accommodation;
493.3. Private student housing and accommodation;
493.4. Residence management and administration;
493.5. The role of residences in the academic project;
493.6. Financing of student housing and student accommodation;
306
493.7. Residence infrastructure;
493.8. Future planning.
494. The evidence before the Commission established that important
improvements flowed from the recommendations. These include:
494.1. The development and implementation and of a policy on the
Minimum Norms and Standards for Student Housing at Public
Universities. This was published in Government Gazette
39238 of 2015 and came in effect of 29 September of that
year.
494.2. It has encouraged the development of dormitory projects
financed by the private sector and NGOs that conform to such
standards.
495. There is a complex relationship between student housing and academic
success, but compelling preliminary evidence suggests that being
housed in a safe, well-managed residence does advantage students,
particularly those from poor, working class background.
496. Student Housing should be able to provide support to first year students,
who are the most vulnerable cohort of students which is likely to
contribution to academic success (throughput).
307
497. Rhodes University has the highest throughput and success rate in South
Africa, which is attributed partly to its residence system.442
498. It is also clear that adequate provision of accommodation and support is
still in its infancy, the more so in relation to TVET students. As pointed
our earlier in the Research Report on the Costing and Financing of the
White Paper on Post-School Education and Training, the cost of
providing infrastructure at institutions of higher. learning between 2014
and 2030 could amount to as much as R771.5 billion. But the problem is
broader than money can buy. We agree with the views of the CHE
(expressed in its comments on the Draft Policy on student housing) that
"the role of student housing as an extension of the intellectual project of
the university cannot be overemphasises and should inform the manner
in which a university approaches the management and structure of
residences". This view of the Commission holds good for TVET colleges.
23.3 EXPERIENCES OF STUDENTS
499. Evidence given at the commission presents a bleak picture of the
experiences of students regarding Student Housing.
500. SAFETSA gave evidence that as a result of late payments for allowances
such as accommodation and travel has complicated the day to day life of
students in the TVET space. Many are not able to attend classes
442
Presentation Dlange, January 2017, Pg. 17
308
regularly precisely because of late payments and many of our students
are evicted by the landlords because of late accommodation
payments.443
501. Sikho Qwatekane from Mangosuthu University of Technology gave an
account of his experiences with student accommodation:
"NSFAS restrictions when it comes to pay for accommodation of about

a 20 kilometre radius which makes our life difficult since accommodation
closer to campus is expensive."
502. Mr. Y Twani from SAFETSA gave evidence in relation to experiences at
TVET colleges when he stated that:
And students are given up to a maximum of [R]20 970 per annum for
accommodation. And travel is [R] 7 864 and that accommodation amount
its inclusive of meals. Its not [enough] cause if you divide it for an
example that 20 000 its 20 970 divided by 10 months - it gives you an
amount of 2 point something per month. Those students that are situated
in fact campuses or colleges in rural communities, those students they
manage to afford but the predicament is within urban areas - where you
go to Buffalo City College in East London. Accommodation rates there, if
you are in need of a decent space not luxury but a decent space for a
student to be able to study, charges they vary from 3 000 to 4 000 to 5
000. So in a nut shell, that 20 something its not enough for students.444
443
Presentation, 22 November 2016, Pg 3
444
Transcript, 22 November 2016, Pg 12
309
503. In relation to the conditions of the available student accommodation for
TVET students, Mr. Twani state the following:
If for an example you can visit some of our student residences not
college residences but these private accommodations. Students are
living in extreme conditions and we once asked some of our students to
say but why have you chosen this type of an arrangement in terms of
accommodation? And students will tell you that the financial assistance
that we are getting form our institutions is not sufficient to cover for proper
accommodation. But because our students they value education, they
have decided to live under those extreme conditions for as long as they
will acquire a qualification.
504. When asked to elaborate on what he refers to as extreme conditions,
Mr. Twani stated the following:
Its simply a bad space of an arrangement for accommodation. Ill make

an example of East London. There are very old houses in a street called
St Georges East London, where you find many of our black people; some
doing prostitution around those areas, some selling drugs.
Some of our students they live around those areas and its not as if there
are no better accommodations or the private accommodations but
accommodations with proper facilities are expensive. So when Im
speaking on to the issue of extreme conditions, I speak of a very bad
environment for a student to live under or to live in - a one room you cook
here, you sleep here, you are 3 or 2 paying 1 200 to 1 500 each. Imagine
that environment where there are no proper facilities to allow students to
study.
505. Mr. Twani stated further that:
310
If you dont have means to provide accommodation, then as much as we
are addressing the issue of teaching and learning in terms of funding
tuition, but also its a predicament for one not to have a safe space to live
while he/she is in that process of acquiring that skill.
So its a crisis in the TVET space. Some students theyve resorted to

prostitution, some students theyve resorted to this thing whats this thing,
to have Blessers, so that the Blesser can afford to pay your
accommodation because the institution does not have insufficient funding
to cover all needy students for accommodation. And its on those basis
as to why Im saying we really to discuss and resolve that issue because
you dont want to send your kid to institution of higher learning but
because of he/she is frustrated in terms of accommodation
arrangements, that student ends up dating an older person just for
him/her to get accommodation.
506. Ms. Tukela Mbolani gave evidence that:
I remember when I first came to the college at Buffalo City TVET

College, I was coming from a place thats 60km far from East London.
And coming from that place not knowing anyone in East London because
there is no college in Streatham or anything; so I had to come to the
college expecting that I would receive accommodation but only to find out
that if you are NCV level 2, you cannot be accommodated you have to
be accommodated from level 3 and 4. So I face a challenge like that, so
I used to ask for a place to sleep from friends throughout that year. And
then following year when I was doing the level 3 - 2015, thats when I
applied for accommodation. And when I applied for accommodation I was
rejected, because I was told that it was full - the accommodation was
full.445
445
Transcript, 22 November 2016
311
507. Once Ms. Mbolani eventually got accepted into the Hostel, she said the
following about the living conditions:
Its not what I expected at all. Its not even in good condition to live in
because we live in a small room and there are two of us living in the room
and imagine we have to cook and to do everything in the room.
508. In addition to the aforesaid, various processes have taken place in order
to address the issue of student housing:
508.1. A Student Housing Task Team was established in 2015 to
develop a plan to accelerate the development of student
housing with private sector investment.
508.2. A symposium was held in July 2016 to engage different
stakeholders and to attract other sources of funding from the
private sector based on bankable funding solutions/projects.
508.3. A declaration of co-operation was signed with the Gauteng
Provincial Government and Department of Public Works to
transfer properties to universities and TVET colleges.
312
508.4. A Department of Public Works and DHET task team has been
established to identify vacant properties and land for possible
development.
508.5. IIPSA donor funded programme (European Union) of R30m to
undertake feasibility studies at 5 universities and 1 TVET
college UL, VUT, UWC, NWU, UniZulu & King Hintsa.
508.6. A Task Team also undertaking feasibility studies at six other
institutions NMU, TUT, SMU, UFS, UJ & Motheo.
508.7. A ten-year plan developed to enable the development of
300 000 beds to enable sufficient university and TVET owned
affordable student housing (social housing) by 2026. First
phase of the plan (15 000 beds) expected to be implemented
by middle of 2018.
508.8. An Infrastructure Development Support Unit (IDSU) is to be
set up to assist the DHET to manage and ensure effective
oversight of accelerated infrastructure programme going
forward.
313
24 OUTSOURCING
509. Outsourcing has been a contentious issue of discussion in the
investigations by the Commission. In addition to the demands for free
education, the students have demanded that universities insource
support services such as cleaners and security.
510. It is the students view that these employees are being exploited by the
companies that employ them and are being denied benefits due to the
contract nature of their employment.
511. At present, the debate on insourcing does not appear to have been
properly articulated. The process of dealing with the demands of the
students and workers for insources is being dealt with differently by the
institutions.
512. USAf appeared before the Commission and gave evidence to the effect
that in 2014 numbers, there were approximately 4456 permanent staff,
inclusive cleaners, gardeners, security guards and messengers on
university payrolls.
513. The service work force remained overwhelmingly black, 98% of the total.
Women constitute 43% of the service staff in universities.
314
514. Should the universities concede to the demand for insourcing, an
estimated 18756 additional staff in the above services would be
insourced as follows:
514.1. 8100 cleaning staff;
514.2. 7300 security staff;
514.3. 1790 gardening staff; and
514.4. 1566 catering staff.446
515. The estimated costs of insourcing using R5 000 as a minimum wage over
the sector is estimated at around R400 to R450 million per annum. The
estimated costs of insourcing using R10 000 as a minimum wage over
the sector is estimated at around R1.6 billion per annum.
516. USAf made further submissions that can be summarised as follows: -
516.1. the international trend seems to be towards higher wages,
greater productivity and integrated services. Outsourcing for
labour arbitrage seems to be a South African phenomenon;
446
USAf presentation, 20 October 2016, Page 7
315
516.2. the supplementing of salaries and/or insourcing of labour
intensive activity could cost the sector between 1- 4% of total
expenditure. The USAf Finance Executives Forum and
Human Resources Directors forums acknowledge that this
could be offset by upside potential of efficiency. The benefit of
outsourcing was mainly labour arbitrage not the promised
efficiency;
516.3. profiteering has been noted to be a motivation for outsourcing
even at better universities;
516.4. universities are unable to pass on full VAT costs;
516.5. some universities are looking to implement insourcing at 0%
net increase. Cost of salary supplement and full insourcing
ranges from R0.5bn to R2bn.
517. Submissions by different stakeholders seem to confirm the lack of
conformity in dealing with this demand. Further submissions by different
stakeholders can be set out as follows: -
517.1. Professor Loyiso Nongxa has viewed outsourcing by
institutions as a way to reduce administration and support
costs. He confirms that the debate has not been properly
framed. There is a likelihood that the outsourcing of
316
specialised functions such as legal; IT; internal audit function;
payroll may create a perception of false savings?447
517.2. The University of Venda submitted that it is taking a cautious
approach in the 2017 salary negotiations as well as the
insourcing debate. DHET has set guidelines indicating that
expenditure on salaries and wages should be between 58%
and 62% of turnover (minus 3rd Stream Income and Research
Income). Insourcing would only be done under the Univen
Innovative Growth Company and at sectoral rates plus
medical and provident fund contributions 448 Univen decided
that as far as insourcing is concerned, that it be dealt with
under the Univen wholly-owned subsidiary UIGC on the
following terms: negotiations would be done at sectoral rates;
UIGC would assist to cover costs of overheads such as staff
and systems; and at Sector related Conditions of Service449
517.3. The Nelson Mandela Metropolitan University has indicated
that its financial sustainability is at stake due to costs
associated with the debt/down payment relief measures and
the reintegration of outsourced services.450
447
Presentation Loyiso Nongxa, 19 October 2016. Slide 43
448
Univen Presentation, 21 October 2016, Slide 29 and 30
449
Univen Presentation, 24 August 2016, Slide 16
450
NMMU Presentation, 21 October 2016, Slide 22
317
517.4. The University of Pretoria has disclosed its costs of Insourcing
as follows: 2016 cost - R56,5m; and 2017 cost -R97,9m451
517.5. SASCO in its submission to the Commission has stated that
in its view changes in the South African higher education
landscape since the advent of the democratic dispensation
such as mergers and incorporations, changes in state funding
formula for higher education, a reconfiguration of relations and
rules of engagement between the state and institutions of
higher learning as well what it described as "the neoliberal
delineation between core and noncore" academic activities
has resulted in widespread outsourcing and privatisation in
higher learning.452
517.6. Walter Sisulu University has identified the insourcing debate
as a political risk, which could result in further protests.453
517.7. Prof M Jahed was of the view that, at the moment, the debate
seems to be whether insourcing will distract universities from
focusing on their core objectives which are teaching and
learning.454
451
University of Pretoria presentation, 11 August, Slide 18
452
Sasco Submission, Page 3, 22 August
453
Walter Sisulu University Presentation, Slide 10
454
Set 8 Day 12 Transcript
318
518. From the above it is clear that there is no clear consensus in the sector
on how to deal with outsourcing.455
519. There should be sector wide debate on how outsourcing should be
approached since it clearly has grave financial repercussions.
25 LIBRARIES
520. The Commission has heard in evidence that libraries are an increasing
cost at Universities. However, the view seems to be that not enough
focus is given to funding and sustaining this part of the institutions.
521. In a presentation by the Commission South African National Library and

456
Information Consortium (SANLiC) , SANLiC made the following
submissions:
521.1. Working Access to high-quality scholarly electronic
information is the lifeblood of research, teaching and learning
in a higher education institution.
521.2. High-quality scholarly electronic information is costly.
455
https://www.businesslive.co.za/bd/national/education/2017-07-06-wits-cuts-operation-
budget-to-hire-more-workers/ Wits instituted wide-ranging cuts in its operational budget (8% for
professional and administrative units; 6% for facilities). The Wits SRC president claimed many
students did not have tutors because of the cuts and that cuts were simply being used to justify
opposition to #Feesmustfall.
456
Set 3
319
521.3. Library collections and budgets are declining in real terms
leading to cancellations of resource subscriptions.
521.4. Currency depreciation in the past five years has had a serious
impact. If financial support is not increased urgently
institutions will decline.
522. Further evidence by the Committee of Higher Education Libraries of
South Africa (CHELSA) indicated that: -
522.1. there is a need to ensure that the higher education sector is
provided with optimal access to information for the purpose of
learning, teaching, research and community development;
522.2. library collections must be developed and better managed
through migration to digital information services where
possible and available;
522.3. a comprehensive and core foundational collections must be
created for subjects such as economics, education, politics,
law, etc.;
522.4. the size of a library collection is no longer the key matter, since
there is now a movement from ownership to access;
320
522.5. there has been active engagement with academics to support
the teaching curricula by identifying supplementary and
complementary material in all formats;
522.6. CHELSA has concerns in relation to factors which place
Library budgets under severe constraints, which are: -
522.6.1. access to information resources, print and online;
522.6.2. library systems and discovery tools;
522.6.3. wired and wireless connectivity;
522.6.4. the lifespan of computers;
522.6.5. software upgrades; and
522.6.6. access to PCs, Laptops and tablets;
522.7. there is also the issue of extended opening hours, in some
cases 24 hours, which has cost implications for staffing;
522.8. the current funding is inadequate. There is also no prescribed
formula in higher education for academic libraries. The
amounts received differ from university to university;
321
523. CHELSA went on to make the following recommendations :
523.1. Funding of libraries should be regulated and funded from the
annual Teaching Input Grant based on FTEs for Science and
Humanities.
523.2. Libraries should not be relegated to non-essential services
and subjected to less and less funding for areas that cannot
be sustained by fundraising.
523.3. Funding for libraries, according to international standards, can
vary between 1% and 6% of the total income of a university;
CHELSA supports funding at the higher level for South African
universities if quality is to be the criterion.
524. The rising cost of acquiring the resources necessary to support teaching
and research has far outstripped increases in library acquisition budgets.
The exorbitant cost of access to electronic resources are a challenge,
with double-digit inflation the norm in the online database industry. This
is particularly evident in the scientific, technical and medical journals.
There is decreasing financial support from institutions, and libraries
struggle to keep up with the seemingly relentless advances in computer
and information technology.
322
26 TVET COLLEGES
26.1 REGULATORY FRAMEWORK
525. The Regulatory Framework for funding TVET Colleges is set out in the
Norms and Standards for Funding Technical and Vocational Training
Colleges which came into effect when published in Government Gazette
38796 on 15 May 2015.
526. The policy governs all funding and expenditure by the Department of
Higher Education and Training (DHET) of programs listed in the register
of nationally approved programmes offered by public TVET colleges.
527. The policy emanates from section 23 of the Continuing Education and
Training (CET) Act 2006, which requires the Minister of Higher Education
and Training to determine norms and standards for the funding of
public colleges.
528. The funding policy is intended to address the following challenges that
persist in the TVET college system:457
528.1. To ensure that TVET colleges are accessible to economically
active youth and adults outside of the school system, who wish
457
Norms and Standard, Pg. 10
323
to improve their skills, gain access to better jobs or to progress
to higher education.
528.2. It aims to reverse the low enrolments in colleges as compared
to universities so that a pyramid shaped education system is
gradually established in which the TVET college sector serves
more students.
528.3. The NATED Report 191 and NC(V) policy are designed to
ensure that TVET colleges offer high quality priority skills
programmes that are relevant and responsive to the needs of
a growing economy. This funding policy will help ensure that
more youth are enrolled in high priority skills programmes.
There is some concern, however, that NATED, in particularly,
is outdated.
528.4. Effective lecturers at TVET colleges are key to bringing about
the transformation of these institutions. The development of
the lecturer corps to deal with new challenges needs to go
hand in hand with greater flexibility in terms of the timing,
mode and location of the service offered. Physical facilities at
the institutions should be more extensively utilised.
324
529. By international standards, the size of the Technical and Vocational
Education and Training (TVET) college sector is too small for the size
and level of development of our economy.
530. The 15 to 19 year-old age cohort, which should comprise an important
target for this sector, has a mere 2% enrolment rate in technical and
vocational education and training. Industrialised countries have over 6%
of the youth cohort in vocational education and so it can be argued that
the TVET college sector should increase threefold.
26.2 FUNDING MODEL
531. The funding formula has three keys components: -
531.1. the government subsidy which covers 80% of the programme
costs;
531.2. a cap on college level fees;
531.3. the establishment of a national bursary system to ensure that
students who are academically capable but poor are assisted
to pay college fees.
532. The intention is that the State should fund 80% of the needs of the system
(for ministerial approved programmes) with 20% provided through
325
student fees. However, as explained early the funding is stagnant at 54%
and likely to decline further.
533. Currently students who are financially needy and academically capable
may receive bursaries to cover such fees though NSFAS, therefore
TVET students who qualify for NSFAS funding are already receiving free
higher education.458
534. The funding norms for TVET colleges cover three categories:
534.1. personnel;
534.2. operational costs; and
534.3. capital replacement
535. Personnel costs are allocated at 63% of the 80% grant of DHET,
operational costs at 27%, and capital replacement at 10%. The concerns
expressed to the Commission included complaints of shortfalls in
payment, insufficiency of the 63% allocations, a departmental
requirement that allocations not spent have the effect of reducing the
63%, and restrictions on the making of new appointments where
additional staff have been employed.
458
First DHET presentation
326
536. Other college funding needs such as new infrastructure or expansion
have to be funded either through conditional grants from National
Treasury and/or other sources of funding.
537. Currently there is no additional infrastructure grant from National
Treasury and the expansion of the new TVET campuses is being funded
through the National Skills Fund.
26.3 MINISTERIAL COMMITTEE ON THE REVIEW OF THE FUNDING
FRAMEWORKS OF TVET COLLEGES AND CET COLLEGES
538. The Commission has been informed that a Ministerial Committee on the
review of the funding frameworks of TVET Colleges and CET colleges
has been appointed.
539. The Committee has been established and is yet to table its final report.
The Committee has been briefed to look into the following factors: -
539.1. do the current funding frameworks work?
539.2. what is the most suitable and preferable funding
framework(s)?
539.3. should the funding approach be more diversified?
327
539.4. do we need funding legislation amendments? Can we expand
and yet not underfund?
539.5. efficiency and dealing with poor performance;
539.6. relevance of current adult learning centre funding;
539.7. determine the typical characteristics of the proposed
Community Colleges: performance, accountability, growth
potential, viable size, etc.,
539.8. types of vocational qualifications and costs;
539.9. where should new Community Colleges be established or
merged?459
540. We understood from the evidence of Dr Charles Sheppard that the
Ministerial Committee is planning to recommend free education for the
TVET sector. This would accord with the advice of this Commission.
459
328
26.4 CHALLENGES IN THE TVET SECTOR
541. Evidence has been given at the Commission that while it is university
students who have brought the issues to a head, supporting TVET
colleges and TVET students is equally (if not more) important.
542. The system is currently skewed towards university education, and will not
self-correct.
543. A massive focus on TVET colleges is required to develop the
system, change perceptions and culture and make TVET colleges
attractive institutions of choice as envisaged in the White Paper on
Post-School Education and Training.
544. Enrolments in TVETs have increased from 345 000 students (headcount
enrolment) in 2010 to 709 535 in 2015.
545. In terms of the fully costed funding norms, the number of headcount
enrolments funded in the Ministerial approved programmes is
approximately 429 638, as compared to the approximately 664 748
enrolments in the system indicating the level of underfunding/over
enrolment.
546. Lack of funding has placed pressure on the personnel budgets of the
colleges, drastically affecting the goods and services budgets of colleges,
329
intended to cater for the college operations, students textbooks,
protective clothing and other related teaching and learning material
thereby undermining the quality of provision.
547. NSFAS bursaries (amounting to R2.3 billion in 2015) have been allocated
to poor students to fund tuition fees (229 000 beneficiaries), as well as to
provide accommodation and or travel allowances to needy students
staying 10 km or more from a TVET college campus. While significant
NSFAS funding is available, there simply is insufficient funding to support
all poor students, leading to unrest in colleges.
548. Colleges are expected to recover fees from students that do not qualify
for NSFAS bursaries; however due to the no fee increase decision for
universities in 2016, colleges are finding it difficult to recoup these funds.
549. There is also pressure on the examination system which is underfunded.
550. It is resource intensive to provide good quality and highly responsive
vocational education to young people. A poorly resourced TVET system
often leads to disjuncture with the labour market.
551. A costing exercise has been performed to quantify the additional funds
that are required to achieve the White Paper and NDP targets for
Ministerial approved programmes. The costing exercise took into account
the current funding (baseline) for the TVET college system for both the
330
80% programme funding by the state and the 20% funding to cover
student fees. The costing has been developed to cover the following two
scenarios:
551.1. funding of the system linked to the NDP and White Paper
Targets for 2030;
551.2. maintaining the 2015/16 reported enrolment of 709 535 over
the MTEF period460
552. Further challenges relate to Qualifications and the following issues:
552.1. which qualifications to offer?
552.2. the responsiveness and relevance of the qualifications;
552.3. coherence;
552.4. articulation problems;
552.5. foundational learning;
460
DHET Presentation, 10 August, Slide 38 -41
331
552.6. higher level opportunities and the need for stability (enrolment
and PQM planning) need to be addressed.
553. Further issues:
553.1. differentiation; who offers what and where (regional and
national responsiveness);
553.2. curriculum relevance and design;
553.3. staffing, teaching and learning and professional development;
553.4. strengthening management and governance;
553.5. workplace linkages;
553.6. addressing student success and throughput;
553.7. articulation in relation to workplace and higher levels;
553.8. expanded provision and access;
553.9. re-designing certification and examination system which is
currently expensive and unwieldy;
332
553.10. adequate financial support for delivery of qualifications and
supporting level of improvement required.461
554. Expenditure increased from R1.22 billion in 2010/11 to R1.73 billion in
2014/15. Despite the 45.5% increase in overall funding, the simultaneous
increase in enrolments means that revenue (from direct government
transfers) per learner decreased from R6 714 in 2014/15 to R6 071
in 2015/16.
555. As discussed above, the funding formula is based on enrolments in each
programme, regardless of certification or throughput rates. Once
enrolment-based allocation of funding was determined, TVET colleges
only received a percentage of the allocation as based on previous
provincial allocations and available funding.
556. There is serious underfunding of TVET colleges in some provinces and
gross inequalities between provinces. Expenditure analysis of 14 TVET
colleges revealed substantial differences between average spending per
Full Time Equivalent (FTE) student in the analysed colleges; with
average college spending ranging from approximately R20,063 to
R39,925 per FTE for NC(V) and from R15,462 to R36,763 for NATED.462
461
DHET Presentation, 4 October, Pg. 9
462
DHET Presentation 24 October 2016
333
557. Actual spending per FTE doesnt differ substantially between different
types of courses within the same college. Colleges do not in practice
spend substantially more on higher funded courses (more practical) than
lower funded ones. In practice, this means that practical courses are not
being taught in the appropriate way.
558. Approximately 6% of average college spending on NC(V) programmes is
on direct programme costs; i.e. textbooks, programme consumables,
toolkits, etc. Substantially less than what was assumed in the funding
norms.
559. Given the low throughput rates, the cost per graduate is exceedingly
large in many colleges as expenditure is apportioned to very few
graduates. A positive relationship was observed between certification
rates and each of: -
559.1. funding; and
559.2. expenditure per FTE student; and
559.3. staff development spending.
334
27 DECREASE IN SUBSIDIES AND INCREASE IN NSFAS ALLOCATION
560. A fundamental issue raised by various stakeholders before the
Commission was the contention that the State subsidy to universities has
been declining over the past few years. This relates specifically to the
decline of government funding as a percentage of university income,
which decreased to 38.4 per cent in 2014 from 49 per cent in 2000.463
561. Universities, among other witnesses, pointed specifically to the decline in
the block grant allocation and attributed it to the financial and operational
challenges faced by students and institutions respectively.
562. As regards the TVET colleges, the evidence clearly demonstrates the
historical and continuing underfunding of that sector.
563. An analysis of the evidence as a whole supports the conclusion we reach
herein, and that is that the evident trend of the declining subsidy in the
form of the block grant cannot be divorced from the states obligations
and policy to provide progressive universal access, which is to a large
extent expressed through the corresponding growth in the earmarked
grant, and the NSFAS allocation in particular.
463
Department of Higher Education and Training submission dated June 2016,
p16, Figure 2.
335
27.1 THE FACTUAL POSITION
27.1.1 THE DECLINING STATE SUBSIDY TO UNIVERSITIES
564. The starting point in interrogating the question of the asserted decline in
the State subsidy to universities must therefore be assessed in its proper
constitutional, policy and macro financial context.
565. The evidence shows that the State subsidy to universities has been
growing nominally financial year on year.464 It grew almost three-fold
between 2004/2005 to 2016/2017. 465 The State subsidy allocated to
universities has also been increasing in real terms.466
464
Increasing from R9 878 704 billion in 2004/2005 to R36 858 629 in
2016/2017. This excludes NSFAS funds recovered from previous
beneficiaries for FY 2004/2005 22011/2013 (recovered amounts
increased from 223 298 in 2004/2005 to R750 500 million in 2011/2012).
See also Vital Stats 2013 and 2014, p91, Figure 147 which data collectively
shows an increase from R15 119 788 000 in 2008/2009 to R28,069,986,000
in 2014/2015.
465
Department of Higher Education and Training: University State Budgets, Public Report,
March 2016, Section 2: Detailed State Budget According to Institutions from FY 2004/2005
2016/2017, Tables 2.1 2.13 respectively. See also USAf submission dated 30 June
2016, p4 which deals with the increase in the State subsidy between 2012/2013 and
2015/2016.
466
Growing from R12,246,779,950 to R15,276,588,896 between 2008/2009 to
2014/2015. See also Vital Stats 2013 and 2014, p91, Figure 147; [Using
04/05 as the base year]; National Treasury, transcript of the hearing held on
7 October 2016, p23; Department of Higher Education and Training
submission dated June 2016, p16, 2nd paragraph. See also National
treasury presentation dated 3 March 2017, slide 18, which indicates that
subsidies to universities grow at 10.9 per cent each year.
336
27.1.2 THE BLOCK GRANT
566. The evidence shows that the block grant,467 utilising the national inflation
rate of CPI, grew both in nominal and real terms between 2004/2005
2015/2016.468
567. During this period, the block grant increased significantly in nominal
terms by 139.7 per cent.469
27.1.3 ERODING FACTORS
568. The crisp issue appears to be that in spite of the increasing state subsidy
to universities, it has declined per Full Time Equivalent (FTE) student
allocation.470
569. Four principal factors emerge from the evidence which contribute to the
decline in the subsidy per FTE student allocation.
570. The first is inflation. The Department of Higher Education and Training
shows that the nominal growth in the block grant of 139.7 per cent was
467
Historically, the block grant has been the largest component of the subsidy, making up
70% of the government allocation to university vis a vis 30% of the earmarked grant
allocations.
468
p17, Table 2, Column 3 & 7.
469
Increasing from R8 568 million in 2004/05 to R20 538 million in 2015/16.
470 nd
Department of Higher Education and Training submission dated June 2016, p16, 2
paragraph; National Treasury, transcript of the hearing held on 12 August 2016, p164 L4
p165 L15 20.
337
eroded by inflation (at CPI) to 29.8 per cent in real terms between
2004/05 2015/16.471
571. The evidence provided by USAf indicates that although the State
allocation to the Department of Higher Education and Training has been
growing and on average above CPI,472 it has been eroded by at least 3
factors, namely:473
571.1. the top slicing of the total allocation for various kinds of
earmarked grants;474
571.2. the annual increase in the number of students in the system;475
and
571.3. the higher education inflation rate (HEPI) is approximately
1.7% higher than CPI.476
471
p17, Table 2, Columns 3 & 7, and second bullet point.
472
USAf uses the years 2012/2013 to 2015/2016.
473
USAf submission dated 30 June 2016, p4.
474
Which has grown at about 10% annually. The earmarked allocations includes the NSFAS
allocation.
475
See also Department of Higher Education and Training submission dated June 2016, p17
last bullet point; National Treasury, transcript of hearing held on 12 August 2016, p164 L10
11.
476
See also Department of Higher Education and Training submission dated June 2016, p18,
st
1 paragraph.
338
27.1.4 THE DISPARITY BETWEEN THE SUBSIDY (LESS NSFAS) AND
STUDENT GROWTH
572. The State subsidy, and the block grant in particular, is, in part, linked to
enrolments.477
573. Universities have been experiencing cumulative growth in the number of
student enrolled year on year since the 2005 National Plan for Higher
Education growth targets were fixed, and the recent planning phase for
both the NDP and 2013 White Paper has set the bar even higher as part
of the transformation agenda of the State478.
574. The subsidy has not kept up with the rising enrolments, which in fact has
contributed to the decline in the subsidy per FTE student allocation.479
575. University student enrolments increased by 80 per cent between 2000
and 2013.480
477
The block grant is made up of 4 components: the teaching input (based on enrolment), the
teaching output (based on graduations), the research output (based on approved
publications and the research masters and doctoral graduations) and institutional factors
(based on institutional size and proportion of historically disadvantaged students). See Vital
Stats, Public Higher Education 2014, Definitions page ii, and Department of Higher
Education and Training submission dated June 2016, p14 para 4.3.2.
478
Save for academic year 2014 when the headcount enrolments fell from 983 698 in 2013 to
969 154 in 2014. See Vital Stats, Public Higher Education 2013 and 2014, p3, Figure1.
See also Department of Higher Education and Training submission dated June 2016, p5,
nd
2 paragraph.
479
Department of Higher Education and Training submission dated June 2016, p17, last bullet
point; National Treasury, transcript of hearing held on 12 August 2016, p164 L4 22.
480
National Treasury submission dated 30 June 2016, p3 para 5.
339
576. Currently, the 26 universities offer higher education to an estimated 970
000 students.481
577. The NDP envisages enrolment growth to 1.62 million by 2030.482
578. This is a 70 per cent increase from 2010 to 2030.483
579. The plain result of the disparity has been the increasing reliance by
universities on student fees to make up for the difference in the lower
state contribution,484 which stood at 32.9 per cent in 2014,485 against a
state contribution of 38.4 per cent in the same year.486
580. The subsidy is incompatible with the Higher Education Price Inflation
(HEPI).
481 th
Department of Higher Education and Training submission dated June 2016, p5, 4
paragraph; and presentation dated 10 August 2016, slides 7 and 8.
482
NDP p319, third bullet point; Department of Higher Education and Training presentation
dated 10 August 2016, slide 7.
483
Above. It is estimated that approximately 3 million youth between the ages of 16 to 24 are
not in education, employment or training, and would have to be accommodated in the
PSET system. See Department of Higher Education and Training submission dated June
2016, p6 third paragraph.
484
Department of Higher Education and Training submission dated June 2016, p16, second
paragraph.
485
From 24 per cent in 2000.
486
From 49 per cent in 2000.
340
581. According to the Department of Higher Education and Training, the day-
to-day operational costs of universities, which are by nature fixed,487 are
defrayed from the block grant.488
582. In addition to the increasing enrolments,489 rising costs and expenditure
by universities have contributed to the erosion of the subsidy.490
583. The majority of subsidy (60%) is directed to staff remuneration.491
584. The evidence presented before the Commission shows that the subsidy
has at best been growing at CPI, and thus far below the inflation rate
generated by institutions, which is on average 2 per cent higher than the
national inflation rate.492
487
These costs primarily include staff salaries; utilities; municipal rates and taxes and
electricity. See Department of Higher Education and Training presentation dated 10 August
nd
2016, slide 24, 2 bullet point, and 27 bullet points 1 & 2.
488
Department of Higher Education and Training: University State Budgets, Public Report,
March 2016, Section 2.2, General Notes.
489
Department of Higher Education and Training presentation dated 10 August 2016, slide 25,
st
1 bullet point.
490
See Department of Higher Education and Training presentation dated 10
August 2016, slide 27.
491
In 2014, personnel costs made up 53 per cent of expenditure. This amount
stood at 60 per cent in 2016. See Department of Higher Education and
Training presentation dated 10 August 2016, slide 7.
492
Department of Higher Education and Training submission dated June 2016, p18.
341
585. This is corroborated by USAf, which submitted that for the period 2010/11
2012/13, the higher education price index (HEPI) was 1.7% above
CPI.493
586. Professor Rolf Stumpf gave expert evidence on public funding of Higher
Education and Training. That evidence showed a cost differential of
approximately 1.4 per cent between CPI and HEPI in 2014. 494 This
means that, during that period, universities experienced a shortfall of 1.4
per cent and could not break even.
587. The effect of the HEPI on the block grant allocation is an increase in real
terms of 5.6 per cent and a negative per capita growth in real terms of
21.4 per cent, from 139.7 per cent nominal growth experienced between
2004/05 2015/16.495
27.1.5 THE EFFECT OF THE DECLINING SUBSIDY
588. Having regard to the above, it is plain that the subsidy to universities has
not kept pace with inflation, be it CPI or HEPI. It has also been outpaced
496
by the increasing student enrolment numbers The apparent
consequence is a decline in the government contribution (to the block
493
USAf submission dated 30 June 2016, p3, second paragraph and p4 para (e).
494
Prof. Rolf Stumpf presentation dated, slide headed Higher Education Price Inflation (3);
transcript of the hearing held on 18 October 2016, p94, third paragraph.
495
Department of Higher Education and Training submission dated June 2016, p18, Table 3;
presentation dated 10 August 2016, slide 24.
496
Department of Higher Education and Training submission dated June 2016, p17, Table 2,
and p18 Table 3.
342
grant and earmarked allocations, less NSFAS) as a proportion of total
university income.
589. The response of universities in these circumstances has been to increase
student fees.
27.1.6 ARE SUBSIDIES REGRESSIVE?
590. Arguments have been put up in justification of the declining subsidy,
namely that subsidies are regressive in as far as they accrue also to
higher income groups alongside students from lower income
households. 497 To ensure that funding is directed where it is needed,
there has been an intentional and focused shift of funding allocations
from the block to the earmarked grant, and NSFAS in particular.
591. This is particularly having regard to the indiscriminate nature of the block
grant which, unlike earmarked grants, is applied to all university students
irrespective of their ability to pay tuition.
592. TIPS warned of the unintended consequences that may result from the
decline of the direct subsidies to universities and the increase in NSFAS
497
343
allocations, which is that it may incentivise universities to increase fees
because NSFAS will cover it.498
28 RATIONALE FOR THE INCREASE IN THE NSFAS ALLOCATION
593. The decline in the block grant must be viewed in the light of the policy
decision to reduce the block grant in favour of redirecting those funds to
the NSFAS allocation.499
594. National Treasury characterises the change from a general subsidy to a
targeted subsidy to benefit for the poor.500
595. The underlying basis of this shift in funds from the block to the earmarked
grant is the governments interpretations of its obligation to realise the
right expressed under section 29 (1) (b) of the Constitution to make to
further education, progressively available and accessible through
reasonable measures.
596. The Minister of Higher Education and Training articulated the current
position as government having an obligation to make higher education
and training fee-free to the poor.501 The NSFAS scheme is considered by
498
TIPS presentation dated March 2017, slide 21, transcript p27 L3 12.
499
National Treasury, transcript of the hearing held on 7 October 2016, p8; TIPS presentation
dated March 2016, slide 17.
500
National Treasury, transcript of the hearing held on 7 October 2016, p22.
501
Defined as students coming from households earning no more than R120 000.
344
government to be the primary vehicle through which that obligation would
be met.502
597. The National Treasury explained that the policy decision informs current
budget allocations.
598. It explained that the rationale for the policy decision is that university
subsidies are regressive to the extent that they also benefit the top
percentile of the affluent parts of society,503 whereas NSFAS allocations
are targeted at the poorest sections in society.504
599. In addressing the effects of this policy decision on the block grant,
the National Treasury submitted that the increased reliance by
universities on student fees does not translate to the full burden being
passed on to households.505
600. That is because there has been a significant growth over the years in
governments contribution to student fees through NSFAS.506
502
DHET; Minister, See also National Treasury, transcript of the hearing held on 7 October
2016, p8.
503
National Treasury, transcript of the hearing held on 3 March 2017, p68 L21 22.
504
National Treasury, transcript of the hearing held on 7 October 2016, p54 L25 p56 L4.
505
National Treasury submission dated June 2016, p4 para 6.
506
National Treasury presentation dated 7 October 2016, slides 10 and 13; National Treasury,
transcript of the hearing held on 7 October 2016, p8; TIPS presentation dated March 2017,
slide 21.
345
601. NSFAS awards now accounts for 40 per cent of student fees.507 At the
same time, NSFAS has enabled a growing number of TVET students to
gain access to fee-free education (the sector with the largest enrolments).
602. The evidence presented by CHET shows that while the student fee
contribution increased from 24% in 2000 to 33% in 2013, the proportion
of students on NSFAS increased from 2% to 13% over the same
period.508
603. In addition, NSFAS allocations to university students have been
increasing per fulltime student since 2010509. However, it should be noted
that this increase does not offset the underfunding of the higher education
sector for a decade or so.
604. There has also been a notable shift in the ratio of allocations within
NSFAS itself, which sees allocations being converted from loans
(universities) to bursaries. This aligns with the governments
understanding of its obligations, and has made NSFAS increasingly
unsustainable and unable to recover loans.
605. National Treasury estimates that about 50% of the NSFAS allocation is
utilised to award bursaries (including the conversion element for
507
National Treasury submission dated June 2016, p4 para 8.
508
CHET presentation (undated) titled Fees and Sustainable Development, slide 28, para 3.
See also National Treasury transcript 2 October 2016, p.22
509
Ibid. p.23
346
university students and Fundza Lushaka and other bursaries managed
by NSFAS for third parties) rather than loans.510 NSFAS allocations to
TVETS increased seven-fold in five years for this purpose.511
606. NSFAS allocations are projected to increase at 16.1 per cent over the
medium term, 512 as transfers rise from R11.4 billion in 2016/2017 to
R13.9 billion in 2019/2020.513 Subsidies on the other hand will increase
a lower annual rate of 10.9 per cent.514
607. In the view of the commission any perception that there has not been a
period of sustained underfunding of universities an TVET colleges is
incorrect; nor has funding remained stable or increased with a more
progressive allocation.
608. First, this assumes that the amount allocated in 2 000 (40 000 per FTE
according to Treasurys graph on slide 14) was sufficient. There have
been claims that even this was insufficient, and that underfunding starts
earlier. However, for the purpose of this argument, we will compare the
2010 allocation for ease of reference.
510
National Treasury, transcript of the hearing held on 7 October 2016, p8.
511
Between 2010/2011 and 2014/2015 from R300 million to R2 billion. See National Treasury
submission dated June 2016, p4 para 10; transcript of the hearing held on 7 October 2016,
p8.
512
Having said that, however, NSFAS receives additional allocations of R7.7 billion over the
MTEF period to assist unfunded NSFAS university students from the 2016 academic year
to continue with their studies. See National Treasury presentation dated 3 March 2017,
slide 20.
513
National Treasury presentation dated 3 march 2017, slide 20.
514
347
609. Secondly, the argument of a stable FTE allocation when NSFAS is
added, only applies after 2010/11. The period before this is a period of
sustained underfunding (see Treasury slide 14). It is clear that from 2010
the subsidy per FTE, even including the NSFAS allocation, is below
40 000. The effect of 10-years of underfunding cannot be wiped-out with
a few years of funding at the same (in real terms) funding per FTE as in
2010.
610. Thirdly, the entire FTE calculation in real terms does not take into account
the HEPI. It is clear that spending in HE in different from household
spending, and the same inflation cannot be assumed.
611. The calculation also ignores Rand depreciation, and added e-resource
taxes, which have had an extremely detrimental impact on the HE sector.
612. In addition, the entire comparison of total state allocation per FTE, fails
to consider the internal allocation of subsidy between institutions.
613. The subsidy amount has declined, even when CPI is used (when NSFAS
is excluded).
614. By using FTE, the perception assumes that all else (except enrolment
numbers) has remained equal. This is not the case.
348
615. First, the effect of the increase in Earmarked funds as a proportion of total
subsidy. Earmarking funds is to help ensure that the system grows in line
with priorities. In effect, it increases allocations to HDIs in line with the
developmental need at these institutions. This has a negative effect on
HAIs, as there is no new money for these allocations.
616. Second, in a previous section we spoke about how the infrastructure
grant has stepped in to assist with building developments, student
accommodation etc. However, this is an earmarked allocation coming
from the overall subsidy amount. Therefore, all these calculations include
the amount allocated (with a focus on HDIs) to allow for infrastructure
development. This is a massive shift in funds from block allocation to
earmarked allocation, and affects all institutions in terms of the money
they can use for day-to-day activities. Even though HDIs have benefited
from the grant, they have still been negatively affected in terms of block
allocations, which they could allocate as per their own requirements.
617. Finally, this does not take into account the development of new
universities. This is considered new money, but in the Treasury
allocation this is added to the total government allocation. In 2010, DHET
appointed a Task Team to consider the new universities. (See the
website http://www.newuniversities.ac.za/about-us.html for allocations
for these universities.) This amount should be removed when discussing
allocations comparing 2000 to the present.
349
29 STUDENT SUCCESS
29.1 INTRODUCTION
618. The question of student success looms large in the whole debate about
funding for HE institutions and their students, and likewise in relation to
the feasibility of providing fee-free higher education. The NDP notes that
massive investments in the higher education system have not produced
better outcomes in the level of academic performance or graduation
rates. It states that: While enrolment and attainment gaps have narrowed
across different race groups, the quality of education for the vast majority
has remained poor at all levels. The higher education sector therefore
tends to be a low participation, high attrition system515.
29.2 THE NDP
619. The NDP recognises that even if there were greater investment of funds
into higher education, this does not necessarily have any meaningful
impact because of high dropout rates and low throughput rates. It notes
that 80% (approximately 20 000) of our schools are
underperforming.516This needs to be addressed urgently.
515
p273
516
p282
350
620. Regarding the FET sector, the NDP notes that The college sector needs
to be expanded, but this must be preceded by clarity about its vision and
role. The priority is to strengthen colleges, address quality teaching and
learning, and improve performance. It also recognised that the FET
system is not effective. The NDP emphasised that this system is too
small and output quality is poor. It states that continuous quality
improvement is needed as the system expands. According to the NDP
the quality and relevance of courses offered in the FET system need
urgent attention. It notes that simply growing the sector without focussing
on quality is likely to be expensive and demoralising for young people.517
29.3 THE 2012 GREEN PAPER
621. The 2012 Green Paper on Post School Education and Training also
noted the risks associated with expanding the PSET system without
addressing low throughput and high drop-out rates. It notes the need to
ensure quality in all education and training.518
29.4 THE MEDIUM TERM STRATEGIC FRAMEWORK (MTSF)
622. The governments Medium Term Strategic Framework, 2014 2019
states that the poor quality of education available to many black students
has limited their opportunities to obtain employment and thus impeded
517
p50
518
p5
351
progress in creating sufficient skills and transforming the economy. The
MTSF states further that:
There are problems with the quality and reputation of many post-school
institutions. If these problems are not addressed, options for improving
human capital will remain limited and this will adversely affect the
competitiveness of the countys economy, while increasing the premium
for skilled labour. One of the goals is therefore to improve the quality of
TVET colleges by ensuring that the number of qualified lecturers is
increased and administration is improved. To support the quality of
lecturing, 10 universities will offer TVET lecturing qualifications by 2017
(currently only one offers such qualifications), and 30% of TVET college
lecturers should have work-place exposure every year by 2019. For the
university sector, the focus is on increasing the number of lecturers with
PhDs while reducing the student dropout rate. An additional area of focus
is on producing the next generation of lecturers by increasing the pool of
post-graduate students and by increasing research output. The number
of entry level academic staff receiving teaching and research
development opportunities from the Teaching and Research
Development Grant will increase from 50 academics in 2012 to 400
academics by 2019. To transform the historical and social composition of
the academic work force, by 2019, the number of new black entrants will
have to increase by at least 100 per annum by 2019, The number of
postgraduate students awarded bursaries and fellowships by the
National Research Foundation will increase to 27 411 cumulatively over
the five-year period for masters students (3 704 in 2012), and 15 209
cumulatively over the five-year period for doctoral students (2 265 in
2012). Work placements will be increased by encouraging closer
relations between industry and institutions of learning.519
519
p23
352
30 THE WORKING GROUP ON THE FEASIBILITY OF PROVIDING FEE
FREE HIGHER EDUCATION TO THE POOR
623. The Report of the Working Group on the Feasibility of Providing Fee Free
Higher Education to the Poor noted that the academic factors limiting
poor student success at university include:
623.1. substandard basic education;
623.2. inadequate academic support at university;
623.3. receiving tuition in a second or third language; and
623.4. being first generation students.520
30.1 THE 2013 WHITE PAPER
624. The 2013 White Paper deals with the high levels of student dropout. The
main causes listed in the White Paper for the lack of student success
include:
520
Report of the working group on the feasibility of providing fee free higher education to the
poor; page viii
353
624.1. the weakness of much of the schooling system, especially
those schools catering to poor and rural communities;
624.2. high student-to-staff ratios at undergraduate level and
especially for first-year students;
624.3. inadequate systems for recognising students who need
support;
624.4. insufficient student support for academic and social
adjustment to university life;
624.5. weak support for professional development and recognition of
academic staff in the area of undergraduate teaching.
625. There has been overwhelming evidence before this Commission of the
need to focus on student and academic support with a view to improving
student success ratios.
30.2 STUDENT SUPPORT
626. Professor Ian Scott testified before the Commission on a proposed
Flexible Curriculum structure for undergraduate education in South
Africa. He submitted that a flexible curriculum would go a long way
towards addressing high drop-out rates and low throughput rates.
354
According to Professor Scott, the minimum requirements for an effective
alternative curriculum framework are:
626.1. to allow additional time for the developmental provision that
many students need in order to overcome the systemic
obstacles they encounter as a result of educational
inequalities; and
626.2. to establish entry levels that allow for curriculum assumptions
that accord with the realities of these students backgrounds.
30.3 THE UNIVERSITY CAPACITY DEVELOPMENT PROGRAMME (UCDP)
627. DHET provided evidence before the Commission on the steps it has
taken to address the question of student success.
628. Dr Green testified that:
628.1. DHET has over the last few years increased its focus on
student success in the system;
628.2. One of the structural things that has been done is the
establishment of a directorate within the Department called
Teaching and Learning Development within the Universities
355
Branch. This directorate has a specific focus on students and
staff success.
629. The DHET also referred to the Ministerial Statement on the
Implementation of the University Capacity Development Programme
through Effective Management and Utilisation of the University Capacity
Development Grant 2018 2020 (UCDP). This states that, overall, the
first-year drop-out rate in undergraduate programmes is decreasing, and
the ability of students to graduate in regulation time or close thereto is
increasing. However, drop-out rates and throughput rates still need much
improvement and still reflect apartheid era patterns with respect to
race.521
630. The UCDP is an integrated and holistic approach to staff development,
programme development and curriculum development in the university
sector. It will partly be supported by the University Capacity Development
Grant (a new earmarked grant which brings together the teaching
development grant and the research development grant) forms part of
the funding mechanism that the state uses to allocate funding to public
universities) as well as other DHET and institutional resources.
631. The UCDP will be introduced in 2018-2020 and will be aligned with the
academic year. It will require universities to develop a three-year
521
p2
356
University Capacity Development Plan addressing the issues identified
in the UCDP Ministerial Statement.
632. There are questions raised as to whether or not the UCDP goes far
enough to adequately address the problem of lack of student success.
Prof Scott is of the view that the UCDP does not set out structural
curriculum reform that goes beyond the existing interventions. In his view
reform along the lines of the Flexible Curriculum proposal put forward by
him is a valid, viable and necessary approach.522
633. Although the differences between the DHET and Prof Scott cannot be
reconciled in this Commission, it is clear to your Commissioners that Prof
Scotts proposals warrant more thorough consideration than they appear
to have received from the Department. It seems to us (to quote Prof Scot)
that the balance has not yet been achieved in the DHETs suite of
interventions, with additional development in the area of structural
curriculum reform being necessary to meet the need of students who are
adversely affected by systemic obstacles.
522
Referred to in Prof Scotts response to the testimony of DHET.
357
30.4 OTHER INTERVENTIONS
634. According to Prof Vally et al523, poor student success can be addressed
by introducing the following measures:
634.1. Increasing the quantity and quality of contact time between
lecturers and students. Lecturer-student ratios need to be
adjusted so as to make it possible for lecturers to provide the
necessary support, especially to underprepared students and
specifically in first-year classes.
634.2. There have to be increased numbers of sufficiently qualified
and appropriately remunerated staff (both academic and
administrative). Renewed efforts must be made to provide,
and properly fund academic and language support.
634.3. Official university output targets and indicators need to be
cautiously managed, to ensure that too narrow a focus on
outcomes does not negatively affect teaching quality.
523
Submission to the Commission by Salim Vally, Mondli Hlatshwayo (University
of Johannesburg), Rasigan Maharajh (Tshwane University of Technology),
Zolisa Marawu (Nelson Mandela Metropolitan University), Enver Motala
(University of Fort Hare), Leigh-Ann Naidoo (University of the Witwatersrand)
and Salim Vally (University of Johannesburg). 26 May 2016.
358
31 ALTERNATIVES TO ADDRESS ACCESSIBILITY
31.1 INTRODUCTION
635. The Green Paper for Post-School Education and Training (DHET 2012)
sets targets for the expansion of the university sector to reach 1.5 million
students by 2030.
636. In order to meet this challenge, the Report of Ministerial Committee for
the review of the Funding of Universities states that South Africa will need
to move away from reliance on traditional models of provision with heavy
requirements of bricks and mortar to a learning system based on open
learning principles, where quality educational environments are designed
to achieve the educational purpose using the most appropriate and cost-
effective technologies available.524
637. This Chapter gives a broad overview of the options available within the
context of open learning in order to address accessibility to Higher
Education and Training.
524
Report of Ministerial Committee for the review of the Funding of Universities, Pg. 228
359
31.2 DEFINITION OF OPEN LEARNING
638. The Education White Paper 1 (DoE 1995) defines open learning as an
approach that combines the following principles:525
638.1. learner centredness;
638.2. lifelong learning;
638.3. flexibility of learning provision;
638.4. the removal of barriers to accessing learning;
638.5. the recognition for credit purposes of prior learning
experience;
638.6. the provision of learner support;
638.7. the construction of learning programmes in the expectation
that learners can succeed, and
525
DoE (1995), White Paper on Education & Training: Education and training in a democratic
South Africa. First steps to develop a new system.
360
638.8. the maintenance of rigorous quality assurance over the design
of learning materials and support.
639. DHET has approached open learning firstly by trying to counter a
tendency internationally and in South Africa, to conflate or equate open
learning with distance education, e-learning, online learning or blended
learning and other terminology.
640. While these learning modalities (distance education, resource-based
learning, e-learning, online learning and blended learning) are important
vehicles for open learning, none of them should be equated with open
learning. Open learning has no conceptual value as a synonym for any
of them. 526
641. DHET defines open learning as a general approach to education and
training based on a set of open learning principles. When the term open
learning is used, it refers to any education and training (mode) which
follows open learning principles, and is not specific to any particular mode
of delivery.527
642. DHET goes on to state that open learning should not be considered as
an add-on to existing education and training offerings, or seen as a
526
Open Learning Policy Framework for Post-School Education and Training, 8
March 2017, Pg. 6
527
March 2017, Pg. 7
361
second-best option, but should be recognised as a principled approach
to learning which has the capacity to transform teaching, learning and
access to education and training in quite radical ways, whatever mode is
used. 528
643. Crucially, in developing countries like South Africa, open learning can
contribute substantially to cost-efficient provision to the benefit of both
the education fiscus and learners.
31.3 INTERNATIONAL TRENDS529
644. In its study of open learning, DHET has recognised certain international
trends. A proviso is given that these trends should be read against the
complex background of the poverty and exclusion from resources and
facilities experienced by many in the townships, informal settlements and
rural villages of South Africa, as well as the relative privilege, cultural
capital and access to facilities experienced by the middle class.
645. The trends should furthermore be read in the context of fundamental
rights and transformational issues of access, non-discrimination, redress
of inequalities, equality and equity.
528
March 2017, Pg. 7
529
March 2017, Pg. 8 - 12
362
646. The trends are as follows :
31.3.1 EXPANDED ACCESS THROUGH OPEN LEARNING
647. Throughout the developing world populations are increasing, and globally
(including in more developed countries) rising unemployment and
changes in employment patterns and the organisation of work, as well as
an increasing trend towards lifelong learning, are driving up the demand
for affordable post-school education and training.
648. Knowledge- and service-based economies, today highly dependent on
ICTs and automation, and accompanied by high rates of de-skilling and
re-skilling, are increasingly dominant in both developed and developing
countries.
649. All of these factors tend to increase the social demand for qualification
upgrades, re-skilling and other forms of lifelong re-education and training,
over and above the demand pressures resulting from population growth
and an inability on the part of many young school-leavers to find
employment.
363
31.3.2 DEVELOPMENTS IN INFORMATION AND COMMUNICATION
TECHNOLOGIES
650. The rapid pace of development in ICT opens up new ways to make
learning more flexible, accessible and in many cases, more effective and
more satisfying.
31.3.3 LEARNING CONTENT MANAGEMENT SYSTEMS
651. Educational and training institutions, and many national governments,
have established learning management systems (LMSs) to manage the
large volumes of student data resulting from massive enrolments, and to
track learners progress, allow student-to-lecturer and student-to-student
communication
31.3.4 USE OF OPEN EDUCATIONAL RESOURCES
652. Open education licensing policies and Open Education Resources
repositories in both school and post-school education and training, often
driven by public policy and facilitated by the extensive use of ICT in
materials development and becoming more popular.
364
31.3.5 BLENDED LEARNING530
653. Blended learning is becoming increasingly common in contact and
distance modes, drawing on best practices in both online and face-to-
face methods. Online education and ICTs are used together with contact
education in order to enhance learning and incorporate different learning
styles. The extent of online or contact education can differ considerably
from course to course, and so also its effectiveness as a teaching method
depends on factors relating to both students and course design.
31.3.6 MASSIVE OPEN ONLINE COURSES
654. Massive Open Online Courses (MOOCs) provide access to a vast array
of free courses available on the internet, in many cases by reputable
international institutions. It is, however, necessary to point out the very
high dropout rates in such courses despite the participants being mainly
well-educated and employed individuals.
31.3.7 NEW TYPES OF OPEN INSTITUTIONS
655. To overcome financial barriers to access, new types of open institutions
are emerging which make extensive use of digital technologies.
530
The integration of online with traditional face to face class activities in a planned,
pedagogically valuable manner.
365
31.3.8 CROSS-INSTITUTIONAL COLLABORATION
656. Networks of institutions are formed, sharing courses and freely offering
them online for learners worldwide.
31.3.9 EMPHASIS ON ACTIVE LEARNING APPROACHES
657. There is a growing emphasis in higher education on deeper learning
approaches, engaging students in critical thinking, problem-solving,
collaboration, and self-directed learning.
658. The advent of open learning with its emphasis on extending access, and
new learning opportunities such as MOOCs, are generating renewed
interest in recognition of prior learning and credit accumulation and
transfer as a means of achieving admission to, or advanced standing in,
academic programmes through the assessment of prior learning, or
learning by means other than conventional courses.
31.3.10 DIGITAL BADGES
659. These are a form of online recognition of a skill achieved, or a project,
course or programme element successfully completed, even if a full
qualification is never pursued.
366
31.3.11 POPULARITY OF NON-FORMAL AND INFORMAL LEARNING
660. Non-formal learning refers to a type of learning offered by institutions that
does not have a formal credential or certification as an outcome. Learning
Content Management System(LCMSs) are increasingly being used to
produce curated content for informal learning information that is
sorted, verified and presented as learning that is accessible, meaningful,
engaging and relevant to learners needs.
31.3.12 MOBILE TECHNOLOGIES
661. The most significant technological advance is the widespread use of
smartphones and other mobile devices that place enormous computing
power in the users hands
31.4 LEGISLATIVE FRAMEWORK
662. This section gives a brief synopsis of the current legislative and policy
environment in place to regulate and direct open learning in South Africa.
663. The White Paper on Education and Training (1995), which laid the
foundation for the new Education and Training System in South Africa,
affirmed the Governments commitment to opening up learning and
367
removing barriers to education for those who had been disadvantaged by
South Africas past. 531
664. The White Paper for Post-School Education and Training (2014) supports
the development of a PSET system based on open learning principles,
where quality learning environments are constructed which take account
of student context and use the most appropriate and cost-effective
methods and technologies. 532
665. Section 38.1 of the Higher Education Act (Act No 101 of 1997) supports
collaboration and partnerships in higher education between public
universities. In alignment with the Act, the Policy for the Provision of
Distance Education in South African Universities in South African
Universities in the Context of an Integrated Post-School System signals
the intent of the DHET to draft a policy on partnerships and collaboration
that will likely also formalise opportunities for institutions to collaborate
on the offering of programmes, that in itself will open up learning. 533
666. As in the White Paper for Post-School Education and Training (2014), the
Policy for the Provision of Distance Education in South African
Universities in the Context of an Integrated Post-School System (2014)
531
March 2017, Pg. 12
532
March 2017, Pg. 12
533
March 2017, Pg. 13
368
recognises the impact of ICT on the provision of education in the higher
education sector, and supports the creation of an enabling environment
for appropriate integration of ICT, and the expansion of distance
education provision in an orderly manner in which access and quality
issues are at the forefront.
667. In the wider national policy context, the Council on Higher Education
(CHE) published in 2014 the Distance Higher Education Programmes in
a Digital Era: Programme Accreditation Criteria and Good Practice
Guide, which makes a significant contribution to our understanding of the
implications of using ICT in support of both distance and classroom-
based education, and provides clear and detailed guidance in the
carefully thought-out choices that course and materials designers must
make when employing ICT in support of learning.
668. In relation to TVETs, the Continuing Education and Training Act (Act No
16 of 2006) commits to ensure access to basic adult education, further
education and training and the workplace through continuing education
and training by persons who have been marginalised in the past such as
women, the disabled, and the disadvantaged.
669. The CET Act further commits to provide optimal opportunities for
learning, the creation of knowledge and the development of intermediate
to high-level skills, in keeping with international standards of academic
and technical quality.
369
670. The act furthermore emphasises the provision of opportunities for life-
long learning.
671. White Paper 4: A Programme for the Transformation of Further Education
and Training (1998) commits to the development and expansion of high-
quality, flexible, innovative Further Education and Training (FET) (now
TVET) institutions, based on the principles of open learning and
responsiveness to the needs and demands of all learners of 15 or over.
672. The Skills Development Act (Act No 97 of 1998) requires that learners
have access to high quality and appropriate education and training, and
to skills development opportunities accessible in a work-integrated
approach. It emphasises the relevance of education in the workplace and
learning on the job.
673. Open learning approaches, and specifically technology-enhanced
learning, open a world of simulations and real-world applications to
support and reinforce theoretical training.
674. The Act also provides clear directives to the Sector Education and
Training Authorities (SETAs) regarding their function of providing
education and training opportunities.
370
675. With the promulgation of the National Qualifications Framework Act (Act
No 67 of 2008), three Quality Councils (QCs) were established to ensure
the accreditation of qualifications within their respective sub-frameworks.
676. Any qualification, regardless of mode of provision, has to be registered
on the NQF through the standard established processes. The QCs are
also responsible for the quality assurance processes relevant to their
respective sub- frameworks and the institutions which deliver their
qualifications.
677. One of the obligations of the DHET is to increase access to educational
opportunities for those who experience barriers to learning and for young
people who are not in education, training or employment (NEET). Such
barriers include:
677.1. geographic isolation from campuses or learning centres within
reasonable proximity;
677.2. lack of reliable access to digital infrastructure, adequate
bandwidth, the internet and ICT;
677.3. inability to take time off from work or family obligations for
structured learning;
371
677.4. discrimination on the basis of physical disability, gender, age,
social class or race;
677.5. a lack of qualifications considered necessary as requirements
for admission to particular programmes;
677.6. financial constraints and an inability to meet the cost of
studies; and
677.7. past experience of content-based, transmission-type
pedagogy and assessment that restrict accessibility, alienate
the learner or contribute to a loss of confidence. 534
678. In line with the policy directives presented in the White Paper for
Post-School Education and Training, DHET is developing a policy
framework which sets out its strategic intent in steering the PSET system
towards increasing access and improving quality cost-effectively through
open learning.
679. The scope of the policy is national and it is aimed at the entire PSET
system, including universities, technical and vocational education and
534
March 2017
372
training (TVET) colleges and community education and training (CET)
colleges, as well as skills providers.
680. Before drafting the policy framework, DHET initiated a consultative
process to elaborate on the understanding of open learning and related
terms. Participants included, among others, representatives of non-
governmental organisations, academic institutions, the Department of
Basic Education (DBE) and DHET, and Sector Education and Training
Authorities (SETAs).
681. A University sector seminar and two TVET college seminars were
convened to discuss key challenges in these sectors, and to identify
critical success factors and elements to be included in open learning in
South Africa. 535
31.5 IMPLEMENTATION
682. The DHET, in collaboration with other entities and organisations such as
SAQA, QCs and SAIVCET, will provide guidelines for, and engage with
institutions on, the development of particular programmes in appropriate
modalities reflecting open learning, as well as enrolment planning
535
March 2017
373
processes that address national and student needs on the one hand, and
institutions capacity to deliver on the other.
683. The guidelines, together with historical data on student success and
throughput rates, will influence decisions about the desirability and hence
recognition of programmes of particular types, designations and modes
of provision.
684. Public institutions PQMs. and enrolment plans must be approved by the
DHET prior to applications for programme accreditation through the
relevant quality assurer.
685. Institutions may enter into partnerships to facilitate the provision of
support for open learning. The obligations of such partners must be
clearly spelled out.
686. DHET will draft guidelines on partnerships and collaborations in open
learning. It is imperative that institutions meet all the quality assurance
requirements of the relevant QC, and thereby take full responsibility for
the quality of the learning programmes in question.
687. Provision of open learning will also necessitate appropriate staffing
arrangements and the professional development of managerial and
administrative as well as academic staff.
374
32 FUNDING OF OPEN LEARNING
688. The implementation of the proposed policy framework will be part of the
core activities of the DHET and institutions, and therefore be incorporated
in the funding allocation for institutions.
689. The DHET will determine funding norms and provide guidelines for
funding open learning and will ensure that the funding of open learning,
and of education provision in specific, is based on empirical evidence of
the relative costs of different modes of provision.
690. Open learning initiatives driven by the DHET such as the NOLS will be
funded initially through the European Union Sectoral Support
Programmes Budget. Funding has been secured for the implementation
of the initial and second phases of the Open Learning initiative, up to
2025.
691. Measures will be taken early in implementation of the policy framework
to ensure that open learning policies and practices gain a firm foothold in
a number of TVET and CET colleges and universities, that initially limited
open learning programmes and other initiatives are well-managed and
sustained, and that the momentum toward further development and
innovation is maintained.
692. Some of the DHETs strategic funding priorities will be to:
375
692.1. modify the relevant budgetary frameworks and funding norms
to recognise the importance and status of open learning,
including the development of quality OER;
692.2. raise awareness of key open learning and OER issues;
692.3. review the funding formula which assumes a neat and obvious
division between contact and distance education;
692.4. fund continued technical infrastructure development in order
to allow for increased and enhanced access to programmes;
692.5. support the sustainable development and sharing of quality
learning materials as OER; and
692.6. review National Student Financial Aid Scheme (NSFAS)
funding in order to facilitate the appropriate support of learners
availing themselves of open and distance learning
opportunities.
693. DHET accepts that although open learning and distance education
may be accompanied in the long term by financial advantages
accruing from expanded enrolments and relatively low expenditure
on new physical infrastructure, the initial costs of establishing the
376
necessary ICT networks, software and other infrastructure, in
addition to the heavy cost of course and materials development for
quality self-directed learning, tend to outweigh any shorter-term
cost benefits. Integrated budget planning and carefully monitored
and reviewed expenditure will therefore be needed.
32.1 SUBMISSIONS TO THE COMMISSION
694. The Commission received several submissions relating in some form or
the other to open learning and online education.
695. Mr. Ntokozo Mahlangu in his submission to the Commission submitted
that:
695.1. technology is a well-known catalyst for growth and efficiency;
695.2. Khan Academy, and other learning institutions show the
possibility of a future where education can be given without
the need to lay a single brick;
695.3. government should allocate a budget to increase peoples
access to the Internet;
695.4. free access should be allowed to online universities where
courses are developed to cater to South Africans;
377
695.5. technology can be used to implement standardised tests in
basic education. With this approach, Government will have
enough data to determine whether schools require
intervention at an early stage. This will ensure that more
children are ready and equipped for higher education.
696. Mr. Ian McDonald made a proposal to the Commission relating to what
he refers to as Dream Catcher (DC). The crux of the proposal is that :
696.1. Higher Education must evolve, integrate and supplement its
product offering with completely free, accredited, mother-
tongue supported Online Distance Learning (ODL) diplomas
and degrees.
696.2. Dream Catcher and the University of Everywhere (UoE) would
provide a micro-franchised Community Centre, a free internet
education platform with 44 free work-stations, free devices
and free data in every settlement and village in South Africa.
The workstations would be leased to the DHET at an
estimated total cost of about R8 billion annually. The online
study material and lecturer support would be provided by the
existing universities.
696.3. The proposed free internet access made available by the DC
UoEs free education platform, would allow Anyone to learn
378
Anything, Anywhere, Anytime to bridge the digital divide and
resolve completely the #FMF challenge.
696.4. This entity would result in youth job creation and economic
stimulation through establishing thousands of fail-safe
SMMEs.
696.5. Dream Catcher would resolve the fee-free challenge, establish
20,000 new, fail-safe, youth owned micro-franchises, create
over 100 000 new youth jobs, stimulate the economy and
reduce youth unemployment.
696.6. This would save taxpayers billions in future tertiary education
costs and help meet the NDP 2030 targets.
697. In the view of the Commission, Mr. McDonalds proposal is ahead of its
time in four particular respects:
697.1. the UNISA experience and results worldwide have shown very
low success rates in distance education: UNISA students
comprise a higher proportion of older, better-off participants
than maybe expected from the beneficiaries of universal
access to higher education.
379
697.2. the average South African student entering tertiary education
is insufficiently mature to maintain the level of dedication that
unsupported distance education requires (even online) without
interaction with his peers and teachers;
697.3. the security of freestanding facilities and the computer
hardware housed in them (as well as their users) must be
regarded as suspect in areas frequently disturbed by unrest or
criminality;
697.4. the existing universities are neither staffed nor equipped to
service multiple online facilities; while the Dream Catcher
scheme provides the infrastructure to house and run the
project, it does not purport to contribute to the educational
input to which the dream depends for its success;
697.5. a further practical objection, though not in itself against the
viability of the proposal, lies in the firm disinclination of the
DHET to lend its support to the implementation of the
proposal;
697.6. The role of TVET training and workplace integration in the
proposal is uncertain.
380
698. Questions were directed to DHET regarding the plausibility of these
models. As discussed previously, DHET has developed a policy on open
learning, the implementation of which involves financial and policy
considerations that Government has yet to assess.536
699. A detailed analysis of DHETs implementation plan for Open learning is
contained in the Report on the Implementation of the Strategy on Open
Learning and Distance Education in Post School Education and Training
System, 9 March 2017 and includes:
699.1. finalising the Open Learning Policy Framework for Post-
School Education and Training;
699.2. building an enabling environment for open learning in the
PSET;
699.3. further developing the NOLS and materials;
699.4. building capacity of institutions in open learning;
699.5. developing of a model for sustained ICT infrastructure for
TVET and CET colleges;
536
Transcript, 24-03-2017, Pg. 28
381
699.6. advocating and communicating open learning and building an
understanding of open learning across the PSET system;
and
699.7. securing sustainable funding and building institutional
mechanisms for open learning in order to sustain open
learning.
32.2 STUDENT FUNDING
32.2.1 THE HISTORICAL POSITION
700. The current framework for funding higher education and training is based
on the cost sharing approach, in terms of which the costs of higher
education are shared equitably between the state; institutions and private
beneficiaries (students).
701. This approach is based on the premise that higher education yields both
private and public benefits,537 such that these benefits are reflected in the
way the sector is funded.
537
White Paper 3 A Programme for Higher Education Transformation (1997), p51 para 4.39;
Ministerial Committee Report of Review of University Funding (2013), p121 122 para (c).
On the global private/public returns to higher education, see CHET presentation dated 11
August 2016, slides 18 19.
382
702. The state remains the largest funder of higher education and training. It
funds both institutions and students in various forms and to varying
degrees. It funds students through two channels (for different purposes),
namely:
702.1. indirectly through the block grant component of the subsidy;
and
702.2. directly, by providing financial aid through to cover tuition fees.
The mechanism chosen by government for this purpose is the
NSFAS scheme.538
703. A fundamental driver of the student demand for fee-free higher education
is the high fee increases, which have resulted in higher education costs
which the majority of students cannot afford.
704. Although the demand originates from the university student population, it
is plain from the evidence that TVET college students face similar issues
of affordability, albeit attributed to different factors which fall beyond the
scope of this section. The common factor shared, however, by both
universities and TVET colleges is the issue of underfunding. The
evidence presented demonstrates plainly that the PSET sector has been
historically underfunded, and this condition persists. Although this issue
538
National Student Financial Aid Scheme Act 56 of 1999; Ministerial Committee Report of
Review of University Funding (2013), p380.
383
falls beyond the scope of this section, it must be noted here that the 2015
decision relating to the no university fee increase for the 2016 academic
year in particular, has only exacerbated the financial challenges existing
in the sector.
32.2.2 TUITION FEES AS A PERCENTAGE OF UNIVERSITY INCOME
705. Tuition fee income has been steadily increasing as a percentage of total
university income across all institutions since 2000. 539 The evidence
presented points to the student fee component of total university income
edging closer to the percentage received in the form of state subsidy. The
increase in student fees is largely attributed to the decline in the subsidy,
although the higher rate of inflation in the sector has also had an effect
on the increase.
706. According to the evidence presented, student fees increased as a
percentage of total university income, from 24 per cent in 2000 to 33
per cent in 2013. During the same period, the proportion of income from
state subsidy declined from 49% in 2000 to 40% in 2013.540
539
Student fees increased nationally from 24 per cent in 2000 to 33 per cent in 2014. See
540
National Treasury presentation, 12 August 2016, slide 13.
384
707. The reflected increase in student fees, as a percentage of total university
income, does not take into account the percentage paid by NASFAS. This
has increased from 3.4% in 2000 to 7% in 2013.541
708. The import of this is that fewer students have been contributing to tuition
fees due to the increasing government contribution through the NSFAS
allocations. While the majority of NSFAS allocations to university
students are in the form of loans, an increasing percentage are provided
as bursaries, thus slightly increasing the states allocation to higher
education.
32.2.3 DIFFERENT INCREASES IN STUDENT FUNDING ACROSS
INSTITUTIONS
709. It is significant to note also that although student fee contributions have
increased on average as a proportion of the total universities revenue,542
the levels of appreciation differ between the various types of universities.
710. To demonstrate, the evidence shows that in 2014, the average student
fee contribution for traditional universities was 29.1 per cent (subsidy of
34.7%); followed by universities of technology at 34.7 per cent (subsidy
541
Ibid.
542
From R15.411 billion in 2012 to R19.589 billion in 2014, representing an average increase
of 9.03 per cent. See DHET submission dated June 2016, p20 second paragraph.
385
of 51.2 %). Comprehensive universities had the largest student fee
contributions at 41.5 per cent (subsidy of 40.5%).543
711. The evidence shows that the prevailing funding model translates
differently among the different types of intuitions.
712. CHET demonstrated these differences across the various types
institutions, showing that 544
712.1. the average student fee increase across the university sector
during the period 2010 to 2014 was 9.2% per annum
712.2. tuition fees at some universities, such as the University of
Cape Town (UCT), increased above the national average over
the same period, at 9.5 per cent per annum.545 In 4 years, the
student fees charged by UCT increased from just over
R45 000 to over R65 000546
713. Over this same period, the percentage received in third stream income
has not changed significantly, although there was a period of increased
third-stream income (2005 to 2009), which has since tapered off again.
The proportion of third stream income varies significantly form institution
543
544
545
Which is a 44 per cent increase in 4 years versus 42 per cent for all universities.
546
Versus an increase across all universities from about R19 000 in 2000 to about R25 000 in
2014.
386
to institution, depending on the institutions ability to attract additional
funding. In general, HDIs are less able to attract third stream income and
as such, are more dependent on subsidies and tuition fees. Evidence
was also provided indicating that third stream income is not a stable
source of income, and that much of the funding is earmarked in line with
the donors wishes. 547
32.2.4 FURTHER SOURCES OF STUDENT FUNDING
714. Other than NSFAS, students are funded through other sources which
include:
714.1. internal bursaries;
714.2. external bursaries;
714.3. CSI funding;
714.4. Eduloan (Fundi);
714.5. commercial loans; and
714.6. own funding.
547
DHET submission p21.
387
715. In 2016, the University of Witwatersrand generated R1 023 479 billion
from various sources from which to make disbursements to both
undergraduate and postgraduate students providing assistance to more
than 20 000 students548. Proportionally, undergraduates receive a bigger
allocation, accounting for over 70% of the total available amounts in 2015
and 2016.549
716. Disbursements include internal and external bursaries; government
bursaries and NSFAS awards.
716.1. NSFAS income accounts for the largest share of the amount
available for disbursements to students. It is, however, limited
in relation to funding postgraduate students, funding only
(policy), honours students.550
716.2. Most of the disbursements are directed to fund undergraduate
students. Wits does, however, disburse a significant amount
to fund postgraduate students. In 2016, it awarded more
internal bursaries (faculty) to postgraduates than to
undergraduates. 551 This is in line with its strategic plan the
548
Presentation dated 24 November 2016, slide 3; transcript of the hearing held on 24
November 2016, p30 L1 7.
549
Presentation dated 24 November 2016, slide 4; transcript of the hearing held on 24
November 2016, p30 L8 13; last paragraph p31 first paragraph.
550
Presentation dated 24 November 2016, slide 6.
551
Presentation dated 24 November 2016, slides 3 & 6.
388
Wits Vision 2022, and with a view of meeting the NDP 2030
targets for postgraduates.
716.3. In 2016, the number of postgraduate students enrolled at Wits
was 12 644, an increase from 9 766 in 2012.552 Almost half of
these students received disbursements. 553 Wits contributed
R233 177 million towards those students.554
717. The NRF supported 858 postgraduate students to the value of
R56 456 325 in 2016.555
718. The University of Johannesburg (UJ) gave a presentation in which it
demonstrated how its student population has been funded over a 5-year
period.556
718.1. NSFAS funded 24 per cent of the total student population, up
from 22 per cent in 2012.557
718.2. NSFAS funded 95 per cent of the NSFAS qualifying students
in 2016, up from 75 per cent in 2013.
552
553
554
Presentation dated 24 November 2016, slide 6. This is a significant increase from R61 080
million in 2012.
555
The student numbers increased from 485 in 2012. See presentation slide 8.
556
UJ presentation dated 24 November 2016, slide 2; transcript of hearing held on 24
November 2016, p40.
557
UJ presentation dated 24 November 2016, slide 3.
389
718.3. That left 5 per cent unfunded NSFAS qualifying students in
2016, compared to 25 per cent in 2013.
718.4. Internal bursaries are funded from the universitys operation

558
budget and from third stream income. UJ awards
undergraduate and postgraduate students, partially full tuition
costs, based on academic merits. It also rewards students
based on financial need and academic merit.559 Beneficiaries
of internal bursaries decreased to 17 per cent in 2016 (total
spend of R156 million) from 24 per cent in 2012.
718.5. The number of students funded through external bursaries
also decreased from 25 per cent in 2012 to 22 per cent in
2016. 560 The NRF funds postgraduate students only (about
8% of the student population).
718.6. The largest category of students are self-funded, comprising
37 per cent of the total student population in 2016.
558
UJ presentation dated 24 November 2016, slide 4.
559
Other awards are for sports achievement, staff concessions (which covers tuition fees of
staff members, their spouses and children).
560
See also UJ presentation dated 24 November 2016, slide 5. Sources of external funds
include CSI, NRF, SETAs and other public entities, funding from provincial governments
and municipalities, and donations from individuals and Trusts.
390
719. The University of Fort Hare is classified as a HDI.561 Its evidence in the
main demonstrates the differences in funding HDIs and HAIs.
720. For example, external donors funded 1 394 students in 2016, to the value
of R77 336 715 million,562 compared to the R189 303 million that was
received by the University of the Witwatersrand for external bursaries in
the same year. It must be born in mind that the student population of UFH
was about 13 500, whilst students attending the University of the
Witwatersrand numbered about 34 000.
721. Most of the students at Fort Hare are supported by NSFAS.563 NSFAS
allocated R864 050 562 million to Fort Hare to fund 9 059 students in
2016.564 The NSFAS allocation for Wits for the same year was almost
half that, at R463 586 million.565
722. We note that these NSFAS allocations for both Fort Hare and Wits distort
the actual NSFAS allocation because they include the amounts allocated
for historic debt and the Kgodisano allocations.566
561
562
Fort Hare presentation dated 25 November 2016, slides 5 & 8; Wits presentation dated 24
November 2016, slide 3.
563
Fort Hare presentation dated 25 November 2016, slide 7.
564
Fort Hare presentation slide 8.
565
Wits presentation slide 3 column 4.
566
Fort Hare presentation dated 25 November 2016, slides 13; transcript p4 fifth paragraph;
Wits presentation dated 24 November 2016, slide 3.
391
723. NSFAS funding also makes up the majority of student funding at the
University of KwaZulu-Natal (UKZN), constituting 67.78% of student
funding income. 567 External bursaries amounted to R158 988 462.
UKZNs internal funding sources amounted to R168 285 480,568 while
Wits had R262 277 000 of internal funds for disbursement (a difference
of about R94 million).569
724. As the evidence suggests, HDIs are less able to raise third stream
income with the result that they have limited funding from this income
stream to support students.570 Their capacity to top up any NSFAS grants
or to fund postgraduate students is therefore equally constrained. Cross-
subsidisation within an institution is not possible when the student
population is largely within or below the missing middle.
32.2.5 NATIONAL RESEARCH FOUNDATION (NRF)
725. The NRF is established under the National Research Foundation Act (the
NRF Act), 571 with the object of supporting and promoting research
through funding, human resource development and the provision of the
necessary research facilities in order to facilitate the creation of
567
UKZN submission dated 23 November 2016, para 5.
568
UKZN submission dated 23 November 2016, para 6.
569
Wits presentation slide 3. This amount comprises internal bursaries, internal bursaries
(faculty) and internal scholarships & Council funded scholarships.
570
Fort Hare transcript p3 4.
571
23 of 1998.
392
knowledge, innovation and development in all fields of science and
technology, including indigenous knowledge.572
726. The NRF gives effect to its mandate by, inter alia, giving financial support
to researchers and to postgraduate students (at Masters and PhD levels)
in all disciplines.573 The NRF also allocates grants for large infrastructure
equipment (which cannot be based on a single university).
727. The NDP targets envisage a significant increase in the postgraduate
system and envisage that over 25 per cent of enrolments should be at
postgraduate level by 2030.574 It sets targets in the numbers of:
727.1. masters and PhD students;
727.2. doctoral graduates both for teaching, research and innovation
purposes;575 and
727.3. staff with a PhD.
728. It expressly mentions that there has to be an increase in the number of
African and women postgraduates.
572
Sections 3 & 4.
573
Section 4(2); NRF presentation slide 2.
574
This translates to at least 5000 doctoral graduates per year.
575
NDP p319.
393
729. The NRF currently funds 10 per cent of all postgraduate students in the
country.576
730. In 2015, the NRF funded a total of 12 719 postgraduate student bursaries
and scholarships amounting to R732.70 million.577
32.2.6 SOURCES OF NRF FUNDS
731. The NRF is funded principally from
731.1. a parliamentary grant (transferred from the DST);
731.2. ring-fenced income (from the DST); and
731.3. designated income.
732. The total NRF income from these sources for 2015/2016 was
R4 163 000 000.578
576
NRF presentation slide 3.
577
578
NRF presentation, slide 7.
394
32.2.7 INHERENT LIMITATIONS TO NRF FUNDS
733. The NRFs income is broadly divided into discretionary and committed
funds.579
733.1. Parliamentary and other income fall within the discretionary
category. They comprise 25 per cent of the total NRF income.
It is from these funds that the NRF disburses grants and
bursaries and funds its operations.
733.2. A total sum of R2 556 million was allocated to grants, bursaries
and other research funding in 2015/2016, from a total income
of R4 163 million.
733.3. Operational costs took up R1 243 million of the total income of
R4 163 million. Employee remuneration accounted for
R345 million of the total expenditure.
733.4. The balance of the funds comprise ring-fenced or contract
funding which are earmarked for other DST purposes.
734. The evidence of the NRF demonstrates historical underfunding, which is
projected to continue into the 2020 MTEF.
579
395
734.1. The NRF indicated that in order to scale up its research
enterprise and to be consistent with government policy
choices with regard to assisting needy postgraduate
students,580 it requires funding growth of about R6.3 billion by
2020.581
734.2. Since 2009, the NRF baseline allocation from the DST has
been below both national inflation (CPI) and NRF inflation.582
On average, the allocation from DST has been registering a
negative growth in real and nominal terms. The result is a
current funding shortfall of R331 million.
734.3. Furthermore, the allocation by the DST to the NRF has shown
minimal growth since 2009, with the exception of 2012 and
2014. During these years, the parliamentary grant exceeded
inflation. This growth distorts the actual growth of the
allocation since it attributable to once-off additions to the
baseline allocation,583 which funds are earmarked for specific
CAPEX projects of the DST.584
580
581
NRF presentation slides 13 14.
582
NRF presentation slides 4 6.
583
NRF presentation, slide 6.
584
As appears from the two main cash injections to the baseline relate to the SKA project and
the SARChl project.
396
734.4. It is of great concern that since 2006/2007 up to 2015/16, NRF
expenditure has, on average, been near or above income.585
735. Thus the NRF has few resources to provide funding to the current pool
of students and none to expand its support or increase its targets.
32.2.8 EDULOAN/FUNDI
736. Eduloan was established in 1996 as a credit provider specialising in
educational loans and bursary management at universities and TVET
colleges, at all levels of study.586 It was rebranded to FUNDI in 2016.587
737. Its funders include the:
737.1. UIF;
737.2. PIC;
737.3. Compensation Commission;
737.4. Standard Bank; and;
585
NRF presentation, slides 6 7.
586
FUNDI also extends loans and bursaries to private institutions, schools and
587
FUNDI presentation (undated) slide 2.
397
737.5. Mergence.
738. Its largest shareholder is the PIC, having a 40 per cent stake therein.588
32.2.9 LOANS
739. FUNDI offers loans primarily to civil guardians to defray their childrens
student fees. Loans can cover either tuition only, or can be for other costs
of study such as study material and accommodation.
740. FUNDI is affiliated to a majority of the 26 universities and some TVET
colleges. It deals directly with the institution. Once a loan is approved,
FUNDI pays the relevant institution directly, as opposed to the individual
student.
741. It has to date advanced about 830 000 loans.589
742. Loan repayments are collected through salary deductions and by debit
order. These modes of collection facilitate the high rate of collection,
which is estimated at 98% from salary deductions and 95% from debit
order payments.590
588
Other shareholders are the Open Learning Holdings (20.93%); Standard Bank (16.5%);
Kopane Investment (17.63%). Its management & staff hold the smallest share at 4.94%.
See FUNDI presentation.
589
FUNDI presentation, slide 5.
590
398
743. Interests rates for FUNDI loans are high, ranging from 19% 30%,
depending on whether or not the loan is secured or unsecured.591
744. FUNDI accepts that its loan funding scheme excludes students from the
poor and missing middle categories as they often cannot provide security
for the loan. To offset the risk attendant upon these classes of students,
FUNDI levies higher interest rates which can be as higher as 23%.592
745. The Commission is of the view that, should the recommendations made
by it in relation to funding by means of income contingent loans, be
accepted:
745.1. FUNDI support will become unnecessary;
745.2. the resources FUNDI provides can be reprioritised for the
benefit of the broader education sector;
745.3. students will receive unsecured funding on far more
manageable terms.
591
FUNDI, transcript of the hearing held on 29 November 2016, p22 23.
592
Slide 6 and transcript.
399
32.2.10 FUNDI BURSARIES
746. FUNDI also manages funds for institutions and other private and public
donors,593 These are used to award bursaries to students.594 Currently,
about 128 437 students receive bursaries from this fund.595
747. Recipients of the funds can use the funds at the numerous FUNDI
affiliated merchants.596
32.2.11 OTHER COMMERCIAL STUDENT LOANS
748. The Banking Association of South Africa (BASA) appeared before the
Commission as a representative of the South African banking sector.597
749. In its presentation, BASA indicated that:598
749.1. the 5 largest banks control more than 90 per cent of total
assets of the 17 registered banks;
593
Stakeholders include provincial governments and entities; universities, vendors and
corporates. See FUNDI presentation, slide 12.
594
FUNDI currently manages funds on behalf of 40 funders, including universities. See FUNDI
presentation, slide 8.
595
596
FUNDI presentation, slide 9. These merchants include Shoprite/Checkers, 107 book
stores, 300 accommodation providers and 508 food merchants.
597
BASA represents 3 mutual banks, 15 local branches of foreign banks and 17 registered
banks. See BASA presentation dated 8 February 2017, slides 3 & 4.
598
BASA presentation dated 8 February 2017, slide 5.
400
749.2. the 4 largest banks have student loan products;
749.3. the balance of the banks do not have student targeted loans,
and extend generic (personal) loan products which may be
used to fund education.
750. BASA highlighted the involvement of banks at various levels of
education. 599 It would appear that the majority of the initiates are
supported through CSI programmes.
751. BASA reports that most recently, banks have been involved in the
Ikusasa Student Financial Aid Programme and provided funding for the
pilot project, which commenced in 2017.
752. With specific regard to the banks financing of students, the testimony of
BASA shows that between 2013 2016, banks provided:600
752.1. a sum of R417 296 795 in bursaries;601
752.2. an amount of R5 357 619 345 in student loans; and
752.3. R172 976 583 in research and other funding.
599
BASA presentation dated 8 February 2017, slides 9 11.
600
601
BASA notes that banks spend roughly R500 million per annum on education.
401
32.2.12 BASA BURSARIES
753. Students applying for bursaries must meet the BASA criteria, which
include:
753.1. whether or not they fall into the missing-middle category;
753.2. academic performance;
753.3. whether they are previously disadvantaged individuals; and
753.4. whether their qualification will yield critical skills for the sector.
754. The data presented by BASA shows that the number of students funded
by banks through bursaries has hardly grown over 3 years, averaging of
5 000 per annum. The average bursary amount awarded between 2014
and 2015 is around R21 000. While it is up from about R14 000 in
2013,602 it is significant to note that it does not cover the average costs
of study of the cheapest university, and falls far below the NSFAS cap.
755. The banks contributed to the Ikusasa Student Financial Aid Programme
to the extent of R272 272 592.
602
402
32.2.13 BASA LOANS
756. The student loan products referred to above, include personal loans.603
As such, we can assume that the funding provided by banks specifically
for student loans is less than the amount provided.
757. While loan criteria and applicable terms and conditions of the loan differ
from one bank to another, BASA set out common considerations for
eligibility for a personal loan -604
757.1. credit score and ability to service the loan;
757.2. employment (of the principal debtor/surety);
757.3. minimum income (ranging between R3000 R6000 per
month);
757.4. registration with a South African university; and
757.5. if applicants are part-time students, they must be employed
and prove their ability to service the loan.
603
604
BASA presentation dated 8 February 2017, slides 19 & 21.
403
758. BASA estimates that about R1 billion worth of students loans, including
personal loans, are provided by banks annually. A total of 103 665
students were funded through student loans provided by banks over 2013
2015. It indicates that when personal loans are factored in, the number
of students funded through bank loans doubles.605
759. The terms and conditions of the loan, while differing between banks, are
underpinned by the competitive nature of the business of banking. The
following are among the list of terms and conditions
759.1. Interests and fees attached to the loan (be it a student or
personal loan) are payable monthly and during the students
course of study;
759.2. the student capital loan amount is payable upon completion of
studies, subject to a grace period of between 6 12 months
to allow a student the opportunity to gain employment.606 The
student is responsible for informing the bank once he/she is
employed607 (as is the case with NSFAS loan debtor);
605
606
Repayment can be deferred in certain limited circumstances. See BASA presentation
dated 8 February 2017, slide 21.
607
404
759.3. students have up to 18 months for every year of study to repay
the loan.608
760. The interest rates levied on the loans range from prime to prime plus 6%.
761. The applicable interest rates are informed by various factors, including:
761.1. the risk profile of the borrower; and
761.2. the years of study completed.609
762. Banks apply default reducing measures ranging from soft collection
measures such as general follow-ups as in the case of loan default at the
early stage, to stricter measures which include litigation action in respect
of accounts that are over 6 months in arrears.
763. Where a loan recipient remains unemployed after completion of his/her
studies, up to six months grace period is given before the obligation to
pay the capital amount arises.
764. During this period, the parent, guardian or surety is liable to pay the
interest rate which runs throughout the subsistence of the loan. The
608
609
Some institutions offer between interest rates for each year completed.
405
parent, guardian or surety remains liable for the repayment of the loan
until it is paid up.
765. As is the case with FUNDI, the banks ability to extend more student loans
is constrained by the likelihood of the debtors ability to repay the loan,
which in turn, turns on the income of the parent, guardian or surety of the
student. [If the scheme proposed by the Commission is implemented, the
income of any person other than the (employed) ex-student will be
irrelevant.]
766. In this regard also, the recommendations in this Report in relation to ICLs
will provide all required student funding without provision of security on
more equitable terms.
32.3 HISTORIC DEBT
767. The nature of the student debt discussed here relates to both self-funded
students and those that receive NSFAS loans, with specific emphasis
being placed on all NSFAS qualifying students.
768. The gross student debt of half of the total 26 universities as a percentage
of student fees is said to be above the sector average of 27.8 per cent.610
610
406
HDIs and universities of technology account for the largest portion of that
debt.
769. A PTT to assess the extent of historic debt was appointed in 2015. Its
work was detailed earlier in this Report. According to NSFAS, a further
amount of R9.2 billion has been added to the NSFAS allocation during
the October 2016 medium-term budget for student funding over the
MTEF period.611
770. The Department of Higher Education and Training costed the NSFAS
shortfall for the 2016 MTEF period, based on the NDP enrolment targets,
at R10 328 058.612 The NSFAS shortfall, should the current (2015/2016)
enrolment levels be maintained, amounts to R8 483 466.613
771. It is noted that this debt relief was exclusively for university students, thus
excluding TVET colleges in spite of the apparent and significant
underfunding and unfunded students in the increasingly expanding
sector.
32.4 FUNDING MODELS
772. The Commission was favoured with various models to fund students in
higher education and training. These models range from greater levels of
611
NSFAS presentation dated 14 November 2016, slide 16.
612
Submission DTED June 2016, p32, Scenario 1.
613
Submission dated June 2016, p33, Scenario 2.
407
government contributions to reduced subsidies in favour of targeted
funding; a combination of sources of funding, while some propose little to
no government student funding. They will be discussed in detail in a
subsequent Chapter.
32.5 ALTERNATIVE SOURCES OF FUNDING
773. In this section, we look at the viability of the various proposed alternative
sources of funding higher education and training. The following are some
of these sources:
773.1. Public Investment Corporation (PIC);
773.2. Unemployment Insurance Fund (UIF);
773.3. the Skills Development Levy (SDL);
773.4. tax increases;
773.5. Broad-Based Black Economic Empowerment (BBBEE);
773.6. unclaimed benefits in various pension funds;
773.7. social impact bonds;
408
773.8. Thuto ke lesedi;
773.9. corruption and other inefficiencies.
32.5.1 PUBLIC INVESTMENT CORPORATION
774. The Public Investment Corporation SOC Limited (PIC) is established
under section 2 of the Public Investment Corporation Act as a juristic
person outside of the public service.614
775. The PIC is wholly owned by the government.615
776. Section 4 of the PIC Act sets out the main object of the PIC, and that is
to be a financial services provider contemplated under the Financial
Advisory and Intermediary Services Act (FAIS Act).616
777. Section 5 confers upon the PIC broad powers. The PIC has all the powers
necessary to realise its objects, unless expressly excluded or qualified by
the PIC Act.
614
Transcript of the hearing held on 21 February 2017, p9 L19 20.
615
Section 3. The Minister of Finance represents the shareholder, the state.
616
37 of 2002.
409
778. In particular, the PIC invests monies received or held by, for or on behalf
of the government and other bodies, councils, funds and accounts.617
779. In terms of section 10(2) of the PIC Act, the PIC, through its board,618
must adopt an investment strategy with guidelines to regulate the
investment of monies it receives.
780. In its presentation before the Commission, the PIC broadly outlined its
investment strategy and specifically as it relates to education.619
32.5.2 FUNDS HELD BY THE PIC
781. It is appropriate at the outset to emphasise that the monies held by the
PIC are held on behalf of third parties for purposes of investment.620
782. There are limitations imposed by the funders relating to the use of those
funds by the PIC. We address these limitations shortly. We first identify
the sources of funds managed by the PIC.
617
See preamble/introduction read together with sections 10 and 11, transcript of the hearing
held on 21 February 2017, p5 L20 25.
618
Under section 8, the board is responsible for the management of the business of the PIC.
619
PIC presentation made on 21 February 2017.
620
Transcript of the hearing held on 21 February 2017, p3 L22 p4 L7.
410
32.5.3 PIC FUNDING SOURCES
783. The PIC manages and invests funds of behalf of various public-sector
funds, including the:621
783.1. Government Employment Pension Fund (GEPF);
783.2. Unemployment Insurance Fund (UIF);
783.3. Compensation Commission (CC).
784. The largest contributor to the PIC is the GEPF, which has contributed an
estimated 88% of the PIC funds.622
785. PICs investments are divided into a number of investment classes,623
which the PIC manages in terms of mandates given by the respective
clients who advance the funds for each asset class.624
785.1. The PIC acts in accordance with investment management
agreements concluded between itself and the client in terms
of which the client, in broad terms, prescribes the relevant
investment asset class and how much of its assets must be
621
PIC, transcript of the hearing held on 21 February 2017, p5 L20 25.
622
623
Namely, listed and unlisted domestic investments; and offshore investments.
624
411
invested in that class; and the returns it expects from such
investments.625
785.2. The PIC has the discretion as to where to invest those funds,
with the view of giving effect to the clients broad mandate.626
786. As indicated, education falls within the broader development investment
asset class.627
787. In particular, it is allocated within the social infrastructure component of
that class628 in two forms, namely:629
787.1. education and skills development; and
787.2. student accommodation.
625
PIC, transcript of the hearing held on 21 February 2017, p6 L13 p8 L16.
626
627
The developmental investment class makes provision for the following sub-classes:
economic infrastructure; social infrastructure; sustainable investments and priority sectors.
See transcript of the hearing held on 21 February 2017, p17 L17 p18 L9. Higher
education and training is located within the social infrastructure sub component. See PIC
presentation, slide 4, column 2.
628
PIC presentation slide 4, slide 4 column 2.
629
PIC presentation slide 4.
412
788. Education falls under the development investment asset class. 630 The
developmental investment portfolio accounts for approximately 20
per cent of the total investment asset portfolio.631
789. Of its clients, only 3 have mandated the PIC to invest their assets in the
developmental portfolio. Those are the:632
789.1. GEPF;
789.2. UIF; and
789.3. CC fund.
790. The PIC has a mandate from these clients to invest a collective 30
per cent of their developmental asset allocations in higher education,633
as part of the broader education portfolio.634
791. PICs investments take multiple forms. For example, it has the option of
investing in different investment vehicles, including equities, or the bond
and debt market in any given focus area.635
630
PIC presentation slide 3, column 2; transcript of the hearing held on 21 February 2017, p18
L14 21.
631
PIC presentation slide 3, column 2.
632
633
634
635
413
792. The UIFs investments are informed by its Social Responsibility
Investment (SRI) policy which stipulates the broad focus area of
investment, which is currently job creation. The policy also determines
the type of returns on investment expected.636 The PIC finds areas in
which to invest which can yield the developmental impact sought by the
UIF. The PIC carries out the UIFs mandate by investing in skills
development and education with a view of creating a skilled workforce.637
793. The PIC testified that, unlike the UIF, which is willing to trade-off a lower
return on investment in favour of developmental impact, the GEPFs
investment policy, the Developmental Investment Policy Statement, is
geared towards marked related returns on investment while at the same
time meeting the desired social impact.638
794. The PIC invests broadly in education, from primary to higher education
and training, including the area of skills development.639 It can be a direct
investment such as in infrastructure, or indirect by buying into existing
platforms, as with student accommodation or student loans.640
636
637
638
639
PIC, transcript of the hearing held on 21 February 2017, p22 L24 p23 L22; presentation
slide 5.
640
414
32.5.4 PIC INVESTMENT IN STUDENT ACCOMMODATION
795. The PIC is heavily invested in student accommodation. One of the major
investments was the purchase of South Point, 641 which was a private
company that had established the largest student accommodation
market, servicing a total of 12 universities.642 The current South Point
portfolio has gross assets worth about R2 billion.643
796. PIC invests in both greenfield and brownfield opportunities. As at 2016,
the PIC had invested in 10 000 student beds, and it aims to increase that
number to 50 000 by 2020, and to 80 000 by 2025.644
797. The PIC proposes that student accommodation be funded through
multiple investments. It is premised on key assumptions set out in their
presentation. They include:
797.1. The funders will include including itself, the DFIs (who will
contribute a senior note worth R10 billion, backed by a
government guarantee) and from the private sector;
797.2. National Treasury will guarantee the senior note;
641
PIC, transcript of the hearing held on 21 February 2017, p27 L21 p28 L6; presentation
slide 9.
642
643
644
PIC presentation slide 8; PIC, transcript of the hearing held on 21 February 2017, p24
p25.
415
797.3. the Department of Public works will purchase the property.
798. The PIC have made these investments with the view that the it will build,
own and operate the model. Government will, in the long term, be the
custodian of the student accommodation.645 The PIC proposes that the
Department of Public Works purchase the student accommodation
developments after 25 years.646
32.5.5 PIC CONTRIBUTION TO LOAN FINANCING
799. The PIC also contributes to student funding through its investments in
Eduloan (FUNDI).647
800. FUNDI loans have already been discussed in this Report, and the
onerous nature of these loans was emphasised.
801. The PIC is exploring an alternative student finance model which will make
loan repayments contingent upon the students employment.648
802. Its proposed student funding model entails:649
645
PIC presentation slide 8; PIC, transcript of the hearing held on 21 February 2017, p24
p25 L23.
646
647
PIC presentation slide 13, second main bullet point; slide 17. An estimated R244,3 million
of government employee funds under PIC management are invested in Eduloan. Eduloan
has issued an estimated 47 533 loans as at 30 September 2016.
648
PIC presentation slide 13, fourth bullet point.
649
PIC presentation, slides 14 16.
416
802.1. creating a special purpose vehicle (SPV) financed by multiple
funders (PPP approach), with NSFAS providing first loss
facility;
802.2. appointing a management company, for a fee, to manage the
SPV;
802.3. only interest will be levied during course of study;
802.4. SARS to facilitate repayments through payroll deductions;
802.5. collections over 24 36 months;
802.6. parents to guarantee loan repayments.
803. If the proposals of the Commission are accepted the PICs proposed
funding model will become unnecessary.
32.6 GOVERNMENT EMPLOYEES PENSION FUND
804. The Government Employees Pension Fund (GEPF) is established under
section 2 of the Government Employees Pension Law (GEPL),650 with
650
1996.
417
the object of providing pensions and related benefits to members,
pensioners and their beneficiaries.651
805. The fund is funded through contributions made by its members.652
806. Unclaimed benefits mean:653
806.1. a benefit which has, within a period of 24 months from the date
on which it became legally due and payable, not been paid by
the fund in respect of a member or beneficiary, other than an
unpaid benefit or a benefit payable in the form of a pension or
an annuity.654
807. The GEPF reported a total sum of an estimated R450 million in unclaimed
benefits over the period 2006/17 2015/16.
808. This amount excludes cases classified as unpaid for a number of
reasons,655 and excludes interest.656 Of these cases,657 a total of 6 200,
valued at an estimated R100 million, have been allocated tracing agents
651
Section 3; GEPF presentation slide 2.
652
Section 17(1).
653
2007 FSB Circular PF NO. 126, section 1; transcript of the hearing held on 21 February
2017, p60 L6 p64 L4.
654
The circular defines unpaid benefit at section 1 thereof; transcript p78 L13 p85 L16. The
remaining parts of the definition are not relevant to our consideration.
655
Such as disputed cases and those with incomplete documentation. This amounts to
R46 157 198.59. See Unclaimed benefits age analysis March 2016.
656
Interest amounts to R155 601 744.01. See Unclaimed benefits age analysis March
2016; 2007 FSB Circular PF NO. 126, section 1; transcript of the hearing held on 21
February 2017, p64 L12 L22.
657
See Notes to Unclaimed benefits age analysis March 2016.
418
in order to trace beneficiaries. Since November 2016, nearly 300 cases
have been successfully traced.
809. The GEPF testified that the balance (R369 million) is in the early stages
of the tracing process and is considered by the GEPF to be traceable.
810. These amounts make up the total estimated amount of R653 million
reported in unclaimed benefits in the GEPF 2016 Annual Financial
Statements.658
32.6.1 LIMITATIONS ON THE USE OF UNCLAIMED FUNDS
811. The GEPF, in its presentation before the Commission, highlighted the
legislative constraints attendant upon the use of unclaimed GEPF funds.
812. Section 21 of the GEPL prohibits cession and attachment of benefits
payable thereunder. Subsection (1) provides:
Subject to section 24A, no benefit or right in respect of a benefit payable

under this Act shall be capable of being assigned or transferred or
otherwise ceded or of being pledged or hypothecated or, save as is
provided in section 26 or 40 of the Maintenance Act. 1998 and section 7
(8) of the Divorce Act, 1979 (Act No. 70 of 1979), be liable to be attached
658
GEPF presentation slide 7; Unclaimed benefits age analysis March 2016; transcript of
the hearing held on 21 February 2017, p68 L21 p70 L3.
419
or subjected to any form of execution under a judgment or order of a court
of law.
813. It indicated that the primary responsibility of all pension funds, including
the GEPF, with regard to unclaimed benefits, is to trace the rightful
beneficiaries of the benefits. Those benefits cannot in those
circumstanced be used for any other purpose than to be paid out to the
rightful beneficiary.
814. It is only after the GEPF is satisfied that the beneficiaries will never be
traced that it may consider using the funds for other public interest related
uses, such as funding higher education and training.659
815. The GEPF referred the Commission to FSB Circular PF NO. 126 of 1007
which prohibits reverting benefits back to the fund. In terms of that
circular, pension funds are required to amend their rules to ensure that
unclaimed benefits remain in the fund until the beneficiary has been
traced.660
816. The rationale behind the circular is to protect the beneficiarys right to
claim the benefit.661
659
See transcript p90 L24 p91 L14 for measures being taken to trace beneficiaries.
660
FSB Circular PF NO. 126 para 2.
661
420
817. Mr. Abel Sithole, principal officer of the GEPF, highlighted a further
constraint to using GEPF unclaimed benefits for purposes other than
those provided for by the legislative scheme. He noted that there is no
empowering provision which prescribes a period by when the benefits
can be considered unclaimable, and thus available for other uses. As
such, legislative amendments to use unclaimed funds and to empower
the funds to change their respective rules for that purpose are required
before unclaimed benefits can be transferred to non-beneficiaries.662
818. The GEPF made a further significant point, namely that even if such
funds were to be made available for funding higher education and
training, they we as a matter of fact finite. This assumes that they could
only make a limited contribution to the funding crisis in the PSET sector,
where challenges are by nature on-going, requiring a long-term source
of funding.663
32.6.2 FUNDS UNDER MANAGEMENT
819. The GEPF has invested an estimated R1.7 trillion with the PIC.664 The
PIC, in turn, and as already indicated earlier, has invested the GEPF
assets in Eduloan to provide student funding. Most of the returns, which
662
2007 FSB Circular PF NO. 126, section 1; transcript of the hearing held on 21 February
2017, p60 L6 p64 L4; p69 L14 17; p85 L21 p88 L3.
663
See note prepared by Mr Abel Sithole dated 12 February 2017, para 7.
664
421
seek to strike a balance between market related returns and
developmental impact, go to service fees such as management fees.665
32.7 UNEMPLOYMENT INSURANCE FUND
820. The Unemployment Insurance Fund (UIF) is established by section 4 of
the Unemployment Insurance Fund Act (UIF Act),666 as a fund into which
employers and employees contribute and from which employees who
become unemployed or their beneficiaries are entitled to benefits, with
the purpose to alleviate the harmful economic and social effects of
unemployment.667
821. The UIF seeks to align its service delivery outcomes and strategic goals
with that of government and the Department of Labour to create and
inclusive and responsive social protection system.668
822. To this end, its priorities include:669
822.1. improving the processing of claims; and
665
666
63 of 2001, as recently amended by the Unemployment Insurance Amendment Act 10 of
2016.
667
Section 2; UIF presentation slide 3; and slide 9 VISION.
668
UIF presentation slide 8.
669
422
822.2. contributing to various schemes designed to alleviate the
harmful effects of unemployment. This includes investing
mandated funds in Social Responsibility Investments (SRIs).
823. The UIF is funded by various sources, including:670
823.1. contributions made by employers and employees and
collected by the Commissioner of the South African Revenue
Service in terms of the Unemployment Insurance
Contributions Act;
823.2. monies appropriated by Parliament; and
823.3. interest and returns on investments made by the Fund.
824. The UIF must be used, among other uses, for payment of benefits under
the UIF Act.671
825. The Unemployment Contributions Act (UIC Act) provides for the payment
of contributions for the benefit of the UIF and prescribes the applicable
672
collections procedures. Currently, the Act empowers the
670
Section 4(2).
671
Section 5; UIF presentation slide 5.
672
4 of 2002; UIF presentation slide 6.
423
Commissioner of the South Africa Revenue Service (SARS) to collect
monthly contributions from employers and employees.673
32.7.1 UIFS FINANCIAL POSITION
826. The UIFs funds are managed by the PIC amounting to net assets of
R120.12 billion, which amount is inclusive of an accumulated surplus of
R98.5 billion and technical reserves valued at R21.62 billion.674
827. In terms of its Annual Financial Statement for 2016, the UIF has
accumulated a surplus of around R10 billion.
828. By 31 December 2017, the UIF estimates a return on investment of about
10 per cent.
829. The evidence presented by the UIF shows that for 2016, it expended over
R10 billion against a revenue of around R17 billion. 675 Expenditure
includes benefit payments, and administration and operating costs.
829.1. Administration and operating expenditure includes employee
costs and technical reserve provisions for benefit payments
673
674
Presentation slide 4.
675
424
(excludes payments towards unemployment alleviation
schemes).
829.2. The technical reserve relates to unpaid claims. These
amounts are placed into government bonds in order to
preserve the capital (i.e. for future benefit payments).
830. The UIF currently contributes to three unemployment alleviation
schemes, namely Training Layoff; Labour Activation Programme; and
Turnaround Solutions via Productivity SA:676
830.1. in 2016, the UIFs contribution to these schemes was an
estimated R81 million; and
830.2. committed an estimated R510 million thereto.
32.7.2 UIFS INVESTMENT PORTFOLIO
831. The UIF invests its accumulated surplus. As at 31 March 2016, it had the
following assets under management with the PIC:677
676
UIF presentation slide 17; & slide 33.
677
425
831.1. bonds, which are long term investments, accounting for 62
per cent of its total assets;678
831.2. followed by listed equities, at 20 per cent;
831.3. cash investments at 8 per cent of the total invested assets;
831.4. cash assets (trading account) amounting to 8 per cent;
831.5. money market instruments accounting for 3 per cent of the
invested assets; and
831.6. Development Instruments, which account for the smallest
proportion of the investment assets, at 2 per cent.
832. It will be recalled that education falls under the development asset class
of the PIC. This means that the UIF contributes 2 per cent to the PIC
investment portfolio which includes education in general.
833. Its liquidity depends on the duration of the investment, i.e. whether it is a
short or long-term investment. The majority of the UIFs investments are
long-term, non-current assets, 679 which account for 63 per cent of the
678
Bonds comprise capital market instruments. UIF bonds are split as follows: 79% in
government bonds; 18% in other bonds and 3% in parastatal bonds (41% with Eskom). In
total, they account for R74 495 790 000. UIF presentation slide 20.
679
More than 12 months.
426
investment portfolio.680 Current assets make up the balance.681 The total
assets under management exceeded R120 billion at the date of
presentation.682
32.7.3 UIFS INVESTMENT IN EDUCATION
834. Education in general makes up 18 per cent (R1 812 000 of a total of R9
943 912 committed to developmental instruments) of the 2 per cent which
the UIF invests in the various developmental instruments, while the rest
is directed to job creation initiatives.683
32.7.4 CONSTRAINTS TO USING UIF FUNDS
835. Much like the GEPF, the UIF pointed to certain legislative constraints
relating to the use of UIF benefits for purposes other than paying out
beneficiaries:684
835.1. in the first instance, the legislative scheme reserves the use of
the funds exclusively in the interest of its contributors,
employers and employees to protect an employee in the case
of unemployment;
680
Reflected as R76 420 399 000.
681
Less than 12 months.
682
683
684
UIF presentation slides 27 30.
427
835.2. the Funds outstanding benefits provision increased to R4.4
billion in 2016, from 3.8 billion in 2015;
835.3. furthermore, the Funds technical reserves increased from
R19.1 billion in 2015 to R21.6 billion in 2016. These reserves
are required to sustain the Funds financial position;685
835.4. the Funds surplus funds are invested in the PIC. 686 An
estimated 90 per cent of those invested funds are in long-term
investment instruments.687
836. Irrespective of these constraints, the UIF sees scope for using its funds
in the PSET sector, mainly through:688
836.1. using 5 per cent of its total Portfolio, which is allocated to its
unlisted property mandate, towards infrastructure, in the form
of student accommodation. Practically, the Fund will carry the
project and building costs, and the PSET institutions will rent
the properties from the Fund; and
685
686
687
688
UIF presentation slide 32 (last slide).
428
836.2. the PSET will issue a private bond, which will be bought by the
UIF via the JSE. The UIF will trade off return of investment on
the bond for social impact generated by the PSET.
837. When the CEO of the UIF testified before the Commission, it became
apparent that the Fund had for many years operated as a moneylender,
accumulating huge annual surpluses which it merely reinvested resulting
in greater surpluses. The Commission gained a strong impression that
the fund controlled such large resources that it had very little idea of how
best to spend them. The CEO explained that all this had changed since
the amendment of the Act in 2016 to provide wider and increased
benefits: there was now no surplus which could seriously be considered
available for the purpose of student funding. In addition, the Fund
proposed to put further amending legislation before Parliament providing
inter alia for paternity leave benefits and repayment of contributions to a
contributor who resigned his or her employment. The Commission
requested the actuarial report on the costing of the 2016 amendments
and the new proposals. 689 A very different picture emerged from that
report690: according to the projections, the implementation of the 2016
amendments will leave the Fund with an accumulated surplus of R297
billion after ten years with a solvency ratio of 945%; if all the additional
proposed benefits are introduced and implemented, the surplus after the
689
A copy of the actuarial report is annexed to this Report.
690
Attached to this Report as annexure "C" is a copy of the report: Unemployment Insurance
Fund: Assessment of the Financial Impact of the Amendment Bill of 2015, QED Actuaries and
Consultants (Pty) Ltd 31 March 2016. The copy of the report presented to the Commission was
marked as draft.
429
same period will be R124.8 billion with a solvency ratio of 380% (the
actuaries recommended the implementation of an alternative proposal
resulting in a projected accumulated surplus of R136.1 billon after 10
years and a solvency ratio of 414%, described as a high position in para
10 of the Executive Summary to the Assessment).
838. The Commission requested the Fund to provide, through its actuaries, a
supplementary report explaining the effect on the Fund of the transfer out
of it of an amount of R50 billion. Despite the passing of several months
no meaningful response has been received other than that the Fund
hopes to have a further actuarial assessment by the end of July 2017.
This Report cannot await the Funds response. It seems clear from the
actuarial report that the utilisation of R50 billion for the benefit of
education would hardly scratch the surface of the Funds resources.
839. The Commission accordingly strongly recommends that any
necessary amendment of the legislation be considered to permit
surplus funds of the UIF to be transferred to the National Treasury
and earmarked for the upgrading of the TVET sector as
contemplated in this Report. In such a way, funds initially collected
to relieve the hardship of unemployment could instead be used to
reduce its incidence by increasing the productivity of the TVET
college system as a whole.
430
32.8 THE SKILLS DEVELOPMENT LEVY
840. A number of stakeholders before the Commission have suggested an
increase in the skills levy, which revenue will be used to fund higher
education and training.691
841. When considering how the youth (aged 14 to 34) are engaged, it emerges
that 14% are in school; 6% are in universities; 4% are in TVET colleges;
1% are in community colleges; 2% are involved in workplace-based
learning; and 31% are employed. Of the remaining youth, 29% are
unemployed and 13% are not economically active. .692
842. The largest growth in the PSET sector is anticipated in the TVET and
CET sub-systems, with a strong link to the workplace.693
843. The SETAs and NSF play a critical role in linking the PSET institutions of
learning to the workplace. Their main contribution is through funding.
844. The skills development system comprises the SETAs, the NSF and the
NSA. These entities were transferred from the Department of Labour to
the newly established Department of Higher Education and Training in
691
See proposal of Professor P Hirschohn dated 10 November 2016 who proposes an
increase in the skills levy incrementally from 1% to 3% over 4 years.
692
DHET presentation dated 10 February 2017, slides 6 & 8.
693
DHET presentation dated 10 February 2017, slide 10.
431
2009 with a view of creating articulation between the world of work and
that of education.694
845. The Skills Development Act was adopted in order to facilitate the
development of skills in the South African workforce by, inter alia,
encouraging partnerships between the public and private sectors of the
economy to provide education and training in and for the workplace.
Institutional and financial measures have been introduced under the
Skills Development Act for this purpose.695 In particular, the SETAs, NSF
and NSA are the primary vehicles chosen to pursue that objective.
846. The SETAs are established under section 9 of the Skills Development
Act.696 There are currently 21 SETAs.697
847. The NSF is established in terms of section 27 of the Skills Development
Act.698
848. Workplace-based learning includes learnerships, apprenticeship and
internships.699
694
695
Section 2.
696
97 of 1998.
697
Down from 25 and then 23 in 2005.
698
97 of 1998.
699
DHET presentation dated 10 February 2017, slides 26 28.
432
849. Despite the recognition of the importance of TVET colleges, CET
colleges and workplace-based learning, the majority of the funding for the
PSET sector is directed towards higher education institutions. The
SETAs and the NSF receive 26 per cent of the total PSET allocation.700
850. The SETAs and NSF are funded through a compulsory skills
development levy. The levy is determined by an employers salary bill.701
Public service employees in the National or Provincial spheres of
government and exempted Municipalities are exempt but these
employers must budget for an amount equal to the levies payable for the
education and training of their employees.
851. Once the levy is received by the DHET from SARS, the DHET will allocate
80 per cent to the SETA and 20 per cent to the NSF.
852. We are satisfied by the Treasury response that an increase in the Skills
Development Levy (to fund education) presents a real threat to the cost
of doing business and corporate sustainability despite the advantages it
may bring. For this reason, we have not recommended its utilisation as a
long-term solution.
700
701
The levy is collected on a monthly basis by SARS and distributed to the SETAs and the
NSF.
433
32.8.1 FINANCIAL POSITION
853. The skills development levy has grown significantly since its introduction.
It stood at over R15 billion in 2015/16 from less that R2 billion in

702
2001/01. An estimated R12 billion of the 2016 collection was
transferred to the SETAs in 2015/16.703
854. The evidence presented by the DHET shows that as the levy and
transfers to the SETAs grew, so has the SETAs expenditure.704
855. The majority of the expenditure has been for administration and in
relation to the mandatory and discretionary grants. 705 The bulk of the
grants have been increasingly expended on skills programmes, followed
by learnership programmes.706 Most of the expenditure is funded from
the discretionary component of the grant.707
856. The data presented by the DHET shows an improvement over the last 5
years in the provisioning of workplace based learning, with internships
improving by over 200%; apprenticeships by almost 150% and
learnerships by 63%. Completions grew by 65% over the same period.708
702
703
704
Expenditure increased from 8% in 2013/14 to 26% in 2014/15. See DHET presentation
dated 10 February 2017, slide 46.
705
See DHET presentation dated 10 February 2017, slide 47 for the programmes on which
the grants were expended.
706
707
708
434
Job placements for persons that underwent apprenticeships also
improved between 2010 and 2016.709
857. While the SETAs have recorded reserves as at 31March 2016 nearing
R10.5 billion, over R9 billion of this sum is already committed. This leaves
a surplus of just over R1 billion in uncommitted discretionary funds.710
32.9 THE NATIONAL SKILLS FUND
858. The object of the National Skills Fund (NSF) is to fund programmes
aimed at skills development, especially in scarce and critical skills,711 in
line with national priorities. The NDP identifies the NSF as a key vehicle
for such purposes.712 In addition to funding research and innovation, the
NDP requires that the NSF and the SETAs use their discretionary grants
to fund skills development capacity in public education and training
institutions.
859. The evidence presented by the DHET indicates that since 2013/14, the
NSFs expenditure of its skills development grant allocations has been
on par or exceeded revenue. Investments in skills development
increased by over 800% from 200/01 to 2015/16. 713 Its revenues
increased significantly during 2015/16. This was however the result of
709
710
711
712
713
435
receipt of funds from the SETAs uncommitted funds, amounting to R364
million.714
860. The additional injection of funds especially over 2014/15 2015/16 from
the SETAs for TVET college infrastructure and in uncommitted surplus
accounts for the increase in the NSFs accumulated reserves, which
stood at around R10.7 billion in 2015/16715
32.9.1 FUNDING OF THE NO FEE INCREASE
861. The NSF funded the shortfall (of R300 000 000) of the total amount
(R2 330 312 000) resulting from the no fee increase decision for the 2016
academic year.716
862. The NSF has committed to fund the no fee increase for the 2017
academic year, totalling a sum of R5 288 000 000.717
863. The effect on the NSF reserves of R10 609 401 billion is an over-
commitment of R366 323 million.718
714
DHET presentation dated 10 February 2017, slide 86 87.
715
716
717
718
DHET presentation dated 10 February 2017, slide 128 129.
436
864. This means that the NSF has no further revenue to fund additional skills
development initiatives.
865. The DHET drew the Commissions attention to the Ministerial Task Team
Report on SETA Performance. Some of the key recommendations
are that:719
865.1. SETAs should receive a reduced allocation of 70%;
865.2. the NSF allocation should be increased to 30% to enable it to
meet national priorities; and
865.3. the skills development levy should not be increased. It
proposed that research based evidence ought to be done
before any adjustment to the levy could be made.720
866. In the circumstances, neither an increase in the skills development levy
nor the use of existing NSF reserves, appears to be a viable alternative
source of funding for the higher education and training sector.
867. The National Treasury confirms that there is no legal basis to use the
funds from the skills levy, the UIF or unclaimed pension funds. It indicated
719
720
437
that using this money constitute an expropriation, in violation of section
25 of the Constitution.
868. Regarding pension funds in particular, National Treasury indicated that
the funds are not held by the state,721 but are rather under the control of
722
the private sector as an investment made by the member.
Furthermore, it is unlikely that the amounts that could be raised would be
sufficient for the purposes of funding higher education and training given
the significant amounts required in that sector.723 It concluded that the
only appropriate use of the funds is to increase efforts to trace their
rightful beneficiaries. It is the Commissions view that unless there are
realistic prospects of tracing the beneficiaries - without exhausting the
benefits in the cost of so doing - it makes no economic sense to leave the
funds unutilised provided that, with utilisation, a guarantee is provided
that in the event of a valid claim being received in respect of any such
fund the benefits will be restored to the fund.
32.10 INCREASED TAXATION
869. The fee-free higher education and training model proposed by students
proposes that it be funded through increased taxation. This relates to
both direct and indirect taxes.
721
Response dated 25 April 2017; p13 para 10.
722
723
438
870. Although the National Treasury had advised on its general view on this
subject, the Commission solicited the further comment of the National
Treasury on the plausibility of this funding proposal.
871. We deal hereunder mainly with the responses from the National Treasury
to the proposals.
32.10.1 PROPOSED INCREASE IN DIRECT TAXES
872. We deal herein with 3 categories of direct tax, namely personal income
tax (PIT); corporate income tax and graduate tax.
873. On the proposal for PIT imposed on high income earners (top 10% of
income earners) and high net worth individuals to be increased,
National Treasury records that:
873.1. this tax bracket has been under pressure as a result of the
deteriorating economic climate, which conditions have
negatively impacted upon individual earnings and purchasing
power. This has led in the previous two budgets, to a
downward revision to expected revenue collection.
873.2. It states further that PIT was increased by 1% in 2015 across
all marginal tax brackets (save the lowest). PIT was again
increased in the 2017 budget, introducing a new top bracket
439
taxed at 45% (from 40%) The new tax bracket will add an
additional R16.5 billion to revenue. The National treasury
noted however, that these recent tax increases were targeted
at covering the shortfall to fund existing expenditure
programmes.
873.3. The National Treasury cautions against further increases in
this tax bracket as it may lead to negative results for economic
growth and investment.
873.4. In the alternative, the National Treasury considers VAT to
have the least economically damaging consequences, to the
extent that potential negative effect on poor households can
be mitigated through, for example, targeted public
expenditure. For the reasons set out below the Treasury
regards the imposition of increased VAT as undesirable.
874. On raising the corporate tax rate (CIT) by 2% from 28% to 30%, National
Treasurys response is as follows:
874.1. an increase in the CIT is not the only way to increase revenue.
According to the Davies Commission, it is the least
economically efficient tax as it, among other factors, moves
with the business cycle;
440
874.2. the likely behavioural response to an increase in the CIT is to
negate most of the assumed revenue increases;
874.3. that is because an efficient CIT regime is one that is conducive
to or encourages growth, or at least one which does not affect
growth negatively and protects the base against erosion and
profit shifting to tax havens;
874.4. adopting measures to broaden the tax base is a more effective
option than increasing CIT to raise revenue. 724 This is the
current CIT focus area.
875. National Treasury also notes that South Africas CIT rate is already high,
being at 3 per cent higher than the OECD rate and 8 per cent higher than
the United Kingdom.
32.10.2 INCREASING INDIRECT TAX
876. In relation to a reliance on an increase in VAT, the National Treasury
referred to the finding of the Davis Tax Committee on the macroeconomic
impact of VAT. That found that increases in the current VAT rate would
be inflationary in the short-term and since prices for standard rated
consumer goods would rise immediately. This would in turn exacerbate
724
These measures include reducing tax incentives and introducing measures to curb
avoidance.
441
inequality. The Committee recommended that any further increases in
the VAT rate only be considered with a view of raising pro-poor
expenditure such as social grants or increasing school nutrition
programmes.
877. National Treasury does not support the establishment of an Education
Fund by reason of its inconsistency with the prevailing arrangement of
appropriating funds by parliament from the NRF.
32.11 SOCIAL IMPACT BONDS
878. A few proposals recommend using Social Impact Bonds as a further
source of funding higher education and training.
879. The evidence presented before the Commission relating to Social Impact
Bonds (SIBs) shows them to be relatively untested funding instruments,
not only in South Africa, but across the world.
880. National treasury, through its Government Technical Advisory Centre, is
in the process of evaluating the viability of SIBs. There is as such no
concrete evidence for or against such a funding instrument.
881. Regarding ICLs, while the National Treasury points to the ISFAP model
and the feasibility study which it is currently conducting, it notes that
although it cannot comment on that proposal at this time, the ICL model
442
proposed by Professor Fioramonti, which is appears to be a variation of
the ISFAP model, can be accommodated through a restructured NSFAS.
32.12 BBBEE
882. The ISFAP model proposes using companies BBBEE contributions as a
further source from which to fund higher education and training. 725 It
specifically proposes using the Broad-Based Black Economic
Empowerment Act, 2003 (BBBEE Act) to actively use the Skills
Development Expenditure (6% compliance target) of companies to invest
in bursaries for students.726
883. The MTT report indicates that the Commissioner of BBBEE in the
Department of Trade and Industry (DTI) has advised that up to 25% of
the 6% compliance target could be used by private institutions by
donating funds to ISFAP.727
884. The implementation of this proposal would also require a legislative
amendment to allow those funds to be used for reasons other than
intended. Having said that, however, we reference the views of the
National Treasury regarding the use of funds intended for skills
development, which of itself, already flows through to the TVET sector.
725
MTT Report p13; ISFAP presentation dated May 2017, slide 7.
726
MTT Report p13.
727
MTT Report p56.
443
885. The Commission supports the use of BBBEE contributions in line
with the proposals of the MTT.
32.13 THUTO KE LESEDI
886. The next proposal is for the establishment of a central fund, the Lesedi
Education Endowment Fund (Lesedi Fund) to facilitate a multi-pronged
solution to funding education involving state, community and corporate
participation.728
887. The model anticipates that funding would be rolled out in a phased
manner, prioritising the most financially needy students.729
888. It estimates a funding shortfall of R27 billion, although the calculation of
this amount was not adequately explained.730
889. Sources of funding include:731
889.1. corporate funding (entails the creation of a Capital
Infrastructure Fund funded by the private sector in exchange
for tax rebates). This it estimates will inject an additional R10
728
Mr Khaya Sithole withdrew his initial model (Lesedi 1) in the favour of the one under
discussion. Transcript of the hearing held on 9 March 2017, page unnumbered.
729
Lesedi Fund presentation (undated) slide 2.
730
Lesedi Fund presentation slide 37.
731
Lesedi Fund presentation slide 8 9.
444
billion to the current third stream university income of R8
billion.
889.2. NSFAS (representing government funding. The model
proposes restoring the state subsidy to the 2000 level of 50%
(phase in), thus adding R12 billion per annum);
889.3. the Skills levy; and
889.4. an education levy.
890. The proposed Lesedi Fund would be capitalised by existing funds of the
NSFAS (R12 billion) and the skills levy (R15 billion). Thereafter, it would
be self-sustaining by contributions by graduates through an education
levy.
891. The fund raised would be consolidated into the newly created Lesedi
Fund which, under the auspices of the DHET, would distribute the funds
as follows:732
891.1. Class 1 & 2 students at full costs of study. These are students
with a family income contribution of less than R300 000.
732
Lesedi Fund presentation slide 8.
445
891.2. Class 3 & 4 students, being those with a family income
contribution of between R300 000 to R600 000 would receive
a partial grant, and the balance would be funded by the
students.
891.3. Class 5 student, being those with a family income contribution
above R600 000, would be completely self-funded.
892. The Lesedi fund would also fund historic debt.
893. This model is similar to the ISFAP. It does however extend the grant
portion to students with a family income contribution that is higher than
ISFAP, meaning that more students will receive grants. In other words, it
widens the scope of the poor. Whilst ISFAP places the expected family
income at less than R75 000, the Lesedi model places the figure at R300
000 or less.
894. The other key difference to ISFAP is that it does not have a loan
component, which means that students who do not qualify for a full grant
would have to pay for themselves without the support of a loan. For that
reason, it may limit access to some students, depending on the individual
circumstances such as students from household earning R300 000 but
having more than one child who want to enter the sector.
446
32.14 CORRUPTION AND OTHER INEFFICIENCIES
895. Various stakeholders pointed to the inefficiencies such as under-
spending in the system and within government which, if curbed, would
ensure further revenue is available to fund, among other things, higher
education and training.
896. The former Minister of Finance indicated that recovered monies would
not automatically be allocated towards funding higher education and
training.733 In fact, most of these funds have already been allocated, and
they would, therefore, remain with that sector.
897. The Democratic Alliance Student Organisation expressed the view that
by cutting corruption and inefficiencies in institutions, free higher
education for the poor with support for the missing middle was feasible.734
898. We agree with the view that curbing such wastage and corruption would
indeed create a larger public purse from which allocations to all social
programmes, including higher education and training, could be
supported.
733
Transcript of the hearing held on 3 March 2017, p62 L19 - p66 L7.
734
Presentation undated slide 12; transcript of the hearing held on 23 September 2016 p160
162.
447
33 FEE REGULATION
33.1 INTRODUCTION
899. This Chapter deals with the regulation of fees in the PSET sector.
900. Fee regulation is not presently being implemented in the South African
PSET sector (although it could be argued that it is being applied at TVET
and CET colleges through DHETs capping of fees). It is an issue that
has been discussed within the sector for several years.
901. The report of the Presidential Task Team on Short-Term Funding
Challenges at Universities, 2015 (PTT) stated that the current cost-
sharing model for the funding of public higher education institutions would
likely continue into the foreseeable future.
902. The PTT recommended that student fees needed to be kept affordable
and that a regulatory framework for managing future university fee
structures and increases be developed through a broad consultative
process, and that this should be implemented in the 2017 academic
year.735
903. The Minister met with USAf and the CHE in January 2016. At the
meeting, it was agreed that the CHE was best placed, as an independent
735
Presentation Minister Nzimande, PG 30
448
body that had the statutory remit to advise the Minister on higher
education matters, to develop a regulatory framework for the regulation
of fees in the university system.736
904. In early March 2016, after agreement with USAf, the Minister requested
advice from the CHE on the development of a regulatory framework for
managing future university fee structures and increases.737
905. The Commission was alive to this process during its span.
33.2 WHAT IS FEE REGULATION?
906. In broad terms, fee-regulation can be conceptualised as a decision by the
State, or some other agency of the State, to place limitations on the fees
charged.
907. There are different methods adopted in different jurisdictions for the
regulating of fees.
908. Governments can either set fees at particular levels to be applied across
the system, set differentiated fees according to disciplines and types of
736
737
449
study, or allow universities to set their own fees in relation to their costs,
but regulate how they may or may not be increased.738
909. These methods will be discussed more substantively hereunder.
910. As stated above, the Report of the PTT recommended that a regulatory
framework for managing future university fee structures and increases
should be developed and agreed upon through a broad consultative
process. The framework should be applied as part of an integrated
planning process built on the current process for negotiated enrolment
planning implemented by the DHET.
33.3.1 MINISTERS REQUEST FOR ADVICE
911. Subsequent to the recommendations of the PTT and in March 2016, the
Minister requested that the CHE provide advice on a framework for the
regulation of fees in Higher Education.739
738
Phase 2 advice to the Minister, Page 28
739
Letter to Minister Nzimande from CHE, 10 April 2017
450
33.3.2 THE WORK OF THE COUNCIL ON HIGHER EDUCATION
912. In doing its work, the Council on Higher Education (CHE) was mindful of
the two major national processes related to Higher Education funding,
being:
912.1. this Commission, which has been mandated and funded to
conduct consultative processes on the broader issue of the
feasibility of fee-free higher education; and
912.2. the Ministerial Task Team on financial aid reform and the
funding of the missing middle.
913. The CHE concluded that to have suggested a framework for the future
regulation of fees at the time would likely have led to the charge that the
findings of the Presidential Commission were being prejudged, and to
preclude a possible finding that fee-free higher education was possible.
914. The CHE therefore divided its task into two phases:740
914.1. the First Phase, which would look only at the implications of
different levels of fee increase (including the possibility of no
fee increase) for 2017 to inform immediate advice, on the
assumption that this Commissions report would not be
740
Phase 2 Advice to the Minister, Pg 9
451
available in time for institutions to make budgetary plans for
2017 informed by its recommendations; and
914.2. the Second Phase, which would explore fee regulatory models
more broadly to inform the requested advice on a framework
for the regulation of fees, should student fees, following the
recommendations of the Presidential Commission, still form
part of the overall funding regime in the future.
33.3.3 THE CHES ADVICE
915. The CHE completed Phase 1 of its work and presented its advice to the
Minister of Higher Education and Training on fee increases at public
universities for 2017 in July 2016.
916. The advice together with consultations with various stakeholders within
the sector resulted in the announcement by the Minister on 19 September
2016 which recommended amongst other issues, an 8% ceiling for fee
increases in 2017.741
917. The advice on Phase 2 was provided to the Minister by the CHE on 10
April 2017 and it is referred to as The CHEs Advice to the Minister of
Higher Education and Training on A Framework for the Regulation of
741
452
Fees in Higher Education. This advice was furnished to the Commission
after the completion of the Commissions public hearings.
918. The Phase 2 advice was developed by taking a broader and longer-term
approach than the first, and the Task Team arrived at recommendations
on the basis of an argument that explores different means of regulating
fees in general, the South African context in particular, and a
consideration of the advantages and disadvantages of different models
of effecting regulation.
919. In its deliberations, the CHE considered the following models and their
various implications:
919.1. capped tuition fees 742 which entails the government, or the
agency with the responsibility for setting university tuition fees,
determining the percentage by which universities are allowed
to increase their fees, or permits institutions to set their own
tuition fee increases within a range specified by the
government;
919.2. a shares approach to regulating fees,743 which is a manner of
regulating fees to determine the maximum share of total
university operating revenue that can comprise fees. This
742
743
453
means that if the share of revenue from tuition fees is below
the determined proportion, tuition fee increases would be
greater than subsidy increases for a time, although there could
be a specified ceiling on the rate of increase each year;744
919.3. fixed tuition fees,745 which applies where different institutions
charge different fees and regulation refers to determining the
parameters within which they may vary or be increased. Fixed
tuition fee models apply where students pay the same annual
tuition fees across the system. There are two main types:
919.3.1. the universal tuition fee model wherein a uniform fee
is charged, based on the notion that equity would be best
served if everyone paid the same fee, regardless of
programme, level of study, or university attended; and
919.3.2. a fixed fee model based on a locked-in average cost
of study.
919.4. Sliding scale models in which differentiated fees apply.746 The
sliding-scale tuition fee model is applied in mainly two kinds of
contexts, namely :
744
745
746
454
919.4.1. within a context of state controlled tuition fees with the
aim of easing the financial burden on students. This
model is not designed for redistributive purposes; and
919.4.2. where institutions determine fees, students from
wealthier backgrounds pay significantly higher fees, part
of which is utilised to subsidise poor students. In this
system, fee increases are linked to the provision of
financial aid.
920. In considering the applicability of fee regulation models, the CHE found
that the financing of higher education, including models for regulating
tuition fees, in any single country, is deeply influenced by particular
histories, cultures, and often by the dominant political and ideological
currents of the moment.
921. Models range from those that rely on market forces to regulate fees, to
those that are more strictly controlled to advance certain policy
objectives.747
922. The CHE further found that as a highly unequal society, South Africa
faces challenges of access and success, and the post-apartheid
747
455
imperative of transformation, which is underpinned by equity and social
justice considerations.
923. The determination of an appropriate model for regulating tuition fees
must consider a broad range of factors, for example: -
923.1. access and affordability by students from marginalised
communities;
923.2. public policy goals; and
923.3. levels of state funding and the financial sustainability of
universities.
924. The CHE then examined the various models for regulating tuition fees
and their applicability to the South African context and made the following
recommendations:
924.1. the establishment of a new independent regulatory structure
which will set fees for all universities. This is ordinarily in
contexts where there is a high level of centralisation of higher
education;748
748
456
924.2. alternatively, instead of creating a new structure to regulate
fees, the regulation would be performed by an existing body
through a specialist committee. The CHE proposed that a
specialist committee of an independent body such as the CHE
could be formed to act as a neutral facilitator of annual fee
negotiations between the Department of Higher Education and
Training and universities, each of which would need to present
their particular case for any changes in fee levels;
924.3. the third recommendation is making the regulatory framework
part of the enrolment planning process of the DHET.
Enrolment planning is an already existing process within the
DHET in which institutions negotiate their overall annual
enrolment targets with the DHET, which is responsible for
allocating subsidy to institutions based on their enrolment
figures. It could be extended to include negotiations on fees
and fee increases, and give the Minister the power to control
fee increases, based on the application of a regulatory
framework and its provisions.
925. The CHE further recommended that the proposed framework must be
embedded in the overarching vision and goals for a transformed and
457
socially just higher education system and be guided by a number of
principles, which are:749
925.1. the achievement of the best possible balance of priorities of
the main stakeholders in determining the price of university
study;
925.2. the principles of transparency and inclusion;
925.3. credibility;
925.4. stability (which is linked to affordability) and quality
926. The CHE found that none of the frameworks that were considered fully
comply with the principles set out above. A decision was made that
certain characteristics would have to be extracted due to the fact that:
926.1. South African higher education is not centralised like many
European countries, China etc. Each university has its own
cost structure, histories and levels of advantage and
disadvantage;
749
458
926.2. The frameworks that are studied are based on homogenous
systems;
926.3. Fee regulation should be undertaken as a consultative
process;
926.4. Fee regulation needs to be supported by the relevant parties
first before the more technical work of developing guidelines
and criteria can be undertaken.
33.4 IMPLICATIONS FOR INSTITUTIONAL AUTONOMY
927. Institutional autonomy will be discussed in this chapter in the context of
fee-regulation.
928. In the immediate post-1994 phase there was a deliberate and
pronounced shift from a state control model of the apartheid government
to a state supervision model because of a belief that higher education
would perform better with the state in a supervisory rather than controlling
role. Participation was to be driven by stakeholder participation under the
auspices of a supervising state.750
929. By the time of the 1997 White Paper, the implementation process was
increasingly perceived to be one that required more direct government
750
Presentation, Professor du Toit, 17 October 2016
459
steering with the corollary of less consultation; by 2001 with the
publication of the NPHE the trend was definitely in the opposite direction.
The NPHE appeared to some to be a sign of intensified state steering of
the system.751
930. Cumulatively, the shifts and changes in the process of restructuring
higher education in the decade following 1994 are viewed by some as
on-going undermining of co-operative governance and a reversal to a
more interventionist approach on the part of the State although the
general view supports autonomy and accountability in the use of public
funds.
931. There are also differing views regarding fee regulation, both for and
against its implementation. It appears that DHET has up to this point
approached the subject on a consultative basis as per the
recommendations of the PTT.
932. In 2016, the Ministerial Commission on fee increases invited all
stakeholders to deliver presentations to the Commission on the matter of
institutional autonomy in relation to the determination of fees by
Government as well as a zero per cent fee increase proposal.
933. Various Stakeholders viewed the intervention of Government in agreeing
to a zero per cent increase (although the proposal was made by USAf)
751
Presentation, Professor du Toit, 17 October 2016
460
as a takeover of the role and responsibility of higher education institutions
in the setting of fee increases for future academic years.
934. The Minister of Higher Education and Training had frequently made
reference during speeches to higher education institutions remaining
autonomous while being socially responsible. Some vice-chancellors had
expressed concerns over the possibility of Government intervention in
the setting of fee increases seeing it to be erosion of the institutional
autonomy.
935. Evidence before the Commission suggested that the capping of fee
increases or benchmarking was conducted in many universities
internationally without necessarily eroding institutional autonomy.
936. It was further suggested that institutions should take cognisance of the
political phase that South Africa finds itself in and the limitations of the
current higher education landscape in that the setting of fees by
Government could bring certainty and support to university sector
provided that it does not lead to a position of under-funding.
937. There is a recognition that a danger exists though that a fee-free
environment within the current subsidy structuring would prioritise
teaching over research. Therefore, government determining the subsidy
as it pertains to the fee setting process would necessitate a certain level
461
of oversight by Government which could have implications for institutional
strategic choices.
938. An obvious issue that would have to be debated in a fee-free environment
would be that of admissions. It was submitted at the Commission that
Government should not be allowed to control the admission process of
the University simply for the reason that they were in control of the
subsidy allocation.
939. A possible zero fee sector would impact enormously on the admission
process as it would prove impossible to admit all students who qualified
for admission and therefore students from quintile one and two schools
who achieved grades that other students could not compete with would
be admitted resulting in poor students being unfairly disadvantaged. This
is already the case. Many students qualify for HE study but cannot get
access due to capacity constraints, individual course requirements and
university admission scales. However, most institutions have introduced
admission criteria which take account of more than just the mark, so as
to give admission to students with potential but from poor school
backgrounds.
940. It was proposed that going forward, the university would need to identify
ways and means of substituting fees through possible business models
and should explore the processes of progressive institutions
internationally in this regard.
462
941. Another viewpoint is that the capping of fees will affect institutional
autonomy and will advance institutional homogenisation. Universities that
rely to a greater extent on fee income will suffer, research missions will
be jeopardised, capping fees will result in making higher education more
affordable for the wealthy but not necessarily improve access752
942. In relation to TVET colleges, the view of the TVET Governors Council
seems to be that the Continuing Education and Training Act 16 of 2006
makes provision for a college council to govern a public TVET college.
The DHET appears to interpret the legislation differently. As a result,
there is misunderstanding as to what governance means in relation to
certain administrative processes of the colleges.
943. DHET presently determines tuition fees, accommodation fees and any
other fees payable by students as well as accommodation fees payable
by employees.753
944. The TVETGC further indicated that it believes that the TVET sector and
TVET colleges can thrive and respond to the needs of the country if the
governing councils are allowed undertake their legally imposed mandate
to operate within the prescriptions of the CET Act.
752
(HESA, 2008).
753
Presentation, TVET Governors Council, 24 October 2016
463
34 STUDENT FUNDING SYSTEMS
945. The focal issue of the Commission is to find a sustainable funding
solution for higher education. As such, wide-ranging testimony was given
recommending a variety of funding models. Research was also done into
international examples, and the advantages and disadvantages of some
of such systems. In this section, these different models will be considered
briefly, together with their pros and cons in the South African context.
34.1 ONLINE UNIVERSITY
946. Before moving to compare the different funding models represented, it is
necessary to briefly consider the recommendation presented to the
Commission of an online university. More than one person gave
testimony to the Commission advising that a free, online university would
be the best solution.754 Mr. McDonalds presentation has already been
considered. Mr. Mahlangu also spoke about the benefits of an online
education system, which he argued would have much lower running
costs after the initial setup, and could be accredited to ensure quality. He
also suggested that data charges for the site be eliminated, and that
courses be compatible with hand-held devices.
754
Mr I MacDonald, Submission and presentation to the Commission, 29 September 2016; Mr
N. Mahlangu, Submission and presentation to the Commission, 10 August 2016.
464
947. Ms. Glennie from SAIDE also gave a presentation to the Commission on
blended and online learning techniques.755 She discussed the benefits of
incorporating online learning into traditional learning methods, and
innovative blended learning strategies to support traditional
correspondence instruction. She also highlighted the growing costs of
traditional contact education, and the opportunity created by online and
blended options. However, she also warned of the need for careful
pedagogic consideration in the development of such courses, and
pointed to the time and cost involved in establishing quality programmes.
Furthermore, Glennie highlighted the extreme throughput challenges
currently experienced by UNISA, and the difficulty most students have in
adjusting to a distance learning model without traditional support
mechanisms. She also discussed the development of Massive Open
Online Courses (MOOCs) internationally, and the high dropouts
experienced with these courses, with very low completion rates, despite
the fact that the target market was generally well-educated. She
suggested greater use of Open Educational Resources (OER) to reduce
costs, but highlighted the need to take our context into careful
consideration when making decisions of this kind.
948. In brief, while an online model was considered by the Commission, it was
determined that such a model could not provide the whole solution to the
problem. Traditional contact universities remain the most popular form of
institutions, and as such a proposal for funding those attending these
755
Ms J Glennie, Submission and presentation to the Commission, 27 October 2016.
465
universities is required. Nonetheless, the development of blended and
online courses continues, and many traditional universities are
increasingly using technology in the provision of their courses, supported
by contact teaching and tutoring.
34.2 PRINCIPLES, PRIORITIES AND CHALLENGES
949. In order to compare the models in our context, we have decided to
highlight some principles and challenges in our current system, so as to
ascertain how the different models assist with each of these and whether
they meet the basic aims of our higher education sector. These will be
outlined briefly, before moving to consider the various proposed models.
950. Dr. Hull, in his presentation and research article submitted to the
Commission, highlighted the principles of Access, Efficiency, Fairness
and Equality, and considered these in relation to various funding models.
His research will be drawn on extensively in this discussion, and is
included as annexure "A" to the Report.756 The principles identified by
Hull, are closely related to the Constitutional imperative of access and
availability.
951. Hull described Access as the exclusion of barriers to higher education
based on race, class, gender, socio-economic status etc. He explained
756
Dr G. Hull, Presentation to the Commission, 7 February 2017; G. Hull, Reconciling
Efficiency, Access, Fairness and Equality: The case for income-contingent student loans with
universal eligibility in CHE (2016) Kagisano 10: Student Funding, pp. 187-217.
466
that on the one hand is the formal denying of access (i.e. laws or rules
which prohibit someone access), which has been removed through
legislation. On the other hand, is substantial opportunity, which refers to
the removal of social barriers denying access. This would include
exclusion due to socio-economic status or financial exclusion, which is
the main topic of discussion in this context. For the purposes of this
analysis, the expansion of access as a constitutional imperative is added
as another dimension of access, despite Hulls discussion regarding
expansion of spaces as not necessarily solving formal or substantial
Access, a reservation also shared by the Commission.
952. With regard to Efficiency, Hull discussed how the sector needs to make
good use of funding, and not waste limited resources. Hull further
described three types of efficiency (allocative, intra-sectoral and inter-
sectoral). The first relates to student preferences and labour and labour-
market demand. The second relates to realising the broader aims or
purposes of higher education. The last is concerned with the broader
allocation of government funds in the pursuit of certain functions. Hull
explains that Inter-sectoral Efficiency is achieved if the values realised
through spending on higher education could not be realised more cost-
effectively through spending on other sectors, and do not crowd out more
important values that could have been realised through spending on
other sectors.757 In his presentation to the Commission, Hull referred to
this element of Efficiency when discussing black tax. He explained that
757
CHE (2016), Kagisano 10, p. 191.
467
it would be more efficient (and fair) to spend money on interventions to
deal with poverty for all citizens, than to spend on free education in a
round-about attempt to alleviate poverty (only in the families of certain
graduates) through giving them the necessary resources to pay black tax.
953. An element of efficiency highlighted during the Commission was the
problem of dropout and throughput in the PSET sector, and how this is
putting a strain on limited resources, and is wasteful (both financially,
psychologically (for the student), and in terms of human resources).
Efficiency, both in Hulls terms and in terms of throughput and dropout,
need to be considered when comparing different funding options.
954. Fairness relates to equity, in considering how the benefits and costs of
higher education are allocated among members of society. 758 This
discussion relates also to the benefits of higher education, and as
discussed previously in this report, there are both public and private
benefits to higher education. Furthermore, in the South Africa context
especially, only a small number of individuals benefit from higher
education.
955. Finally, Equality is considered, which refers to the treatment of
individuals in society as though they are equal, and is based on the
removal of hierarchy, stigma, domination and exclusion. In Hulls article,
he connects the issue of Equality to another key challenge highlighted in
758
Ibid., p. 194.
468
the Commission, and that is the Means Test. The Commission
repeatedly heard how humiliating the means test is, and how it
stigmatises the poor and makes them beg poverty. Hull argued that the
means test goes against Equality as it creates stigma by throwing
suspicion on the applicants; makes applicants reveal aspects which they
find shameful; and humiliates them or makes them feel inferior.
956. Aside from the above principles highlighted by Hull and the two
challenges already discussed above, there were other challenges or
priorities highlighted during the Commission. First, quality higher
education. While it is hard to define what quality higher education is, it is
important for the higher education system to be sufficiently funded to
ensure that there is quality in order to demonstrate excellence,
consistency, the return on investment (value for money) and
transformation imperatives.
957. Sustainability was also highlighted by many participants, and it is
important that any funding system introduced will be sustainable in the
foreseeable future. A system which will lead to economic decline and
collapse is not sustainable. There are many examples world-wide of
higher education systems that have either collapsed, or are not coping
as a result of poor funding decisions that were made in the past.
958. It was also highlighted frequently that the system should not be
administratively burdensome, either on students, institutions or on
469
government departments. This is in some ways linked to efficiency, as it
is inefficient to spend money on an expensive bureaucracy to manage a
funding system. There is, therefore, the need for administrative ease
without too many additional expenses to manage a complex system.
959. Related to the Constitutional imperative, is the size and shape of the
sector. Any funding model needs to be able to support the transformation
and gradual expansion and of the sector, but also the development of the
desired type of PSET sector. This relates to a university/ TVET balance
(the pyramid), a research and teaching mix; a higher education system
responsive to the needs of our economy and society; and international
competitiveness.
960. Finally, and also in line with the Constitution and higher education
legislation, is the need for the protection of Academic freedom and
institutional autonomy, within a framework of accountability and
transformation. Professor Du Toit presented to the Commission on
autonomy in its various forms, and the value of autonomy for the sector,
within a framework of public accountability. 759 One of the issues of
discussion related to the issue of autonomy, has been around the topic
of the regulation of fees. In this regard, the Council on Higher Education
(CHE) prepared advice for the Minister of HET, which was shared with
the Commission. This advice is attached as an annexure and should be
given careful attention. It is important to remember that in any funding
759
Professor A. Du Toit, Submission and presentation to the Commission, 17 October 2016.
470
system, there is still the need to determine a proxy for payment per
student whether this is funded by the state or the student. As such, the
issue of regulation of fees needs attention in any funding model.
961. Each of the funding systems considered below will take into account how
they relate to each of these principles, priorities and challenges. The
section below will give a very brief outline of the model and its
characteristics. For this purpose, the model will be discussed in terms of
international examples of where it is in place, and how it is structured.
Thereafter, the pros and cons in relation to these points and to any other
pertinent matter will be outlined. The international examples discussed
below are generally based on the presentation to the Commission by Dr.
Ouma, unless otherwise indicated.760 The discussion on pros and cons
is partly drawn from Hulls research, and is partly our analysis, often
based on a number of points of view put before the Commission through
submissions and throughout its hearings.
34.3 DIFFERENTIAL FEE
962. Dr. Ouma explained that upfront fees are based on the belief that parents
have a responsibility to cover some portion of their childrens higher
education costs. These fees can be differential (as in Colombia, the
Philippines, and Italy) and based on the parents income; or they can be
the same fee for all. In these instances (for instance Chile, China, India,
760
Dr G. Ouma, Presentation to the Commission, 24 February 2017.
471
Indonesia, Italy, Japan, South Africa, Kenya, USA) tuition fee levels do
not change with a familys income level, but eligibility for aid does change
and tuition fee costs are off-set by means-tested grants and/or
government subsidized loans.
963. Differential tuition fees vary according to the socio-economic background
of each student. Accordingly, students from lower-income families pay
lower fees while students from well-off families pay the full fee rate. These
sliding fees could be within a context of state controlled tuition fees or
institutionally determined fees. In the first instance (Indonesia, Colombia
and Italy), the state decides differential fees with the aim of easing the
financial burden on students and Universities in this context do not
generate extra income that could be utilised to provide financial aid. In
the second model (California), students pay higher fees to the university
to allow for cross-subsidisation without financial means. Some South
African universities testified to such a system at university level.
964. With regard to implementing such a system, Ouma indicated that:
Number one you have to means test all your students and determine
which socio-economic group they belong to; once you have done that
then you determine what fees they are going to pay, either you can have
a uniform fee where you say this is what everyone is going to pay knowing
very well that 20 percent, 30 percent, 40 percent of your students will not
be able to pay. Then you know those who pay the full rate have paid to
subsidise the others. Or decide, as the Indonesian case or even the
472
Columbian case or even the Italian case, where you decide to determine
particular fee levels for particular students from particular socio-economic
categories.
965. Dr. Ouma explained further than when the Department of Higher
Education [and Training] said that students from the so called missing
middle and the working-class backgrounds , the state is going to pay
the increased fees for them, this was exactly the challenge the
Universities were experiencing because they do not have data where
they can determine who exactly is missing middle and who exactly is
working class. That data is not systematically captured across all the
Universities, but they are trying to capture that, so my view is
Commissioner, it is doable.
966. Despite the fact that Dr. Ouma said this can be done, it is clear that it
would require means testing of all students, which would be both
cumbersome and may stigmatise specific students. Having said this, it
was also brought to the attention of the Commission that some students
misrepresent their socio-economic status and end up benefitting from a
system designed to assist the poorest students. Furthermore, in the
South African context, there is unlikely to be a sufficient number of
students able to pay fees at a high enough level to subsidise all other
students sufficiently.
473
967. Secondly, Dr. Ouma discussed a dual track system where a certain
number of free (or very low cost) university places are awarded by the
government based on academic merit, while other places are available
to qualified, but lower performing students on a tuition fee paying basis.
In this system Students in the parallel streams pay very high,
sometimes full cost fees. This is in practice in Russia, Hungary, Ukraine,
Kenya, Uganda, and Egypt.
968. He explained that it is practiced in quite a number of countries you know,
a lot of countries in Eastern Europe, Russia, the Russian Federation,
Estonia, Latvia, in Africa as well, Kenya, Uganda, Tanzania, Egypt;
Pakistan practices this as well. India, as I have demonstrated in my
presentation, it creates two classes of students for want of a better word,
the one group are those who are considered to be high performers who
have passed their matriculation examinations and the state either over
subsidises them or in certain instances they actually go in for free. Then
they create another class of students who are told, look here, we have
got some capacity, if you want to come in you are welcome but you are
going to pay either the full rate or a substantial amount of fees. So then
you have got two streams of students, you have got one stream of
students who are subsidised by the state, in certain cases they pay
nominal fees like in the Indian case, in the Russian Federation as well
and then you have got another stream of students who pay the full rate,
at times even more, so that is how the dual track system works.
474
969. With regard to the dual track model, it is clear that those with the best
school marks will be prioritised, and given South Africas unequal school
system, this will not be in line with the Constitutional imperative to access.
970. In the context of the Commissions mandate, the current system is a mix
of a differential fee model and an ICL model (to be discussed later). For
the purpose of this discussion, it is included under differential fees.
Maintaining the status quo would require maintaining the basic
principles of the current system, with improvements to efficiency. The
characteristics of such a system include:
970.1. A cost sharing model as higher education and training is
interpreted as both a public and a private good.
970.2. A scheme which determines who can receive a loan/ bursary
and who cannot, based on household income. The current
determination of R122 000 could be shifted (up or down) as
funds allow.
970.3. A means test would be required to determine who qualifies.
970.4. A determination of incentive bursaries for university students.
970.5. Bursaries for TVET students within the qualifying household
income band.
475
970.6. Fees would be retained, with or without some form of
regulation.
971. The pros and cons of such a model:
971.1. Students have rejected this model, and it is unlikely that they
would come to accept it without substantial change.
971.2. If implemented effectively, it can ensure Access.
971.3. The means test is retained (goes against the wish of students
and Hulls Equality argument).
971.4. A working and acceptable definition for poor would need to
be developed, and this together with the means test, results in
this model not meeting the criteria for administrative ease.
971.5. Unless funds are substantially increased, university debt will
remain a growing problem, which could impact on both
sustainability and quality in the short term (until additional
funds are made available).
971.6. Cost sharing means that the state would not need to shoulder
the full burden of cost, and the Fairness test would be met,
depending on the bursary/ loan mix.
476
971.7. As the state does not need to provide all the funds, the size
and shape of institutions is unlikely to be affected negatively
in the longer term.
971.8. The NSFAS model is developed, and may be continued with
radical improvements to efficiency.
971.9. Without additional academic support, it is unlikely that
throughput will improve.
971.10. Black tax remains an issue of tension and it may be difficult to
enforce repayment without a completely overhauled collection
method.
971.11. Autonomy and academic freedom are retained.
972. Alternatively, a more traditional varying or differential fee model should
also be considered.
973. The characteristics of such a system include:
973.1. A cost sharing model, as higher education and training is
477
973.2. A system which determines categories for different fee-levels
based on household income/ affordability.
973.3. A means test (for all) would be required to determine who
qualifies for which level of fee.
973.4. Different levels of fees would need to be set for each and every
course at each institution.
regulation.
974.1. The means test is retained, and even extended (no equality).
974.2. A working and acceptable definition of categories of
household income would be required (no administrative
ease).
974.3. The effect of jumping bands would need careful
consideration.
974.4. University debt could remain a growing problem (no
sustainability, possible impact on quality).
478
974.5. More students may find themselves unable to pay the
expected fees, considering the small number of households in
to the top tax brackets (no Access).
974.6. Universities which cater predominantly for poor students
would not be able to have a system of cross-subsidisation with
sufficient income to sustain the university. Even those with the
largest proportion of wealthy students, may find insufficient
opportunity for full subsidisation (Size and shape may be
impacted).
974.7. Cost sharing (Fairness) means that the state would not need
to shoulder the full burden.
34.4 ISFAP PROPOSAL (IKUSASA STUDENT FINANCIAL AID
PROGRAMME)
975. The new proposed ISFAP system is in many ways a continuation of the
current system, with some additions and variations to ensure support for
a wider number of students, and free education for the poor. The ISFAP
proposal provides for a complex system of loans and grants for students
from families who are deemed poor or part of the missing-middle. As
479
such, it manages to increase the amount of money available for students
through an elaborate PPP which includes money from the government,
banks and other providers of financial services, corporate social
investment, BBBEE and Social Impact Bonds. By increasing the pool of
money available, it can reach more students, and offer them an amount
equal to (or at least closer to) the real, full cost of study (i.e. tuition and
other expenses). If implemented, the ISFAP model should result in
broader access for the financially needy, a reduction in debt owed to the
universities, and possible improved throughput. The assumption of
improved throughput is based on effective wrap-around support being
provided to students, and an expectation that currently some dropout and
high failure rate is caused by financial stress. The latter assumption does
not take into consideration the complexity surrounding dropping out and
the high failure rate. There are numerous challenges as expressed in
some of the testimonies presented to the Commission. The envisaged
wrap-around support places more emphasis on the student and plays
down the support needed for teaching staff; infrastructure and
instructional technology needs in an uneven higher education system;
poor career choices that often lead to extended study periods, etc.
Academic freedom and institutional autonomy do not compel institutions
collectively to develop strategies that will make them accountable and
significantly improve the high failure rate, or improve their throughput. As
a result, this problem will persist for some time, and it will remain costly
to the system.
480
976. However, on a deeper level, a few key concerns regarding the proposal
come to the fore:
34.4.1 THE MEANS TEST
977. The means test is retained as an important element in the ISFAP model,
and in fact becomes even more central than it has been to NSFAS. While
ISFAP plans to include databases from SARS, Home Affairs and other
entities, problems remain and using quintile school divisions and social
grants as proxies for a means-test, hold their own risk and may result in
exclusion of other poor students (for instance, non-fee paying students
at quintile 5 schools).
978. Thus far, the means test has only needed to determine whether or not a
students family income/ affordability falls within the affordability range set
by NSFAS, and if so, the student has received a loan/bursary from
NSFAS, subject to the availability of funds.
979. Regarding the current situation, we have heard testimony viewing the
means test as one of the central problems of NSFAS. First, students have
indicated that they are humiliated when forced to prove and plead
poverty; they feel frustrated by the inefficiency of the system which delays
their approval for funding; and they had to in the past re-apply and go
through the means test on an annual basis, leading to insecurity (this
aspect has changed). Secondly, students and anecdotal evidence
481
indicate that the means test has led to fraud with students providing false
information in order to access loans. There are reports of ineligible
students accessing NSFAS loans, while the poor cannot access these
loans. The DHET has instituted an external audit of the extent of fraud at
selected institutions, and is yet to release the report.
980. The complexities of a means test in the South African context cannot be
ignored. Without going into detail records on births and deaths are not
always accurate, some people have more than one ID book, and in
general our information management systems need to be better
integrated across government. Furthermore, the nature of families is not
traditional nor nuclear: single-parent household without either proof of
divorce or any provision of maintenance are the norm; families take in
extended family members when needed, without any official
documentation (like adoption); grandparents raise children for a variety
of reasons; and incomes come from extended family members. Finally,
those part of the informal economy have little proof of income. In such an
environment, proving family income and the number of dependents is
extremely complex. So also, is the capacity to verify information even if
the will to do so exists, which, in itself, doubtful. The upper limit for the
means test may well admit some who can afford to pay while excluding
others who cannot.
981. While means testing is a necessary tool to guide who qualifies, and who
does not, such a model, if it is adopted, needs significant revision to take
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into account a number of variables identified in the above paragraph. An
algorithm would have to be developed to determine which categories of
students/applicants would apply and have a reasonable probability of
success. It should apply across the races in order for it to be sustainable.
It should take into account the status of the family and/or other income or
not, since economic circumstances change and some families become
poorer over time even when they were not at the preferred quintile
schools.
34.4.2 THE MIX OF LOANS AND GRANTS (GAP YEAR)
982. As mentioned above, the means test becomes even more central in
ISFAP. No longer is it only required to assess whether or not income is
below a certain threshold for the purposes of a loan, but it introduces
multiple steps where different allocations are made and where either
grants or loans can be accessed. In addition, the interest rates to be
charged on loans will be different depending on the outcome of the mean-
test and the field of study.
983. With this system of loans and grants, the value of falling just under a
certain income threshold holds much more benefit than was the case with
NSFAS. Now, proving a certain income will determine whether you get a
grant or a loan, increasing the stakes substantially and increasing the
chances of fraud in the system. This is exacerbated by the fact that the
cut-off amounts for each band are simple numbers. This is different from
483
a graduate system (like our income tax brackets) which reduces the
chances of jumping brackets the detriment of the system.
984. Another concern with the ISFAP system is that grants are provided for
the initial years, with loans taking over later in studies. This means that
the greatest risk of failure and dropout is in fact carried by the government
(rather than the student or private funders in the PPP agreements) and it
removes the current incentive provided by NSFAS in the later years of
study. It may lead to students who are unsure about further study just
trying it out, as they have very little to lose. On the positive side, it makes
the loans provided less risky and more likely to be repaid (an advantage
for the providers of loans).
34.4.3 THE INCLUSION OF PRIVATE SECTOR MONEY
985. On the positive side, the inclusion of private sector money materially
increases the amount of funding available for students. ISFAP has been
successful in raising private money for the (limited) 2017 pilot where
NSFAS has not been able to so in the recent past. SARS is also to
become involved in recovering loans, which should lead to better
recoveries. However, the majority of private money is for the provision of
loans. In order to get the private sector involved, it needs to be sure that
the risk is limited. This leads, in the first instance, to a complex
bureaucracy where NSFAS is retained but side-lined in order for a new
body to manage the funds. The costs and efficiency of running the
484
complex system are not explored in the model, and alignment with the
PFMA needs to be considered. This PFMA accountability mechanism is
masterfully circumvented in the ISFAP blueprint. There are numerous
legislative changes recommended, but the PFMA is not on the list of
those, yet the retention of NSFAS in a diminished role is sought to be a
conduit to transfer funds to ISFAP to manage through its MANCO.
986. Secondly, it leads to the system discussed above, where loans only begin
when the student has a better chance of succeeding. ISFAP has
explained that it is a model where the risk is shared, but it appears as if
this is not balanced share of risk and benefit. The state also carries more
risk in the first years of the scheme, until a track record is established and
the private sector feels secure in lending.
34.4.4 CSI MONEY
987. Part of the risk-sharing, is through the fact that private money is also used
for the grants. This is expected to be provided partly through CSI
donations. However, it is unclear what quantum such donations could
reach. Testimony has been heard indicating that companies would
usually prefer small education projects where they can see and perhaps
benefit from the impact of their relatively small CSI activities.
485
34.4.5 SOCIAL IMPACT BONDS
988. Another stream of funds, directed mainly at the provision of wrap-around
support to improve student success, is through SIBs. These have not
been proven to be a successful tool in the developing world, and it is
unclear how much they would raise, particularly in struggling economy.
Also, it is unclear whether the same companies are going to be willing to
make both CSI donations and buy into SIBs. It is unclear what direct
benefits SIB investors would get if the project is successful. Finally, it is
unclear whether the wrap-around support is dependent on SIB
investment, or whether it will go ahead anyway, and where the money
would come from in such an instance.
34.4.6 BBBEE
989. The accessing of these funds seems to be possible and without much
risk. Even without the ISFAP model, this is a source of funding which
should be utilised to supplement any funding model which is adopted.
34.4.7 THE FULL COSTING OF THE ISFAP MODEL AND THE
ASSUMPTIONS / MODELLING UNDERTAKEN
990. Despite the above pros and cons of the ISFAP system, the crux of fits
feasibility lies in the calculations made regarding the amount of money
486
needed and the amount available. A key element here is the costing done
by National Treasury, which is yet to be completed.
991. In modelling, various scenarios certain assumptions have been made.
Unfortunately, these are not clear in the report and the modelling has not
provided to the Commission, making it hard to fully understand the final
numbers. There are some specific concerns.
992. On page 81 a table is provided showing the number of students who
would need to be funded should ISFAP be introduced in 2018:
FUNDING COST IMPLICATIONS 2018

Income band < 150k < 300k < 450k < 600k
Number of 209,907 334,761 397,187 501,232
students
funded
(cumulative)
% university 30% 45% 52.5% 65%
population
(cumulative)
Funding cost 19 28,9 33,8 42
(Rbn)
(cumulative)
993. The concerns with the above table are that:
993.1. The calculation of 65% falling below R600 000 p.a. is hard to
verify but lower than expected. Such numbers are not
collected by universities currently.
487
993.2. The number of 501 232 students and 65% of the student
population do not tally when current headcounts stands at
almost 1 million.
993.3. These numbers only include university students and no
calculation is made for TVET students, where an even greater
number should fall within this income bracket.
993.4. The full cost of study mentioned when the ISFAP team
presented was R135 000, but this would require more than
R42 billion annually, an amount much larger than ISFAPs
projected income.
993.5. It is unclear what level of growth in student numbers is factored
into the calculations. Even if overall numbers do not increase
dramatically, it can be expected that the proportion of students
from the missing-middle will increase once funding is available
to them.
994. On page 82 is a table showing the income which can be expected:
PROJECTED INCOME
Short Term Medium Term Long Term
(2017/18) (2018/19) (2019/20)
Government R17,5bn R18,5bn R19,7bn
Funding
B-BBEE Skills R8bn R10bn R15bn
Development Levy
488
Private Capital
Markets
- Bonds R0,5bn R0,5bn R5bn
- 20% Credit
Enhancement R1,5bn R2bn R5bn
DFIs, Foundations, R1bn R1bn R5bn
CSI
Total R28,5bn R32bn R49,7bn
995. The concerns with the above table are that:
995.1. The amount of R42 billion calculated in the first table to
support only university students, is not actually available in the
year 2018/19, leaving a funding gap that is not explained.
995.2. The amount calculated in the proposal as government money
is based on what is currently given to NSFAS. However, there
are a few things to consider. First, this means that money
originally planned for loans, now automatically become grants.
While NSFAS collections have been poor recently, this would
preclude any option for sustainability in the future, and rather
makes allocations to NSFAS of this size an indefinite line item
in the budget. Second, the amount allocated to NSFAS has
increased substantially in recent years as a result of the
student protests. This calculation is based on an expectation
that allocations should remain at this level indefinitely, and
grow further. It is unclear if this is sustainable given the current
economic context, and it may lead to direct subsidies to
universities declining even further. Finally, the amount also
includes money currently allocated by NSFAS for specific
489
programmes. For instance, Fundza Lushaka money would
now be allocated as part of the broad ISFAP plan. This could
have repercussions for such targeted bursaries in scarce-skills
areas. The same applies for SETA money, with the added
complication of imminent changes to the SETA structure and
a possible planned reallocation of this funding.
995.3. It is unclear whether the NSFAS money for TVETs has been
similarly lumped together for the calculations discussed
above. This could have dire consequences for this sector, as
many of the calculations on the ISFAP model are based purely
on the numbers and costs for university students. The general
lack of inclusion of the TVET sector (apparently due to data
problems) is a major concern.
995.4. The growth in expected private contributions is unclear.
Consequently, the duration it may take to produce a track
record before private contributions are made, leads to further
uncertainty.
996. Based on the above, the question arises of whether the ISFAP model is
currently affordable. In the report, it is indicated that should there be
insufficient funds, possibilities would include lowering the top threshold
of R600 000; declining students based on academic performance
(presumably students whom the universities have already accepted);
490
giving preference to scare skills; offering lower amounts in certain cases
and adjusting the loan/ grant matrix. The R600 000 threshold remains a
serious challenge in that it has been conceived under exceptional
circumstances characterised by pressure to address the missing-middle
category without a study to consider all the variables. It was a quantitative
exercise (yet to be verified with further work to be done), without much
credence to the qualitative circumstances and elimination of
discrimination. The recent negative economic situation in South Africa
could have an adverse effect on the financial planning, and the
willingness and/or capability of other private funders to commit
themselves in the wake of economic uncertainty needs consideration.
997. In his presentation to the Commission, the Mr. Nxasana indicated that
decisions would be made based on funding available and any funding
gap. However, any of these changes to the funding allocation would
impact students immediately. If students accept the ISFAP proposal, they
would expect it to be implemented as explained, and such changes could
lead to further altercations. Any solution needs to be sustainable for the
foreseeable future. The Commission further noted that there was no
universal acceptance of this model by students since other groupings
declined to participate in the consultative forums arranged in order to
refine the various stakeholder inputs.
998. In brief, the characteristics of the proposal are:
491
interpreted as both a public and a private good; but free
education for the poor (full cost of study)
998.2. A scheme which determines who can receive a loan/ bursary
and who cannot, based on household income. This is a
complex system where based on (still undefined) income
levels, the bursary/ loan mix changes.
998.3. A means test would be required to determine who qualifies,
and many more students would be subject to the means test.
998.4. Unclear on the level of support for TVET students, most likely
treated the same as university students.
regulation.
999.1. No financial exclusion (Access). Assuming that the family
income level of R600 000 can be maintained and that there is
no student whose family income exceeds that level who
cannot afford to pay the fees and ancillary support (which is
doubtful).
492
999.2. The means test is retained (no Equality).
999.3. A working and acceptable definition for poor and missing
middle (in 4 steps) would need to be developed (no
administrative ease).
999.4. If all the proposed funds are forthcoming, students should
receive full cost funding and university debt would be reduced
(yes to sustainability and quality).
999.5. The public-private relationship could prove problematic if the
banks are unhappy with the progress and withdraw, the state
will be left to shoulder the full costs (in this case, sustainability
is a problem).
999.6. Cost sharing means that the state would not need to shoulder
the full burden (yes to Fairness), making this model more
sustainable (no impact on size and shape); however, there is
insufficient detail regarding the free first year, and how the cost
of this would be carried. It could prove more costly than
expected.
999.7. Wrap around support could improve throughput and reduce
dropout.
493
999.8. Black tax remains an issue of tension, but working with SARS
could improve collection.
999.9. No relief of the present burden on the state would result and
the scheme would therefore not facilitate diversion of the
present contribution of the state to the wider education sector.
34.5 FEE-FREE FOR ALL
1000. A free higher education model means that there is no payment of fees by
any students. The whole cost of education is covered by the state through
direct transfers to institutions (universities and TVETs). While the issue
of fees is covered by the state, it should be remembered that even in
such a context, a tuition fee needs to be determined to calculate to
amount to be paid by the state to each institution, based on the number
of students, the courses enrolled for, and any other identified costs.
1001. Dr. Ouma761 made the following observations concerning fee-free higher
education:
1001.1. It was first introduced in many African countries (eg. Uganda,
Ghana and Nigeria) as a legacy of the colonising power. The
experience has been that fee-free education is unsustainable.
761
G Ouma, Evidence to the Commission, 24 February 2017
494
1001.2. The worldwide trend is for countries that previously provided
higher education at no cost to the student to move towards
cost-sharing. This primarily due to lack of financial means from
the side of the state.
1001.3. Payment of tuition fees created capacity for a system to
expand and provides more spaces for students.
1001.4. Where the massification of higher education is a necessity (as
in South Africa), charging tuition fees is more advantageous
to the maintenance of the higher education system than fee-
free education. Dr. Ouma testified that he knew of no country
that had massified on a fee-free model.
1002. In his testimony to the Commission, Dr. Ouma spoke about three free
higher education examples Brazil, Norway and Chile. He described how
the Brazilian model is an elite public / mass private model of free higher
education. As such, the public system has remained small and relatively
well-funded, and is academically selective. The free public system caters
for the top performers academically who, given the schooling system and
the unequal nature of their society, tends to be the socially elite. The
private sector, is much larger, depends on tuition fees and is of varying
quality. This sector caters for the majority of the growth in demand for
higher education, and less well-performing and poorer students tend to
be catered for by these private institutions. Ouma explained that nearly
495
60% of students in the public higher education system come from the top
income quintile while about 70% of [total] enrolments are in private
universities. While public universities are tuition free, students pay
registration fees and cover their own living costs.
1003. In an attempt to deal with the unequal nature of the higher education
system, the Brazilian government introduced a programme in 2002
where private (for-profit) institutions are encouraged to offer free
education to low-income students in exchange for exemption from tax
payments. Furthermore, non-profit institutions are required to allocate
20% of their revenue towards funding free places (this is necessary in
order to maintain their existing status of exemption from taxes). There
are, however, abuses in the system, with institutions offering these places
to relatives of staff members, rather than to needy students. Other
interventions by the state include the introduction of a student loan
scheme, FIES, in 1999, which covers 70% of the fees and is paid directly
to the institution; the introduction of affirmative action policies in both the
public and private higher education institutions to address racial
inequalities; and a 2012 law which requires that half of the places at
undergraduate level at federal universities are reserved for candidates
from the public basic education system and minorities.
1004. The free higher education system in Norway, as explained by Dr. Ouma,
is very different from that in Brazil. In Norway, education is free at public
institutions, although there may be fees for selected specialised
496
programmes (particularly Masters programmes). Students pay a
registration fee each semester (approximately US$35 to $70) to cover
campus health services, access to sports facilities, etc. Students cover
all their own living costs, often through student loans. The provision of
fee-free higher education is aligned with Norways (and other Nordic
countries) social welfare system, which is sustained through high
personal income tax, which is paid by the vast majority of the population
(low unemployment). The country is also characterised by a high
participation rate in higher education, meaning that the benefit of free
education is shared among much of the population, thereby leading to
stable economic growth, characterised by high employment.
1005. Dr. Ouma discussed Chile where a law was passed toward the end of
2015 granting tuition free higher education to students from poor families.
The law defined the poor as those from the poorest three income
quintiles, with a per capita family income of US$221 per month or less.
Students without access to fee-free higher education can apply for
bursaries or loans. Chile has a standard reference fee for each degree
programme that is used to determine the amount to be disbursed in
student loans. The Ministry of Education sets this amount annually [and]
participating universities are required to pay from their own resources the
difference between the reference tuition set by the Ministry of Education
and their actual fee. This requirement to pay the difference between
actual fees and government determined fees has meant that some
institutions have selected not to participate, even though they have
497
students who qualify. In order to cover the costs of free education, Chile
increased company tax to 27%, but this is insufficient to meet the
demand, and due to economic constraints, only 50% of the countrys
poorest students benefit from fee-free higher education.
1006. As discussed earlier Mr. Kaya Sithole presented the free-education
model developed by the University of the Witwatersrand research group
the Lesedi Education Empowerment Fund. 762 This model is a
combination of a traditional fee model (introduced over time) and a
graduate tax. This is a model towards free education drawing on state,
community and corporate participation. He explained that it would fund
more students over time through a self-sustaining Endowment Fund
[which] ultimately shifts the burden of funding higher education away from
society to the primary beneficiaries. The model was based on the
assumption of a R27 billion funding gap; however, when this was
interrogated it was found to under-estimate the required funds. However,
Sithole suggested that the same model could still be retained. The Lesedi
Education Empowerment Fund would be made up through current
NSFAS allocations; a Corporate Infrastructure Fund (with private sector
contribution in lieu of tax rebates); the Skills Development Levy; and an
Education Levy collected on all graduates regardless of their funding
status. Initially, those from households with less than R300 000 family
income p.a would be fully funded, those between R300 000 and R600
000 would only have tuition funded; and the rest would pay full cost. In
762
Mr K. Sithole, Submission and presentation to the Commission, 7 March 2017.
498
the model, even those paying for their education, would still be expected
to pay the Education Levy once employed.
1007. The three presentations on free higher education system raise a number
of concerns with such a model. First, as in Brazil, free education tends to
benefit the wealthy or upper middle class in an unequal society. This
relates to the need to restrict the growth of the sector in line with available
resources, and the academic competitiveness of those coming from
better resourced secondary schools. Second, free education tends to
reduce access, based again on the need to restrict the size of the public
higher education sector. Third, free higher education works well in a
system of high taxes and widespread tax payment, where the majority of
adults pay taxes and the majority of youth attend higher education. In
such systems, the benefit of free education is not restricted to a small
number of individuals, who are in general the future elite. In the South
African context, the number of individuals attending university is very
small as a portion of the population, and spending such a large
percentage of the state budget on a few people, distorts tax expenditure
in their favour. Furthermore, in systems with low participation and high
income inequality, the private benefits of higher education are much
greater. Finally, the need to fully compensate universities for lack of
tuition fees is highlighted by the Chilean example. Offering higher
education is expensive, and universities do not have their own extensive
sources of income to subsidise free education. Third stream income is
neither stable nor without restrictions regarding how it can be used. The
499
Chilean example highlights the need to fully assess the financial situation
first, before introducing a funding system which is not sustainable, and
which cannot be provided as envisioned. There are a number of countries
across the world who have moved away from free models as these have
proved unsustainable in the long term.
1008. In brief, the characteristics of such a system include:
1008.1. The state would carry the full cost of funding higher education
and training as this is seen as a public benefit.
1008.2. Access based on merit would be retained.
1008.3. Limits would be placed on admissions in line with available
funding.
1009.1. There would be access for all and no means test.
1009.2. However, access could be severely restricted by available
income, limiting the size of institutions and the number of
students, especially in particular fields. Increases in
participation rates could become stagnant, or participation
could even decrease.
500
1009.3. This system would be administratively simple.
1009.4. Institutions would turn to the state for all funding needs,
although some third-stream income may be retained (may
affect autonomy, sustainability and quality).
1009.5. Collection of student debt owed to universities would no longer
be a problem.
1009.6. All students would be treated equally; but Hull argues against
Fairness as students who gain the benefits of higher
education (the future wealthy) have received a benefit paid for
by all of society. In effect, those not attending higher education
institutions are subsidising those who are as there is a
balancing of spending priorities in favour of higher education.
This relates to the public/ private benefit discussion the state
should fund the private benefit as this benefits society, but if it
funds this private benefit this only benefits those individuals.
In a low-participation; high private-benefit scenario (like South
Africa) this is particularly unjust.
1009.7. Unless new sources of revenue are found, the state would
have to borrow sufficient money to support institutions as there
is currently insufficient money to fund this model.
501
1009.8. Institutions may continue to face declining subsidy, as has
been the case in the past (impact on size and shape). The
size of institutions would need to adjust to the funding
available, which could lead to fewer university places (a
decline in availability). Research and quality may be
impacted negatively.
1009.9. There may be a growth in private higher education institutions
to cater for the lack of available places in the public sector.
34.6 GRADUATE TAX
1010. On the proposed imposition of a graduate tax, the National Treasury
testified that it will result in unintended consequences. For example:
1010.1. there is no correlation between the cost of study and the
revenue collected from an individual graduate;
1010.2. there is a risk of graduate flight in order to avoid paying the
graduate tax;
502
1010.3. it raises issues of fairness among graduates who must pay
higher tax rates compared to similar employees without
degrees who would be exempt from paying the tax;
1010.4. in considering a graduate tax model, one would have to
consider whether the tax would apply retrospectively, such
that it is levied on graduates who did not benefit from fee-free
education or would be forward looking. The former raises
issues of fairness, while the latter would create a funding gap
if the graduate tax was not levied immediately. That gap would
have to be filled through the general revenue fund or by other
means;
1010.5. National Treasury notes further that in the light of the
prevailing poor throughput rates and immediate earning
capacity, applying the tax from a particular future date will
likely result in a low revenue base, leaving a significant funding
gap which would have to be funded through other means.
1011. Dr. Ouma described the graduate tax alternative as another deferred
payment option. He explained that once you have graduated there is a
surtax which you pay until you [retire] Of course there can be variations
where you can start paying that surtax [only] after you start earning a
certain salary threshold. The surtax actually is a fraction of your salary
irrespective of [what you would have paid, as you] are not getting any
503
loan at this point. So the system technically, when you get in it is for free,
once you have graduated then the state imposes a surtax on your income
Some people argue that it is equitable in the sense that if you are
earning R100 000 you pay more than the guy who is earning R20 000,
for example, per month. If you become a business mogul then you earn
a lot of money of course, and the percentage that you pay from your
earnings is bigger [than] a teacher but the idea here is you pay until
you stop working. Dr. Ouma explained further that the idea is not for
them to pay exactly what the state would have spent on them. He added
that the philosophical underpinning is that education is largely a public
good, and for this reason the state supports you to enrol. However, you
must also support the others who are coming after you to gain access to
education. Secondly it is the equity element so there are those who are
going to pay beyond what the state spent on them but also those who
are earning far less who are going to pay probably considerably less than
what the state spent on them, so it is almost an equalisation
mechanism but in the final analysis, the expectation is, when you put
the two together, then there is still enough to fund students who are going
to university.
1012. Dr. Ouma testified that there is currently no country that applies the
graduate tax, and for this reason it is hard to ascertain what its
implementation would look like. He also suggested that certain
permutations would need to be considered before implementation like
504
the policy regarding those that dropout of university before graduation,
but nonetheless go on to earn well.
1013. In summary, the graduate tax could be applied as a deferred payment
model, but it would need careful planning to ensure that it does not
become burdensome on tax collectors or tax payers. Issues would need
to be resolved regarding the payment of the surtax by certain individuals
such as those who received a qualification outside of the country and now
earn in South Africa; those who attended university and dropout without
a qualification; and those who emigrate on graduation. It may become
burdensome for the tax system to ascertain the exact qualification status
of all tax payers. The graduate tax does not differentiate between those
who spend ten years at university and those who spend three years
obtaining the same qualification. The more speedily a student qualifies
the more unfair will be his or her obligation compared to that of his or her
slower counterparts.
1014.2. There would be no upfront payment.
505
1014.3. This takes a lifecycle approach meaning that it interprets the
funding problem within a life cycle at the moment the student
may not have financial means, but with their qualification they
will earn enough to repay.
1014.4. It puts the control and onus on the student (not the parent)
to decide when, where and what to study, and students
responsibility to pay.
1014.5. Graduates would pay an additional tax on top of their income
tax, which would be used to fund universities.
1014.6. Payment would be for the students entire work life.
1015.1. This allows for Access; sustainability; size and shape; and
quality. However, the growth of the system could be affected
by the fact that the graduate tax will be collected based on the
number of current graduates who are employed. The effect of
higher education inflation would also need to be considered.
506
1015.2. Treasury suggested that this model would not raise sufficient
taxes to cover higher education costs, unless it was a relatively
high tax, which would become burdensome.
1015.3. It would be hard to determine who would pay what about
those who graduated prior to the introduction of the deferred
payment model? What about those with an international
qualification? According to Hull, this meets some of the
Fairness criteria, but not all, considering these points and the
fact that some pay more than their private benefit, and others
less.
1015.4. Students emigrating on graduation would have received free
education, and others would bear this cost (unless a solution
is found to this challenge).
1015.5. Ring-fenced taxes are unpopular and it is possible that money
destined for higher education would be diverted elsewhere.
1015.6. Autonomy could be impacted as all funding will, in effect, come
from the state.
1015.7. Graduate tax does not meet Efficiency criteria as money all
comes from the state.
507
34.7 INCOME-CONTINGENT LOANS
1016. An income contingent loan system allows for a student to take out a loan
at the start of their study, with all payment being deferred until such a
time when he/ she can repay the loan without it being a burden (low
repayment rate). Some key points about such a loan are that: repayment
only begins when the student reaches a certain threshold income;
payments only continue until such a time as the loan is paid off; the
repayment period could be set to a maximum period so as ensure that
payment does not impact on retirement accumulation; students could be
allowed to settle the loan more quickly should they be able to; those who
emigrate could be required to pay off the loan before leaving; and the
size of the loan could be large enough to cover full cost of study. Various
other permutations could be factored in to tailor the model to the South
African context. Such models work well in countries like Australia and the
United Kingdom763, provided effective fee-regulation is employed which
limits the potential extent of the loans and there is effective collection of
debts (through the tax system). The system is flexible and can be
adapted to the social and economic needs of a country.
1017. The ICL model was presented to the Commission by a number of
presenters as the best possible funding option in our context.764 Rather
than consider each of these presentations individually, the general
763
Evidence of Dr. G. Ouma, 24 February 2017.
764
For instance: Dr G. Hull (7 February 2017); Dr D. Blackmur (7 March 2017); Professor L.
Fioramonti (9 March 2017).
508
reasons for advocating an ICL will be summarised. Of particular
relevance are the presentations and research by Dr. George Hull and
Professor Lorenzo Fioramonti. Both reports warrant closer attention and
are attached to this Report as annexures. The report of Professor
Fioramonti entitled "Governance innovation for funding tertiary education
in South Africa: The case for a public private partnership in the
management of income contingent loans" is annexed hereto as Annexure
"B".
1018.2. There would be a choice in terms of upfront payment or
deferred payment. This takes a lifecycle approach and puts
the control on the student (not the parent).
1018.3. Former students would repay their loan indebtedness in
annual installments in addition to their income tax, for a period
to be determined or until they have repaid their initial loan.
1018.4. Payment only starts when a certain minimum income
threshold has been met.
509
1018.5. The pay-back period could be limited.
1018.7. Ideally, such loans would be available to all, thus cutting out
the need for a means test, while improving sustainability of the
scheme.
1018.8. Fees would be retained, with or without a regulation model.
1018.9. Those wishing to emigrate on graduation would be required to
pay immediately, and a surcharge could be levied.
1019.1. It meets Access criteria.
1019.2. Students have rejected the concept of loans but have almost
without dissent espoused the principle that those who can
afford to pay should do so.
1019.3. The means test is eliminated. As such, it meets equality
criteria. Furthermore, it also leaves the choice of study to the
student (no parental domination in terms of career, favouring
of one gender etc.).
510
1019.4. However, should sufficient funding not be available
immediately, a phased-in approach could be used in the short
term with income thresholds.
1019.5. Such loans could, in the longer term, be offered to students
attending private higher education institutions too (availability
expanded).
1019.6. University debt would no longer be a problem, and loans could
be offered to all those with historic debt too (sustainable,
quality, size and shape).
1019.7. Cost sharing (Fairness) means that the state would not need
to shoulder the full burden, making this model sustainable.
1019.8. In the short term, a large amount of money would be needed
to fund the system for 3 to 5 years until students have
graduated and start making repayments (could involve private
money and banks).
1019.9. This is true free education for the poor as the student who
never earns above the minimum income threshold, never
repays.
511
1019.10. The ICL can be linked with a bursary database, and state
priorities could be expressed through a bursary mix. Bursaries
could be provided based on any state priorities (could affect
Fairness).
1019.12. Black tax remains an issue of tension, but the pressure will be
lessened by implementation of the scheme proposed by Prof
Fioramonti765.
1019.13. Autonomy could be impacted as all funding will, in effect,
come from the state.
1019.14. It is essential to ensure that higher education charges to do
not spiral out of the range of fair and equitable repayment.
35 THE ICL SCHEME PROPOSED BY PROFESSOR FIORAMONTI
1020. The evidence before the Commission points to an international shift from
both free education and upfront payment for education to income
contingent loans. In Australia, New Zealand and England this model has
765
See para 1022.6 below
512
worked with success for between 10 and 20 years. The scheme proposed
by Professor Fioramonti has the following characteristics:
1020.1. All students who wish to attend university must subscribe to it
irrespective of their means at the time of application. In this
way its viability is assured since the wealthiest students are
most likely to be able to repay. Any applicant for university who
does not wish to participate in the scheme should be entitled
to opt out. Because all students will have a common interest
in the viability of the scheme 766, any person who so elects
should, in addition to the tuition fees payable to the University,
be obliged to pay a substantial equalisation premium to the
state. Such payments should be held in a special account
dedicated to making up any shortfall resulting from any
student failing to meet his or her loan repayment obligation.
The same requirement should be applied to any student who
voluntarily ceases to participate in the scheme prior to
completing a degree for which he or she has enrolled; to a
student or former student who permanently leaves South
Africa prior to fully honouring his or her loan obligations; and
to any student who having completed his or her university
education (whether having graduated or not) elects to
accelerate repayment of his or her loan. The precise
766
The benefits of which as will be explained below far exceed mere funding of
student fees.
513
obligations arising in relation to such premiums will require
clear definition and explanation in the formulation of the
scheme.
1020.2. The scheme provides universal access to all academically
qualified students. In this regard it satisfies the limit of the
States obligation under the Constitution.
1020.3. The financing of every university student is achieved through
a bank loan at a rate favourable to the student. Whether such
financing should extend to the full cost of education will
depend solely on the choice of the borrower and his need for
such an extension.
1020.4. The state can either guarantee the loan or, better still,
purchase the loan, so that the student becomes a debtor in its
books.
1020.5. Collection and recovery of the loan will be undertaken by
SARS through its normal processes.
1020.6. No student is obliged to repay a loan unless and until his
income reaches a specified level. At the lowest specified level
the interest rate is at its lowest but will increase in in
accordance with specified increases in income growth.
514
1020.7. Repayment can be so structured that highly successful
earners repay more than the loan costs thus contributing to
the stability of the scheme.
1020.8. If the loan is not repaid within a specified number of years the
balance can be written off.
1020.9. The State will repay each student loan to the bank at a given
date (say five years from the first advance).
1020.10. The precise terms of the scheme are subject to negotiation in
a public/private partnership between say the state
(representing the SARS, the DHE and the Treasury), the
banks, universities, and perhaps a student representative.
1021. The disadvantages of scheme as presented are the following:
1021.1. It has not been designed with TVET colleges in mind but could
be extended to that sector depending on a policy decision as
to whether the whole or any part of the full cost of education
at TVET should be subjected to the scheme.
1021.2. Although the Banking Association of South Africa has
expressed the interest of its members in participating in such
a scheme it has remained essentially uncommitted. That is
515
understandable and is a matter that can and should be
resolved in proactive negotiation between the state, BASA and
its members. We quote the response of BASA:
"We appreciate the importance as well urgency of the matter

and we would like to continue playing a role in finding a lasting
solution to the complex challenge of higher education funding.
We would like to engage further with the Commission to
develop a financial model that would enable an assessment of
viability and feasibility of the proposed scheme." 767
1021.3. Universities, at no risk of default in payment of tuition fees,
may increase such fees to make up shortfalls in subsidies,
third stream income and other expenditure. This can be met
by implementation of the proposals of the CHE on fee
regulation. The added availability of subsidy income in
consequence of the decrease in the states students-fee
obligations will mean that universities will have less
justification for such increases.
1022. The advantages of an income contingent loan scheme such as that
proposed by Professor Fioramonti are many and varied:
767
A copy of BASAs full response (dated 26 May 2017) to an enquiry from the Commission is
annexed to this report as annexure "E".
516
1022.1. The scheme is flexible and capable of easy tweaking, as the
experience of a country such as Australia shows.
1022.2. The scheme provides universal accessibility. Nobody will be
refused a loan on grounds other than normal admission
criteria.
1022.3. It complies with the principle enunciated by many witnesses
before the commission: that those who can pay should do so.
1022.4. The income contingent element is fairer than one which
determines ability to pay at the time of applying for university
admission since it is tested by the receipt of an income that
derives from the benefit of the education which enables the
former student to pay and does not depend upon parental or
family income at the time of application.
1022.5. The obligation to repay never attaches to a borrower who does
not earn sufficient income to enable reasonable compliance.
1022.6. The scheme negates the moral responsibility for "black tax"
insofar as that extends to supporting the university education
and maintenance of siblings and other family members.
517
1022.7. The scheme is simple in implementation, generates low
administration costs and does not require application of a
means test.
1022.8. The scheme will eliminate the hard cases that may arise under
the sliding means test proposed by the MTT with its multiplicity
of degrees of entitlement and arbitrary cut-off level of R600
000 per annum.
1022.9. The scheme can and should be easily extended to students
who apply to private higher education institutions. This
principle is not only sanctioned by section 29(3) and (4) of the
constitution but will be a very important advantage in the early
years of the scheme when the universities will lack the
capacity to admit all qualifying applicants.
1022.10. The scheme affords the state an initial period of freedom from
any obligation to fund student education at universities for an
initial period of perhaps five years or more. During this period,
the state will have the freedom to use the funds that would
otherwise be devoted to such tuition fees on the improvement
of infrastructure, teaching curricula, etc. for the strengthening
of the education sector as a whole. In this respect, the ICL
proposal represents an important advance on the ISFAP
518
scheme. After the initial period the scheme will quickly
stabilise through effective collection measures.
1023. The question which arises is how the state is to fund that proportion of
student debt that is not recoverable by reason of default and insufficient
earning levels to generate the repayment obligation. The Commission
has heard evidence which in its view provides at least three ready
sources. They are:
1023.1. the BBEEE contributions proposed by the MTT;
1023.2. the amendment of the UIF Act to provide for the release of R50
billion of its accumulated surpluses (both these have been
considered earlier in this report);
1023.3. the use of the long unclaimed pension benefits amounting to
more than R42 billion in funds overseen by the Registrar of
Pension Funds - these funds do not include R500 million in
unclaimed benefits in the GEPF - subject to an undertaking by
the State to make good any valid claim made on such funds.
1024. It was highlighted that NSFAS is in fact an ICL, but that repayment starts
at too low an income threshold (R30 000 p/a); repayment is not linked to
the tax system; and the loans are not offered to all students (only the very
poor).
519
1025. Dependent on the decision made regarding the interest rate, the impact
of the loan on the individual and the state would be marked. Such loans
would have the advantage to the lender of being risk-free and carrying
no collection costs. It may therefore be expected that favourable rates
will be negotiated. The state may however, in the student interest,
consider bearing some portion of the interest obligation. The size of the
loan should not exceed what an individual could be expected to pay off
within the set period. Bursaries could be factored into the loan system for
scarce skills or in line with other policy priorities. The loan should be
reflected in the government budget as a loan so as not to impact on the
financial status of the government.
1026. The introduction of the ICL would require substantial funding in the short
term, until graduates could be expected to start repaying. However,
depending on the decisions regarding interest rates, years to repay etc.
the system will become largely self-sustaining within a reasonable time.
Prof Fioramonti, in his model has proposed the inclusion of the banks as
lenders to students, with a government guarantee, so as to cover the cost
for the initial years. He also argued that this public-private partnership
(PPP) would give the banks an interest in the success of the economy
and the future employment of graduates, which could assist in general
economic development. The pros and cons of involving the private sector
need careful consideration, as was discussed when considering the
ISFAP model. However, the ICL provides a more balanced sharing of
responsibility for student funding than does the ISFAP model, that is more
520
consistent with recognition of the benefits that accrue to the private sector
from higher education. Prof Fioramonti also suggested that extending the
ICL to all students is essential as this would greatly improve its overall
return on investment and hence its viability. Another alternative, not
suggested by him, would be to add a surcharge for those wishing to opt
out or pay early or emigrate. Conversely, the Australian system originally
offered incentives for upfront payment or quick re-payment of an ICL, but
this has subsequently been phased out.
1027. Dr. Ouma explained that the ICL has been introduced in Australia and
the UK, and he spent some time explaining the issue of regulating fees
in the context of an ICL. He also explained how the ICL in both these
countries is the students choice, and that a student can decide to take a
portion of the loan or the whole loan. He also described changes made
to ICL policies over the years. What his discussion highlighted is that
should an ICL be introduced, careful consideration would need to be paid
to the nature of the ICL in the South African context. This is supported by
a preliminary look at the ICL in Australia and Britain and other countries,
which highlights a few concerns.
1028. In the British system, it is expected that the vast majority of students will
not be able to repay the full loan amount. In an article in The Guardian, it
was argued that students are borrowing more than they will be able to
pay in the 30-year period [the maximum period for repayment established
in the UK], making the system unsustainable in the long term. It
521
explained that those who started university after September 2012 will not
start repaying their loan until they are earning more than 21 000 a year,
adding that Unless you start off with a graduate salary of higher than 30
000, its unlikely you will pay off your full loan and interest before its wiped
after 30 years anyway. The article explained that the fee problem is
thought to be partially caused by the capping of fees as most institutions
set fees at the highest possible level. It has been suggested that fee
regulation is key, as an ICL cannot function in a high fee system, without
a strict cap. The article suggested that the other key concern is that there
has not been sufficient control of student intake numbers, which has
resulted in higher loan risk. Universities, in an attempt to maximise
income from fees in the face of a reduction in state subsidies, increased
student numbers. This meant that more students enrolled for degrees
where options of employment/ salary were lower, or students were
enrolled who never completed. The Guardian also criticised the fact that
in the UK the interest rate of the ICL was linked to inflation rather than
repo, which has put an extra burden on students as currency volatility
has affected inflation (6.1% vs repo at less than 1%). The burden of the
ICL is, therefore, being felt by new graduates.768
1029. In Australia, the issue of repayment is also of concern. An article in The
Australian explains that The rapid escalation in the total debts owed to
government and the amount that will never be repaid was triggered
768
https://www.theguardian.com/money/2017/apr/11/student-loan-interest-rate-rise-uk-inflation-
brexit.
522
by a series of policies instituted by recent governments. The first was
the Rudd governments 2009 decision to remove limits on the number of
students universities could enrol. This was followed by extending the
loan scheme to students in private institutions, adding millions to the loan
scheme. The article explained further that: The situation is likely be
exacerbated, the PBO modelling shows, if planned but unimplemented
deregulation reforms proposed by the Abbott government are legislated.
Those would cut subsidies to universities by one-fifth, but allow
universities to charge whatever fees they like. In effect, that would give
universities the freedom to enrol as many students as they wanted and
charge them as much money as they liked, all backed by buy-now, pay-
later arrangements, totally guaranteed by the taxpayer. In an attempt to
reduce outstanding loans, there has been a suggestion to lower the
income threshold for repayment to begin.769
1030. The experience of these two countries needs further investigation, but it
is clear that an ICL system requires some form of fee regulation and
enrolment planning. Without these in place, debt is likely to spiral out of
control. In addition, calculation of the amount likely to be repaid over the
selected period is required, and loans should not exceed this amount. It
is also important for throughput to be improved and dropouts to be
reduced if the system is going to be sustainable over the long-term, as
students who never graduate are less likely to be able to repay their
769
http://www.theaustralian.com.au/news/inquirer/higher-education-higher-costs-in-student-
loan-scheme-nightmare/news-story/554e6761397f301657fd6d1a55ae2ce8.
523
loans. Finally, it is important for government block subsidies, in line with
the public benefit portion of higher education, to remain in place so that
universities dont rely on student fees to too great an extent. In his
research report to the Commission, Prof Fioramonti raises many of the
key considerations in developing and appropriate ICL for the South
African context.
1031. The repayment challenges in Australia are deepened by the fact that
TVET students are also given ICLs. The problem with this is that only a
few graduates from these institutions earn salaries of the level that
enables them to fully repay their loans. For the same reason, the
Commission inclines to excluding TVET students from an ICL model.
However, on the positive side, it should be remembered that in South
Africa, given the lack of skilled persons and low participation rates in
higher education, the private return on higher education is higher than in
developed economies, and as such repayment should be less
burdensome and more sustainable. It should also be recognised that the
ICL is free education for the poor, as the student who is never employed
or well-employed and never reaps the benefit of their higher education,
will not need to repay the loan. The system is based on the student and
his or her future income, rather than on the income and socio-economic
status of the parents at the time the student embarks on tertiary
education.
524
35.1 CONCLUSION
1032. During the course of its work, the Fees Commission heard testimony is
support of various different student funding models, most of which have
been implemented somewhere across the world. It is the work of the
Commission to take into account the South African context, and
economic situation, to assess which of these models is most likely to
meet the criteria of a funding model for South Africa that will be
sustainable into the foreseeable future. Some principles for consideration
were raised by Hull; he found that the ICL model is the only one to meet
all his principles. Other priorities and challenges have been raised in the
course of this discussion, and the various models have been analysed in
relation to these.
1033. In our opinion, the ICL model is the one which most closely meets the
needs of South Africa, as a developing economy, with high levels of
inequality. It is the one which will allow for access and accessibility in
terms of the Constitution, as money will not be tied to covering tuition fees
for all students indefinitely. It is also the one that takes into consideration
the public and private benefits of higher education, especially in a
developing economy where private benefit is higher. Furthermore, it will
not deny anybody access based on their socio-economic standing, as all
registered students could access an ICL if they wish. The ICL is
sustainable (if managed appropriately) and will not take money from other
national priorities or from core/ block university funding. It is in fact, free
525
education for the poor (i.e. the student who never reaps the benefit of
higher education post-graduation or as a result of not graduating). If
structured appropriately, the ICL should not be a burden to pay off, and
should not deter individuals from entering higher education. However, the
ICL is still a loan, and black tax remains a reality. In this regard, it was
suggested to the Commission that focused national spending on poverty
alleviation is the most fair and effective way to reduce the burden of the
black tax. The ICL will mean that government spending will not be
channeled towards tuition fees for university students, and as a result
more progressive use of taxes can be made, including mechanisms to
support the poor. In brief, as long as the ICL is well structured and
implemented, it can provide a lasting solution to the funding of higher
education tuition fees.
36 SELECTION OF A MODEL THAT BEST ANSWERS THE TEST OF
FEASIBILITY
36.1 INTRODUCTION
1034. The extensive overview that the Commission has undertaken of the
higher education sector (which is partially reflected in this Report)
demonstrated to us its immense complexity and the multiplicity of
challenges faced by those responsible for making it work effectively and
efficiently.
526
1035. There are ongoing interventions in almost every area of higher education
intended to improve its presentation and performance. Most impact to a
greater or lesser extent on funding and mean that fewer resources are
available to finance student tuition.
1036. It is neither our task nor our intention to present a critique of these
interventions. We have accordingly identified them as part of an
environment in which the question of the feasibility of providing fee-free
higher education must be answered.
1037. The report of the Ministerial Task Team occupies a different place. It
promotes its recommendations as a long term solution for the funding
of the poor and missing middle. Its representatives who presented the
report to the Commission emphasised that its eventual implementation
would be subject to the acceptance of the advice of the Commission.
However, by the time of the presentation, the MTT report had been
approved by the Minister. We understand that pilot schemes and
Treasury costings are well underway.
1038. If we had not reached the conclusion that there is a better and more
feasible solution we would have supported the MTT proposals, although
with the reservations expressed earlier in this report. Before setting out
our conclusions and our reasons we wish, respectfully, to make (or
reiterate) the following considerations:
527
1038.1. The MTT report accepts as its premise that free higher
education (without an obligation to repay) should be available
to those who cannot afford it. It finds itself presently unable to
devise a model that satisfies that premise in full.
1038.2. Without a survey of the wider implications it commits itself to a
path that will lead to that end. The state, once committed to
the principle, will be hardpressed to reverse it when scarce
resources are needed elsewhere and/or can be better spent
otherwise (as they are and can now, in the opinion of the
Commission).
1038.3. Moreover, pressure to achieve feefree education for all will
not go away. Most likely it will increase and lead to further
dissatisfaction and protest. The Commission respectfully
advises the President that a stand taken at the outset that
university students should accept the common sense and
inevitability of paying for what they receive if and when they
can afford to do so would be politic and responsible and very
much in favour of future generations who enter the higher
education system.
1038.4. It may be that the same considerations apply to students at
TVET colleges. There are however substantial reasons for
differentiating their position from that of university students
528
which go beyond the private interest of the student or his or
her family. Such reasons are dealt with elsewhere in this
Report.
1039. From the overview to which we have referred certain general conclusions
and principles become apparent. These must necessarily inform the
question of who should be funded and to what extent.
1039.1. Much the larger proportion of the student population today and
in the foreseeable future, is and will be, through family
circumstances, wholly or substantially unable to pay its way to
an undergraduate degree or technical education. Many of
those are and will be unable to support themselves and their
"dependents while studying, even if they can scrape together
the tuition costs. In order to provide meaningful access,
whether to university or college, higher education must be
provided freefree at the point of access for the academically
acceptable duration of an undergraduate degree or market-
acceptable technical qualification.
1039.2. The goal must be universal access to quality education which
is productive of successful outcomes in the academic sphere
and the workplace.
529
1039.3. Everything possible must be done to improve the status,
attractiveness, capacity and productivity of TVET colleges with
the goal of rendering such institutions a first resort for the
technically inclined student.
1039.4. The Commission accepts that the states ability to fund those
who require higher education is limited by an infinite number
of factors that include a tottering economy, competing policy
priorities, public waste and corruption and a disinclination to
fund education through increased taxes.
1039.5. The needs of the broader higher education system (excluding
student tuition fees) are more financially demanding than
public finances can cater for, particularly in a developing
economy such as South Africa. Many of these needs must be
addressed if student funding is to be productive of success
and not a costly or futile adventure in idealism. Therefore, any
student funding solution that materially relieves the state of the
burden (but not the responsibility) of student funding and
contributes to meeting the broader needs must be favoured.
1039.6. Any student funding solution must be one that can move
towards selfsustainability (even if that end is not fully
attainable). Thus the (NSFAS) practice of converting loans
into bursaries should be stopped. The Commission does not
530
recommend that the provision of scholarships or bursaries by
the private sector be discouraged but scholarships and
bursaries rather be encouraged. Payments so made should
be credited by SARS to the student concerned and such
payments should not attract a premium.
1039.7. There is good reason for greater involvement of the private
economy, particularly South Africas strong and well-regarded
banking sector in the funding of student tuition. (This was
recognised by the MTT task team. The Commission favours a
model that upgrades the extent of such participation.)
1039.8. Any workable solution to the funding problem will require:
1039.8.1. Limitation of the expansion of university tuition fees
with due regard to the genuine costs of supplying higher
education at each particular university. Each university
should be required to justify the structure to a regulatory
body of experts in the education and finance spheres.
The fees charged by each university may then be subject
to capping as contemplated in the CHE report on the
subject;770
770
See also the evidence of Dr. Ouma, 24 February 2017 to the same effect.
531
1039.8.2. That enrolments be controlled (within resources,
capacity, academic merit, transformational goals etc.) by
the universities and the overflow be directed to private
institutions or TVET colleges as appropriate;
1039.8.3. That university enrolment favour suitable applicants
for study in scarce skills.
1040. For the reasons which we have set out at length it is the advice of the
Commission that the Income Contingent Loan model is best suited to the
achievement of the goals of the NDP, will not be hampered by the
restricted public resources, will provide a huge step towards the
attainment of universal access to higher education that the Constitution
guarantees, is equal and fair in its operation; is cost efficient, doing away
with substantial administration costs; is easily collected and recovered;
will be the most likely model to provide longterm sustainability; and is
feasible subject only to willing, serious and informed negotiations
between the public and private sectors.
1041. The ICL model that should be created in the best interests of all should
be designed by a committee of experts that will pay due regard to models
used in Australia, New Zealand, the United Kingdom and elsewhere.
1042. The Commission is of the opinion that higher education and training can
feasibly be funded along the following lines:
532
1042.1. The full cost of education can and should be provided free of
cost to all TVET College students. The present system of
NSFAS effectively means that about 80% of such funding
takes place (and is not repaid). The cost of extending the full
cost of education (where required) to all students is within the
states capability and means.
1042.2. Such funding will be consistent with and promote the idea of a
muchexpanded TVET sector with increased success and
increased status. The building of such a sector is crucial to the
creation of jobs, reduction of unemployment, the
encouragement of entrepreneurs, and the general welfare of
the economy of South Africa.
1043. Higher education at universities can feasibly be provided feefree at the
point of access on the basis of income contingent (deferred) loans. The
model favoured by the Commission, when in full operation, will eventually
relieve the state (and the private sector) of all contributions to the funding
of the full cost of university education for students. The resources that
would have been devoted to that funding (in the form of NSFAS grants
and bursaries and private sector bursaries and scholarships) can and
should be devoted to the ongoing improvements that are essential to
ensure student success in the widest sense. The fundamental pillars of
the scheme are:
533
1043.1. The involvement of the private financial sector in the provision
of the full cost of education (to the extent that such is required)
by granting student loans on favourable terms without a
means test or provision of security.771 The engagement of the
banking sector in constructive negotiation to develop a
public/private partnership to design and implement a workable
ICL scheme is an urgent necessity.
1043.2. The purchase by the state of any such loan indebtedness.
1043.3. The loan shall only be payable when the (former) student
earns a specific income, with repayments increasing as
income increases. The income levels shall be fixed so as to
avoid oppression of the debtor.
1043.4. The collection and recovery of the loan debt by SARS.
1043.5. The repayment of the amount of each loan (plus interest) to
the lender by the state on a date not earlier than five years
from advance of each loan.
771
When reference is made to the private financial sector, we refer only to accredited financial
institutions.
534
1043.6. Every student, irrespective of his personal or family means,
shall be required to participate in the scheme but will have a
right to opt out in advance or subsequent to taking out a loan.
1043.7. Any student who opts out, and any student or former student
who wishes to accelerate repayment or to leave the country
permanently before full repayment has been made shall pay
an equalisation premium. Such an obligation is justified by the
transformational goals inherent in the general improvement of
the university sector and the common interest of students in
making university education accessible to all in the interest of

772
social advancement and cohesion. Fulfilment of the
obligations will also contribute to the viability of the scheme.
For these reasons, all amounts so received should be
deposited in a fund dedicated to making good the repayment
of student loans that SARS is unable to recover from loan
debtors.
1044. The Commission further proposes that the ICL scheme arrived at and
duly incorporated in legislation, to the extent required, should be
extended to students who attend private institutions of higher learning
772
A participant in the scheme effectively receives a discount on the real cost of
education through fee regulation, deferred payment and low interest rates.
The premium should represent the discount.
535
whether universities or institutions that provide technical training.773 The
reason for so recommending is not only fairness in recognising the
students right of choice, but, more important, the probability that, at least
until the envisaged systemic improvements are affected at public
universities and TVET colleges, the capacity of such institutions to
provide access to quality education to the additional number of students
who will seek to take advantage of the opportunity, will necessarily be
limited.
36.2 THE COST OF PROVIDING ICL FUNDING TO UNIVERSITY AND
COLLEGE STUDENTS
1045. We refer to the well-researched and comprehensive content of the
Research Report of September 2016 which has been cited in section 10
of this Report.
1046. At the request of the Commission, the Actuarial Society of South Africa
assessed the cost of twenty different scenarios for the funding of public
higher education universities and TVET colleges. Their extensive work
was undertaken voluntarily, at no cost to the Commission and in the
interests of the country. The Commission expresses its thanks and
773
The Commissions recommendation in respect of the public TVET sector
differs from that which it attaches to those who choose private technical
education. The former should receive free-higher education with no loan
obligation; the latter, fee-free education at the point of access with an ICL.
This distinction assumes that there will be no lack of capacity in the TVET
sector. If the practice proves otherwise the issue can be reconsidered.
536
appreciation to the Society and those who contributed to the report Cost
of Different Scenarios for the Funding of Higher Education and Training
a copy of which is attached to this Report as annexure "D" together with
a copy of the brief from the evidence leaders.
1047. Attention is drawn to the section of the actuarial report which deals with
loan funding and in particular to the following:
"Loan based funding for some or part of the liability would be effective
only if there is an effective collection method of recovering loans after
students have graduated or dropped out. Small changes in loan
collections would over time have a significant effect on annual cash flows
and the sustainability of the loan book.
Without the benefit of further economic analysis it appears that a system

of loans only and grants for students from poorer backgrounds would be
more sustainable than the system providing support to all students"
1048. The Commissioners respectfully point out with regard to the reservations
of the actuaries that loans under the ICL scheme proposed will:
1048.1. be collected and recovered by SARS in the ordinary course
of its duties;
1048.2. be collected from tax payers who generate an income
realistically related to the loan obligation to repay of each tax
payer;
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1048.3. will ensure that the involvement in the loan scheme of all
students must necessarily increase the viability of the scheme
since those who would ordinarily have paid student fees
upfront would mostly likely be the well-to-do and a stable
element in the workforce or, those most readily capable of
satisfying the obligation when due. As pointed out elsewhere,
all those who choose not to participate in the scheme will be
relieved of the obligation subject to a liability to pay an
equalisation premium for the privilege of not participating
which will in itself enhance the viability of the scheme.
1049. In an ICL scheme in the form proposed in this Report:
1049.1. the primary responsibly for funding the scheme will lie with the
lenders i.e. the commercial banks. They will no doubt
undertake that liability on the foundation of sound business
considerations.
1049.2. the secondary or ancillary liability rests on the state as
purchaser or guarantor of student debt. Essentially the
measure of this liability depends on:
1049.3. the amount of debt that SARS is unable to recover;
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1049.4. the numbers of ex-students who fail to attain the minimum
income levels that are a pre-condition to repayment;
1049.5. the interest burden that is either unable to be recovered or
which is deemed by the state as not appropriate to lay to the
students account (in terms of the schemes conditions).
1049.6. The ultimate amounts of ex-student indebtedness for which
the state must stand good are, as the actuaries acknowledge,
imponderable. Mindful of this, the Commission has
recommended that long unclaimed pension benefits
(amounting to in excess of R42 billion) should be utilised as a
backup for the States liability to pay the banks for such loan
debt as it cannot recover through SARS. Such appropriation
should only take place subject to an undertaking by the State
to repay any valid claim made on a pension fund. (It should be
repeated that the Commission remains wholly unpersuaded
that the tracking and reliable identification of beneficiaries in
small pension funds, as suggested by the Registrar of Pension
Funds, will be either financially efficient or practicable.)
1050. The evidence suggests that the generation of work opportunities by and
in relation to students who graduate will be sufficient to support the
stability of the scheme.
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37 RECOMMENDATIONS
1051. The Commission recommends that fee-free education for all students is
feasible within the terms of the implementation of the principles and
practices set out in the following sections.
1051.1. Any implementation must have regard to the rights of those
students already in the system.
37.1 FUNDING THE SECTOR
1051.2. Any financial decisions made must take into account the
education sector as a whole.
1051.3. The Early Childhood Development sector is in dire need of
development. It should cater for all youth (not just a segment)
and has been recognised as key in the future success of a
child.
1051.4. School education remains unequal, with pockets of
excellence, but it is not clear that more money will necessarily
improve the outcomes in this sector as the lions share of the
state budget is allocated to basic education already.
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1051.5. Regarding the PSET sector the priorities in CET, TVET and
universities need to be balanced money cannot be diverted
to universities just because this is where the focus of the
protests was. This will only lead to neglect of other equally
deserving sectors, which can contribute to economic
development.
1051.6. It is also clear that all funding decisions are political in nature,
and the government must weigh the competing demands for
education with those for basic services, social services,
housing etc. This was testified to the Commission by both the
parliamentary Portfolio Committees on Finance and
Appropriations.
1051.7. Funding for higher education cannot be considered in
isolation, as was clearly presented by the National Treasury
and (former) Minister of Finance, as well as the Statistician
General.
1052. Block funding to PSET institutions needs to increase in line with
increased costs for providing quality education and infrastructure needs:
1052.1. The Commission was apprised of the dire funding situation in
the TVET and CET sectors, as well as the financial pressure
which a number of universities are under, considering the
541
Higher Education Price Index (HEPI) in this sector in
particular.
1052.2. Subject to the reservations expressed earlier over the last 20
years, block funding has declined per capita; partly as a result
of the high increase in enrolment numbers resulting from
strategic priorities to increase access in the sector.
1052.3. This situation is unsustainable and has disastrous
consequences for the sustainability of institutions.
1052.4. Despite pressure on the National Treasury to consolidate the
budget, it is necessary for all three arms of the PSET sector to
be funded at an appropriate level to ensure quality education
and training.
1052.5. The CET and TVET sectors particularly need attention as they
are severely underfunded, and cannot perform at their current
funding levels.
1052.6. A process should also be undertaken to reduce inefficiencies
in all three types of institutions.
1052.7. In the short term, steps to contain enrolment numbers should
be taken, until the necessary money to fully fund these
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enrolments is in place. The targets as per the NDP are not
realistic given the economic downturn. Revised figures, based
on actual GDP growth, should be developed for CET, TVET
colleges and universities.
1052.8. In the short term, policies and plans for new institutions or new
developments should be assessed to ascertain whether they
can be delayed until the necessary funding is available.
1052.9. We recommend that, in the short-term, the government work
towards funding universities with 1% of GDP (excluding the
funding required to establish the recommended student
funding model). This should not be a fixed figure, but can be
reconsidered in the medium-term expenditure framework.
37.2 QUALITY
1052.10. Financial pressures are likely to impact on the quality of
teaching, research and learning at all PSET institutions.
However, all necessary steps must be taken to ensure that
quality is maintained and improved across the sector,
including appropriately funded institutions and Quality
Councils that should oversee this function.
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1052.11. Throughput and drop out levels in TVET Colleges and
Universities need serious and urgent attention, with
appropriate intervention in the case of underperformance.
1052.12. Interventions to improve throughput need additional and
urgent funding, and this must be recognised as a priority
before expanding the sector further.
1052.13. This is a major inefficiency, which impacts on the psyche of
the student and on the sustainability of the PSET sector and
of any student funding model.
37.3 SIZE AND SHAPE
1052.14. The purpose of institutions in the PSET sector is not solely
student education. It is important to develop a holistic view of
the PSET sector, and to realistically determine the desired
size and shape of such a sector.
1052.15. There is a need for curriculum reform in all parts of the PSET
sector, to ensure that the curriculum meets the needs of the
economy and society. The transformation of the curriculum
needs to be given urgent attention by both institutions and the
state (through appropriate funding), in order to increase the
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relevance of our societal demands and the emerging
technologies that have revolutionized learning and teaching.
1052.16. The TVET sector needs to be expanded to meet the demands
of the economy, and should grow to invert the pyramid.
However, this cannot be the case while programmes are
outdated and not in line with the needs of industry. Expansion
should be dependent on the necessary improvements and on
the needed funding.
1052.17. Universities must retain their triple mandate of teaching,
research and community engagement. The research mandate
should not be subsumed by teaching, and requires better
support than is currently the case in order to address the
challenges of the knowledge economy.
1052.18. Academic staff development is required across the sector. At
the TVET level, lecturers with the required skills and industry
experienced need to be trained and encouraged to enter the
sector. At the university level, academic staff with
qualifications up to the doctoral level need to be trained and
encouraged to remain in the sector. This is a long-term
process, and must be done bearing in mind future enrolment
targets. This kind of investment will yield positive results not
only in a learning society, but in our standing globally.
545
1052.19. The importance of libraries and journal collections is clear, and
DHET should find ways to better share resources and costs
between institutions, possibly through a national licence, at a
reduced cost, negotiated to benefit the sector in the medium
to long term.
1052.20. The benefit of multi-lingual education has been recognised,
but the costs associated with it must also be borne in mind
when considering dual/multilingual instruction. This will
require better planning by all stakeholders involved in order to
secure buy-in by all and avoid pitfalls.
37.4 STUDENT ACCOMMODATION
1052.21. The dire state of student accommodation was highlighted to
the Commission. While the proposals for expansion and
improvement require billions of Rands, an affordable plan over
the medium-term should be developed, focusing on the most
needy institutions and students.
1052.22. Workable partnerships should be worked out between the
government; other state agencies such as the PIC and
municipalities; private student housing providers;
parents/guardian; and sponsors to determine affordable
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housing for students, including transportation arrangement for
facilities that are away from campuses.
1052.23. Accommodation for TVET students should also be considered
in the same manner as it is provided for universities, but the
Department should further explore infrastructure injection for
this in close proximity to the campuses, where possible.
1052.24. The option of PPPs in this regard should be given serious
consideration.
37.5 ONLINE AND BLENDED LEARNING AS A FORM OF COST
REDUCTION IN EDUCATION
1052.25. The benefits of blended learning were highlighted to the
Commission.
1052.26. Institutions are encouraged, where possible, to make
efficiency savings and academic support improvements
through the use of ICTs. This should mainly be supplementary
support, rather than a massive shift towards online education
which could be detrimental to the South African education
system.
547
1052.27. The DHET should provide support to TVET colleges in this
regard and be active in eliciting the support of other
government departments and the industry to make the
learning experiences of students meaningful and pleasant with
high placement opportunities into the world of work upon
completion.
37.6 FUNDING FOR CET STUDENTS
1052.28. Funding for CET students falls under the part of the
Constitution dealing with school education, and that CETs
should, therefore, be funded in the same way as basic
education.
1052.29. Although this is not the focus of the Commission, it is
recommended that the most appropriate location for the CET
division (between DBE and DHET) be given careful
consideration, as it is not clear that this should form part of
higher education and training.
37.7 COSTING THE PROPOSALS FOR FUNDING UNIVERSITY AND TVET
STUDENTS
1052.30. With regard to recommendation on funding of both TVET
students and university students which follows. we
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recommend that a careful costing and actuarial analysis
of the various recommendations in this report be carried
out. In this regard, the tendency to develop policy without
costing it prior to publishing should be avoided.
37.8 FUNDING FOR TVET STUDENTS
1052.31. Similarly, the Commission is of the opinion that the NCV also
falls under basic education, and their funding norms.
1052.32. We note the dire need for TVET graduates in order to invert
the skills pyramid and recommend that urgent attention be
given to the development of a skills matrix in collaboration with
employers, with time lines within which to realize the
improvement.
1052.33. TVET colleges tend to attract the poorer students who need
financial support and academic support. It is thus
recommended that students be given the necessary support
that should serve as a catalyst for the transformation of the
TVET sector. This could develop these colleges as institutions
of first choice.
1052.34. The Commission noted the lower earning power of TVET
graduates and the challenges associated with their
549
employability after graduation (often due to lack of workplace
experience during training). If this desperate situation is left
unattended, the quality of the lives these graduates will not
improve, and inverting the pyramid will not materialize in the
foreseeable future.
1052.35. As such, we recommend that public TVET education be
fee-free. Currently, the DHET is meant to fund TVET
students at an 80:20 ratio. This has fallen behind. We
recommend that this should move to 100% funding
directly from the DHET. We further recommend that the
current handling of the TVET colleges funding arrangements
(over centralisation) be revised in a manner that the persisting
misunderstanding of the allocations model of full time
equivalents (FTEs) be clarified to all college governing
councils, student structures and college principals.
1052.36. Furthermore, we recommend that stipends be made
available through TVET colleges for needy students to
cover full cost of study. Should this not be possible, ICLs
(as discussed earlier) should be made available to such
students.
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37.9 FUNDING FOR UNIVERSITY STUDENTS
1052.37. While we recognise the public benefits of higher education, we
also acknowledge substantial private benefit, especially in the
South African context of a low-participation university
environment with very low graduate unemployment. We
recommend a cost sharing model.
1052.38. In such a model, the government should aim to fund with at
least 1% of GDP (as discussed above) towards the cost of
running a university. This is in the form of subsidy to
universities. It must be acknowledged that despite financial
pressure, government does subsidise higher education.
1052.39. Student tuition fees should be regulated according to the
advice of the CHE, so as to ensure that they are fair and
affordable, and to ensure that universities are able to access
the funds they require to carry out quality teaching. Cross-
subsidisation of courses and students should be factored into
this to ensure the balance of university education.
1052.40. We propose an income-contingent loan system available
to all students along the lines proposed earlier in the
Report. We believe that such a model takes the students
circumstances into account, and ensures the sustainability of
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the system in the long-term. As explained, an ICL model will
result in totally free education for some students who do not,
in the course of their careers, reach an income threshold
appropriate to a repayment obligation.
1052.41. Application and registration fees should be scrapped across
the board. This has implications for the Central Applications
Service that is being planned to streamline the placement of
students into universities according to their career choices,
subject to admission by universities. Proof of application for
the ICL can be required as proof of financial ability.
1052.42. ICLs should be for any necessary amount up to full cost
of study. Full cost should include reasonable
accommodation expenses (private or university); tuition
material (including computers where needed); stipend for
food and daily expenses; travel; etc.
1052.43. Loans should not exceed what it is reasonably expected that
the student will be able to repay in their repayment period. For
this reason, cross-subsidisation of fees may need to take into
account lower-earning degrees with a higher public benefit,
such as teacher education and social work.
552
1052.44. Money should be paid upfront, monthly, into a debit card
similar to S-Bux, or any equivalent method of payment where
restrictions are placed on what can be purchased. Money
should be available in tranches from the date of registration at
the beginning of the year until the last day of examinations.
1052.45. Tuition fees (and residence if applicable) should be paid
directly to the institution at the start of the academic year, or in
the manner in which the government allocations cycle works
but not to the detriment of universities to handle cash flow and
other contractual obligations.
1052.46. Where possible, the provision of meals at reasonable prices
on campus or in residence catering facilities should be
considered. This would be a cheaper option, and could assist
in solving the hunger crisis at many institutions.
1052.47. Students who are awarded a scholarship or bursary from other
sources should be credited with the amount by SARS against
cession of the benefits.
1052.48. The parameters of such an ICL need careful research and
actuarial modelling in order to set appropriate limits.
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1052.49. Government can make interventions into the ICL structure
when additional funding is available, based on then-current
priorities. For instance, bursaries could be allocated based on
scarce skills; Fundza Lushaka bursaries with the work
component can be maintained etc.
1052.50. The current incentive bursaries from NSFAS should be
discontinued (at least until the loan system is sustainable).
1052.51. Strict academic requirements for continued access to an ICL
should be introduced. This should be monitored from as early
as the first module or semester of the first year. This could
work together in a wrap-around support model as envisaged
by ISFAP.
1052.52. The collection of loans should be through SARS, and on
approval of an ICL the student should also register as a
taxpayer.
1052.53. Enrolment planning must form a key part of the ICL process to
ensure that there will not be excessive bad debt.
1052.54. The ICL should be reflected in the government books as a loan
and not an expense.
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1052.55. The extension of ICLs to students studying at private
institutions is recommended, based on the same criteria as for
public institutions. The rationale for this is that they are citizens
and residents with full constitutional entitlement, and by
entering these institutions they contribute to the advancement
of the access imperative and the economic growth of the
country. As they will be required to repay like any other
students, they should be treated fairly in this manner.
1052.56. Foreign students should still be charged fees, and should not
be given access to ICLs. These fees should not be subject to
capping in cases where the real cost of the course or
qualification exceeds the regulated limit.
37.10 POSTGRADUATE STUDENTS
1052.57. The value of postgraduate qualifications for the research and
academic sectors is recognised and it is recommended that
postgraduate students be supported financially.
1052.58. NRF bursaries (based on merit, or other criteria as developed
by the NRF) for postgraduate students should be retained and
expanded when possible.
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1052.59. Postgraduate students should have access to an ICL just as
undergraduates do.
1052.60. The R&D budget should be increased to 1% of GDP as soon
as possible.
37.11 HISTORIC DEBT
1052.61. Universities reported on the dire situation with regards historic
debt, which has increased beyond the acceptable ratio to
expected fee income. This dire situation was partially
ameliorated with the 2016 injection of R2 543 billion from 2013
to 2015. Students who were still in the system in 2016 were
further assisted with an additional allocation of R2 039 billion.
It is expected that debt has decreased substantially, but it is
possible that some students may face problems if they do not
comply with the criterion of satisfactory academic
performance.
1052.62. Annually, a large amount of student debt is written off by some
universities making it difficult for them to operate without
bailouts from the DHET. The cost sharing model
recommended will ease this burden on the balance sheet of
universities.
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1052.63. The TVET sector raised the same concern, but found that they
wrote off an even larger percentage as bad debt as a result of
a significant number of poorer students who cannot afford the
cost of tuition, combined with the perennial decline in the
funding of TVET students by the DHET.
1052.64. Various reasons for this debt have been found, including the
underfunding of NSFAS students and missing-middle students
who cannot afford to pay.
1052.65. It is recommended that students with debt, who have since
graduated, be offered income-contingent loans as well.
37.12 NSFAS
1052.66. We recommend that the participation of NSFAS in the funding
of university students be replaced by the provision of ICLs.
1052.67. NSFAS should be retained for the provision of the funding of
all TVET students and TVET student support if such retention
is considered necessary.
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37.13 FUNDING FOR THE TVET SECTOR
1052.68. We recognise the dire need for an injection of funds to develop
the TVET sector and its infrastructure. It is recommended that
an amount of R50 billion from the surplus in the
Unemployment Insurance Fund be ring-fenced for
infrastructure funding of the TVET colleges facilities.
1052.69. We advise that money from the NSF be prioritised towards the
TVET sector for infrastructure development to augment the
UIF portion.
1052.70. We advise that the SETA sector be restructured to reduce
costs and inefficiency, and that this saving be used for
curriculum development, lecturer training or other costs
related to improving teaching and learning in the TVET sector
and the facilitation of job placement for graduates.
1052.71. It is also recommended that SETA allocations be used to fund
occupation programmes not currently funded in the TVET
colleges.
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37.14 FUNDING FOR THE UNIVERSITY SECTOR
1052.72. Subsidy should increase to 1% of GDP (excluding allocations
to establish the ICL system).
1052.73. It is important for funding to be channelled to HDIs to allow
them to develop to the same level as HWIs, but without failing
to maintain the current status of the top institutions.
1052.74. Additional money for infrastructure development, throughput
intervention, and student accommodation should be invested
in the sector.
1052.75. Consideration should be given to take the HEPI into account
in funding universities.
37.15 OTHER SOURCES OF FUNDING FOR THE PSET SECTOR AS A
WHOLE
1052.76. We support the proposal of making use of BBBEE points
for higher education purposes.
1052.77. We support the use of excess UIF reserves towards
infrastructure development.
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1052.78. We recommend that long unclaimed pension benefits be
used to provide stability to the ICL system subject to the
provision of state guarantees for their repayment.
1052.79. We supported a more concerted effort by universities to form
alumni relations and raise money through such channels, as
is the case in the USA, UK and other parts of the world.
1052.80. We recommend the development of an Education Fund where
companies, individuals and international aid agencies can be
encouraged to donate money towards higher education
development, bursaries etc. Companies could be encouraged
to donate from their CSI budget. It is also clear that current
calls by universities for funding for the missing middle have
proven a success, and this could be maintained and
strengthened through such a coordinated fund. A Fund
administration process should be considered which will allow
for public confidence in the fair and useful allocation of funds.
1052.81. Alumni and donor funding recommended above should be
accompanied by aggressive strategies to eliminate violent
student protests and the destruction of property at campuses.
This approach could encourage generous funding from these
sources, as is proven in other countries.
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37.16 ISFAP AS AN ALTERNATIVE
1053. As previously stated in this Report, should the government be opposed
to the recommendations we have made, the most viable alternative
solutions would seem to be along lines similar to the ISFAP proposal
developed by the Ministerial Task Team. We emphasise our reservations
in this regard which are set out in Chapter 27 above.
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Annexure A
Reconciling efficiency, access, fairness and equality | 187
Reconciling Efficiency,
Access, Fairness and
Equality: The case for
income-contingent student
loans with universal
eligibility
George Hull
Department of Philosophy
University of Cape Town
The harmful legacy of colonial and apartheid social engineering means

South Africas tertiary-education sector faces a number of distinctive
challenges, and deep-rooted disagreement persists about how best to
manage university curricula and research in a democratic South Africa.1
When, though, our focus is on the specific issue of how university tuition
is to be funded, the challenges faced by South Africa have many points of
similarity with those faced by its African neighbours, other middle-income
countries, and indeed most of the industrialised world.
South Africa needs to continue to expand its higher education sector so
as to attain an informed civil society and the skilled workforce which will
enable it to compete in a knowledge-driven global economy; but it must
also break down barriers to access in order ultimately to realise equality of
opportunity for all its citizens. The South African Government should aim
1 For particularly helpful discussions of these issues, see T. Reddy (2004) Higher education and social transformation:
South Africa case study (report); A. Bawa (2012) South African higher education: At the center of a cauldron of national
imaginations in Social Research: An International Quarterly, 79(3), pp. 669-694; P. Tabensky & S. Matthews (2015) Being at
home: Race, institutional culture and transformation at South African higher education institutions.
562
188 | Student Funding
to achieve its higher-education goals cost-effectively, at a time when there

are compelling demands for increased spending in other sectors (e.g. health,
basic education); but it must also ensure the costs of university tuition are
spread fairly, preventing a middle-class capture of state funds. Finally, South
African higher-education funding policy must be shaped in ways that foster
cohesive egalitarian relations among its citizenry, and avoid entrenching
stigma, social divisions and hierarchical relations of domination.
This paper identifies four principal values which a funding model for higher
education should aim to realise, and by which it should be constrained: Efficiency,
Access, Fairness and Equality.2 Though potentially these values conflict, the aim
in South Africa as in other countries must be to select a funding model which
reconciles all four values as far as possible. It is fruitful to separate out these four
values analytically, as this enables us to compare different potential funding
models along four separate dimensions. A funding model which is superior
to others along one or some of these dimensions is not necessarily the best
funding model overall. In its deliberation about which higher education funding
model reconciles the four guiding values most satisfactorily, South Africa can
draw on the experiences of other countries, avoiding common mistakes and
incorporating successful features. Clarity about the different values which
inform a choice of higher education funding model enables policy-makers not
only to choose the right policy, but also to communicate the justification for
that policy effectively something which will be crucial in the Governments
on-going dialogue with the articulate, and sporadically well-organised, interest
group constituted by South Africas students.
Sections 1 to 3 of the paper argue that a funding model combining public
subsidy and fees, accompanied by income-contingent student loans, is the
model which best enables Efficiency, Access and Fairness to be realised
together. Section 4 presents reasons of Equality, Access and Efficiency for
extending eligibility for substantial student loans to all South African first-time
undergraduate students. Section 5 then outlines six concrete measures which
will enable the proposed higher-education funding reform to be introduced
affordably in South Africa.
2 I capitalise these terms since I am attaching a specific, well-defined meaning to each, rather than using them in a colloquial
way. I introduce these well-defined meanings in the course of the text.
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1. Efficiency
It is uncontroversial that a higher-education funding model should avoid
waste, and instead should foster Efficiency. There are at least three types of
Efficiency a funding model should embody.
1.1 Allocative Efficiency

There is, in the first place, a relatively narrow, clear-cut type of allocative
Efficiency which society needs its higher-education sector to achieve in a cost-
effective way. Students entering higher education have preferences for various
courses and degree programmes. An individual students preferences can be
assumed to be a function of their areas of interest and curiosity, their estimation
of their own skills and determination, and their aspirations in life (e.g. career path,
public service). At the output end, there is demand from employers for graduates
with various qualifications. This demand can be assumed to be a function of
broader demand in the economy and the needs of public administration. Other
things equal, it is desirable that the higher education sector satisfy both student
preferences and labour-market demand as far as possible.
As student numbers grow, and both the labour market and degree and
course offerings become more differentiated, this allocative goal becomes
too complex for central planning. Assuming a minimum level of informedness
among students, both about their own preferences and skills and about the
labour market, it becomes helpful for universities competing for students
to set fees autonomously (possibly within set limits).3 Price then operates
as a market mechanism, signalling cost and quality, and matching supply to
demand better than a central planner ever could.4 Competition between
universities for students will encourage institutions to use resources ever
more cost-effectively to meet demand.5
This is the Efficiency argument for making universities fee-charging
institutions which compete with one another for fee-paying students. In
3 For some considerations in favour of a cap on university fees, see: N. Barr (2009) Financing higher education: Lessons from
economic theory and reform in England in Higher Education in Europe, 34(2), pp. 204-205.
4 N. Barr (1998) Higher education in Australia and Britain: What lessons? in Australian Economic Review, 31(2), pp. 180-182;
P. Pillay (2008) Higher education funding frameworks in SADC in Towards a common future: Higher education in the SADC
region, p. 191.
5 Barr (2009) Financing higher education: Lessons from economic theory and reform in England in Higher Education in
Europe, 34(2), p. 202.
564
contrast to many other African countries, South African universities have an

established history of charging fees,6 and there exists a healthy range in the
fees charged by different institutions and for different degree programmes.7
From the point of view of allocative Efficiency, this is a virtue of the current
South African funding model.
1.2 Intra-sectoral Efficiency

But the higher-education sector needs to achieve a broader set of goals
than only the narrow, clear-cut goals which a price mechanism is particularly
helpful in realising. Here we can usefully distinguish between the public
goods and the private goods which the higher education sector should aim to
achieve in a cost-effective manner:
1.2.1 Public goods

Services delivered by well-trained professionals (e.g. doctors, civil
servants);
Technological innovations by excellent graduates (e.g. smartphones,
computers), which can improve everybodys lives;
Critical reasoning skills cultivated by humanities subjects (e.g.
economics, African studies), which enhance civil societys ability to
hold government to account;
Works of intrinsic cultural value created by excellent graduates,
which can be appreciated by others and can form the basis of a
national identity, fostering social cohesion;8 and
A socially responsive governing and managerial class.9
It would be unrealistic to expect a market in higher education to achieve
this broad set of goals in a balanced way of its own accord. So there is good
reason for government to intervene with subsidies, regulation and earmarked
funds, to ensure that the higher education sector is achieving this broad set of
goals in a cost-effective manner.
6 G. Wangenge-Ouma (2012) Tuition fees and the challenge of making higher education a popular commodity in South
Africa in Higher Education: The International Journal of Higher Education Research, 64(6), p. 832.
7 N. Dirk (2015) Activists forcibly removed as protest spreads to CPUT campus in Cape Times, 21 October.
8 A. Bawa (2000) A social contract between the public higher education sector and the people of South Africa (research
paper).
9 A. Cudd (2015) What is equality in higher education? in G. Hull (ed.) The equal society: Essays on equality in theory and
practice, p. 272.
565
1.2.2 Private goods

Intrinsic interest and value;10 and
Competitive advantage over non-graduates in seeking highly skilled
and paid work.
It is much harder to quantify the public goods generated by higher
education than the private financial benefit to graduates of earning a
substantially higher salary than they would have done without a degree.
This can lead to governments underestimating how important investment in
higher education is for national development.11
1.3 Inter-sectoral Efficiency

There is a further type of Efficiency which must constrain higher-education
funding due to the fact that, in a situation of serious resource constraints,
there is often keen inter-sectoral competition for financial resources from
health, housing, social welfare and other government functions.12
The higher-education sector must compete with other sectors (e.g. basic
education, national security) for public funds. Sometimes a given value could
be achieved more cost-effectively through allocation of funds to a sector other
than higher education (e.g. basic education) than through allocating funds to
higher education. In other cases there will be a different type of value, which
higher education is incapable of or inept at realising, which justifies diverting
funds away from the higher education sector to a sector which is capable of
realising it (e.g. national security).
Inter-sectoral Efficiency is achieved if the values realised through spending
on higher education could not be realised more cost-effectively through
spending on other sectors, and do not crowd out more important values that
could have been realised through spending on other sectors.
10 G. Brown (2010) Why the right is wrong: The progressive case for Britains future, p. 60.
11 Pillay (2008) Higher education funding frameworks in SADC in Towards a common future, p. 139.
12 Ibid., p. 137.
566
2. Access
There is a broad consensus that it is unacceptable for individuals to be
effectively barred from pursuing higher education, or realising their career
aspirations, due to their gender, racial group or socio-economic background.
In other words, there is broad agreement that a quite demanding form of
equality of opportunity ought to guide policy-making in South Africa. Most
relevantly for us here, society-members should have equal opportunities to
receive both a university education and to secure employment.
It is useful to distinguish between formal and substantial equality of
opportunity.13
2.1 Formal Equality of opportunity

Formal equality of opportunity is the principle that there must be no
legal or conventional barriers preventing the most qualified applicant for a
university place or job from taking it up.
This principle forms the basis for anti-discrimination legislation in South
Africa as elsewhere.14
2.2 Substantial Equality of opportunity

Substantial equality of opportunity is far more demanding than formal
equality of opportunity. It is the principle that there must be no social barriers
preventing individuals from becoming equally qualified for a university place
or job for which they have equal natural aptitude.
An individuals socio-economic background can prove a barrier to the
realisation of their aspirations just as surely as discriminatory laws and
conventions can. But whether one is born into a rich family or a poor family is
just as arbitrary from a moral point of view as what caste or bloodline one
13 For more detail, see G. Hull (2014) Affirmative action in J. Winfield, G. Hull & G. Fried, Business ethics & other paradoxes,
pp. 200-201.
14 The formal equality of opportunity principle can be overridden by the need for affirmative action programmes in countries,
such as South Africa, with a history of racist discrimination and exclusion. Such programmes can be justified on intra-
sectoral Efficiency grounds, if they can be expected to make society more just in the future (R. Dworkin (1976) DeFunis
v. Sweatt in M. Cohen, T. Nagel & T. Scanlon (eds.) Equality and preferential treatment, pp. 63-83). They may also be
justifiable on Equality grounds (see section 4; and see T. Hill (1991) The message of affirmative action in Social Philosophy
and Policy, 8(2), pp. 108-129) or because they provide redress for past wrongs (G. Hull (2015) Affirmative action and the
choice of amends in Philosophia, 43(1), pp. 113-134).
567
happens to be born into.15 None of these morally irrelevant factors should

be allowed to determine whether somebody realises their educational and
career aspirations or not. This is the philosophical rationale for embracing not
just formal but also substantial equality of opportunity.16
I use the term Access to refer to the requirement that, other things equal,
both formal and substantial equality of opportunity should be realised as
far as possible. It is important to be aware of a potential ambiguity here,
though. Sometimes the word access is used to mean simply the number of
undergraduate places in the higher education system. Used in this different
sense, widening access to higher education is not necessarily the same thing
as increasing equality of opportunity. It would be possible to increase the
number of undergraduate places at universities while reducing equality of
opportunity in how they were assigned; and, conversely, it would be possible
to equalise opportunities to study at university while shrinking the size of the
student cohort year on year.
The greatest impediment to Access is the variable level of basic and
secondary education received by different groups in society.17 There is thus
a powerful inter-sectoral Efficiency argument against diverting public funds
away from basic and secondary education to fund higher education. Indeed,
if Access was all that mattered, it would make sense to reduce the funding of
higher education and instead dedicate resources to ensuring an equally high-
quality school education for all South Africans. But doing this would be likely
to reduce the extent to which the public and private goods outlined above
in 1.2 were realised, in which case there would be inter-sectoral Efficiency
reasons for not pursuing this strategy.
3. Fairness
For the value of Access as discussed above in Section 2 what matters is
what determines whether a given individual will receive a university education.
15 J. Rawls (1999) A theory of justice, p. 63.

16 Versions of this argument are set out in B. Williams (1973) The idea of equality in B. Williams, Problems of the self:
Philosophical papers 1956-1972 and Rawls (1999) A theory of justice, section 12.
17 N. Barr (2012) The Higher Education White Paper: The good, the bad, the unspeakable and the next White Paper in Social
Policy & Administration, 46(5), pp. 487-488; P. Pillay (2010) Good practices, possible lessons and remaining challenges in
P. Pillay (ed.) Higher education financing in east and southern Africa, p. 224.
568
For the value of Fairness, by contrast, what matters is how the benefits and
costs of higher education are allocated among members of society. The
term equity is often used to cover both values. This is understandable since
philosophically they are both grounded in an acknowledgement of the equal
moral worth of all society-members. Nonetheless, the two values are distinct,
and realisation of one of them does not entail realisation of the other.
The on-going life of a society is a co-operative enterprise, in which all its
members participate to some degree, and from which all its members benefit
in ways they could not have done in isolation. There is, consequently, a strong
presumption in favour of an equal distribution of the benefits of social co-
operation, and against an allocation which entails benefits to one societal
group being paid for by a different societal group which does not receive
equivalent benefits.
The presumption in favour of distributive equality is not inviolable,
however. If (a) some individuals have sacrificed more and worked harder
than others, or if (b) an equal share of the social product does not translate
into as much well-being for some individuals as it does for others, then it is
fair that those individuals receive a larger share of the social product than
others.18 In addition, if (c) an improvement in the condition of the least well-
off members of society is impossible without a material incentive to the most
enterprising in society, then the resulting inequality would arguably not be
unfair.19 Considerations of type (c), among other factors, will be relevant to
the complex issue of how large the publicly subsidised higher education
sector should be. Considerations of type (b) mean that students with special
needs (e.g. disabled students) should not have to pay extra for university
facilities which meet those needs (e.g. wheelchair ramps). I assume here that
considerations of type (a) do not justify significant departures from distributive
equality within a higher-education funding model, but rather explain in
conjunction with considerations of type (c) why it is not necessarily unfair
that some graduates in employment earn significantly more than others.
University tuition can be fully publicly funded, or it can be fully funded by
18 For more detail, see W. Kymlicka (2002) Contemporary political philosophy: An introduction, pp. 73-74; A. Sen (1999)
Development as freedom, pp. 72-74; G. Hull (2015) From well-faring to well-being: Prospects for a metric of liberal
egalitarian justice in Hull (ed.) The equal society, pp. 153-154.
19 For a statement of this position and argumentative support for it, see Rawls (1999) A theory of justice, section 13.
569
student fees, or it can be funded by a mixture of the two.20 If higher education

generated only public goods, then all society-members could be expected to
benefit equally from it, and it would consequently be fair for higher education
to be fully publicly funded. But, as was discussed above in 1.2, in fact university
education generates a mixture of public goods and substantial private goods.
If everybody attended university, so that the substantial private goods of
higher education accrued to everyone, then again all society-members
could be expected to benefit equally from it, and it would be fair for higher
education to be fully publicly funded.
But it is only a minority of society-members who receive a university
education. Fairness therefore tells us it would be wrong for university tuition
to be fully publicly funded, as this would amount to intrinsic benefits and
a considerable competitive advantage in the employment market for one
group in society (those who complete a university degree) being funded by
another group (those who dont complete a university degree) which does
not receive equivalent benefits.
This is true despite the fact that university graduates generally pay more
tax over their lifetime than non-graduates. This can be seen most clearly by
comparing a graduate and a non-graduate with the same lifetime earnings,
who as a result pay the same amount of tax over their lifetimes say R1 000
000. If the cost of the private benefits of the graduates university tuition was
R200 000, and this was paid for from the public purse, then over their lifetime
the graduate contributes R800 000 to public services (e.g. infrastructure,
healthcare) via taxation, once they have repaid the cost of the private
benefits to them of higher education. This is 20% less than the R1 000 000
contributed by the non-graduate with identical lifetime earnings, which is
horizontally inequitable.21 However much tax they pay, graduates contribute
20 Some South African universities have succeeded in attracting voluntary funding from corporations to cover a proportion
of tuition costs (G. Wangenge-Ouma & N. Cloete (2008) Financing higher education in South Africa: Public funding,
non-governmental revenue and tuition fees in South African Journal of Higher Education, 22(4), p. 912), and the idea of
increased taxation of the corporate sector to fund higher education is often floated (B. Wolhuter & S. Mlambo (2015) Tax to
help poor students mooted in Cape Argus, 19 October). Taxation of corporate income raises complex theoretical issues (R.
Reich (2009) Supercapitalism: The battle for democracy in an age of big business, pp. 216-218). Voluntary funding from non-
governmental sources (apart from student fees) tends to fluctuate, at times significantly, from year to year. This revenue
volatility (Wangenge-Ouma & Cloete (2008) Financing higher education in South Africa: Public funding, non-governmental
revenue and tuition fees in South African Journal of Higher Education, 22(4), p. 913) means it would be unwise for a higher-
education funding model to depend on voluntary corporate contributions. So in the text I concentrate on student fees and
government subsidies as the principal sources of funding for higher education.
21 N. Barr (2004) Higher education funding in Oxford Review of Economic Policy, 20(2), p. 267.
570
proportionally less in taxation to public services than non-graduates when

university tuition is fully publicly funded. Fairness tells us this is unacceptable.
On the other hand, there is no Fairness objection to the public goods
produced by higher education being publicly financed, since these benefit
all of society. Thus from a Fairness perspective, a mixed model of higher-
education funding is desirable. To the extent that higher education generates
private benefits, the recipients of those benefits should pay for it. To the
extent that higher education generates public goods, it should be paid for
from the public purse. The public funding of higher education can come partly
in the form of incentives and earmarked subsidies designed to promote the
balanced pursuit of the broad set of goals outlined above in 1.2.
As noted above in 1.2, it is difficult to quantify the external benefits generated
by university education. Though it is very important for government not to
discount these less tangible public goods generated by higher education, we
can justifiably conclude that since its private benefits are both very substantial
and more certain than its public benefits, higher education should be financed
somewhat more from student contributions than from public money.
In South Africa, the split between public funding and fees varies from
institution to institution.22 In the sector as a whole, the proportion of university
income from Government subsidy has steadily declined in recent years;23
however, it remains larger than the proportion of income from student fees.24
The argument of this section indicates that it would be fair for student fees to
rise until they contribute somewhat more than Government subsidies to the
costs of university tuition.
If Fairness was all that mattered, students could be required to pay these
higher fees before or during their programme of undergraduate study.
However, many qualified students would not be able to access the necessary
funds at that time from their family or other sources. This would make socio-
economic background a determinant of who was able to study at university:
a clear violation of Access. On top of that, upfront fees to be paid before or
during study would undermine intra-sectoral Efficiency, since society would
22 Wangenge-Ouma & Cloete (2008) Financing higher education in South Africa: Public funding, non-governmental
revenue and tuition fees in South African Journal of Higher Education, 22(4), p. 911.
23 Wangenge-Ouma (2012) Tuition fees and the challenge of making higher education a popular commodity in South
Africa in Higher Education: The International Journal of Higher Education Research, 64(6), p. 835.
24 N. Cloete (2015) The flawed ideology of Free Higher Education in University World News, 6 November.
571
not benefit from the contribution which its gifted young people from less
advantaged socio-economic backgrounds could have made.
Can Fairness, Access and Efficiency be combined in a higher-education
funding model? In the remainder of this section, four different funding
models are compared with special attention to their ability to realise Fairness,
Access and Efficiency simultaneously.
Free Higher Education (FHE). FHE is the funding model whereby university
tuition is fully publicly funded. In South Africa this model has attracted a
lot of support from student organisations and movements,25 and it appears
to have some support from within the ANC-led Government as well.26 FHE
removes the Access problem created by upfront fees. However, it is highly
objectionable from a Fairness point of view, as has been argued earlier in this
section. Though its violation of Fairness is the main problem with FHE, it can
also be expected to lead to shortfalls in allocative Efficiency, since with FHE
price can no longer serve as a signalling mechanism and the sector must resort
entirely to the potentially much less efficient method of central planning.27
Differential Fees (DF). DF is the funding model on which different students
pay different levels of fees for the same programme at the same university,
depending on their household assets and income.28 Some of those campaigning
with the slogan Free education in our lifetime in South Africa in 2015 actually
supported free higher education only for the poor i.e. a version of DF. If well
designed, DF can like FHE remove the Access problem caused by upfront
fees. However, DF relies on a means test to determine households ability to
pay. Means tests are known to be expensive to administer, often unreliable
25 See, for example, L. Mantashe (2015) Give the masses free education in Cape Times, 21 October; B. Kamanzi (2015)
Open the gates once and for all in Cape Argus, 23 October; Wangenge-Ouma (2012) Tuition fees and the challenge of
making higher education a popular commodity in South Africa in Higher Education: The International Journal of Higher
Education Research, 64(6), p. 838; E. Redden (2015) #FeesMustFall in Inside Higher Ed, 18 November.
26 Minister of Higher Education and Training Blade Nzimande said in a radio interview on Monday 19 October 2015 that
no fee universities, like those in Germany, were the ideal (Q. Mtyala (2015) Students reject deal in Cape Times, 21
October).
27 The absence of pricing in itself arguably leads to a Fairness shortfall. Barr writes: Counter-intuitively, variable fees
are also fairer than other approaches; why should fees at a local institution be the same as one at an internationally
renowned university? (Barr (2009) Financing higher education: Lessons from economic theory and reform in England
in Higher Education in Europe, 34(2), p. 205).
28 For example, Democratic Alliance Shadow Minister of Higher Education and Training, Belinda Bozzoli, has suggested that
[u]niversities could urgently adopt a sliding fees scale approach, as in Italy, where students family income levels dictate
the fees charged and Pillay also advocates a differentiated fee structure in universities based on socio-economic status
(B. Bozzoli (2015) University funding: There are budget-neutral options in Financial Mail, 29 October - 4 November, pp.
16-17; P. Pillay (2015) Financing of universities: Promoting equity or reinforcing inequality (unpublished colloquium
paper).
572
and open to corruption.29 The value of Equality provides a further reason

for objecting to means-testing, which will be introduced below in Section
4. But just as in the case of FHE, the strongest objection to DF is a Fairness
objection. If a student from a poor household completes a degree and goes
on to become a middle- or high-earner, accumulating assets over the course
of their adult life, it is surely unfair that the university education which gave
this student a competitive advantage in the labour market should be funded
entirely by other society-members (including the unemployed and the very
poorest, through their consumption taxes), and not at all by the recipient of
the private benefits of higher education themselves. The Access gains of FHE
and DF come at the cost of significant Fairness losses.
Graduate Tax (GT). GT is a special tax which only graduates of public
university degree programmes have to pay. A standard model is for every
income-tax-paying graduate to pay one percentage point more income tax
than a non-graduate income-tax-payer within the same income bracket.
GT enables students to pay for the private benefits of university education
(potentially realising Fairness), but not to do so until, and unless, that
education has resulted in a substantial income, thus making payment
manageable (realising Access). Though this reconciliation of Fairness and
Access is a positive achievement as far as it goes, there are two important
downsides to GT. First, since the special tax serves as a substitute for fees,
price cannot serve as a signalling mechanism in the higher education sector,
which would tend to undermine allocative Efficiency. Second, the amount of
GT paid by a given graduate is likely to correspond at best only very roughly
with the cost of the private benefits they received from higher education.
While the Fairness objection to DF is that many students will pay less for the
private benefits of higher education than they should, the Fairness objection
to GT is that high-earners in particular will pay more for the private benefits
of higher education than they should, since they will continue to pay an extra
percentage point of income tax throughout their income-tax-paying lives.
Income-contingent Loans (ICL). ICL is a loan whose rate of repayment is
determined neither by its size nor by the interest rate on the loan, but by the
29 Pillay (2010) Good practices, possible lessons and remaining challenges in Pillay (ed.) Higher education financing in
east and southern Africa; p. 229; J. Kruger (2015) Perspectives on student funding: Credit market, social protection
and pyramid inversion (unpublished colloquium paper); E. Garwe (2015) Responsive and sustainable higher education
funding: Lessons from Zimbabwe (unpublished colloquium paper).
573
level of income of the individual who takes out the loan.30 Income-contingent
student loans are loans provided to students by the government to help with
the costs of university study, for which no security need be provided by either
the student or their household-members. Once a student has graduated and
achieved a set threshold level of earnings, they begin to repay the loan at a
rate which is a specified percentage of their income. This percentage may
increase as their income increases. How much of the loan the graduate pays
back, and how quickly, is determined entirely by the level of income they
achieve.
ICL makes Fairness compatible with Access in precisely the same way as
GT: by ensuring that payment for the private benefits of higher education
occurs at a time, and at a rate, which is manageable for the recipient of
those benefits. But ICL avoids both of the downsides of GT. First, providing
students with loans from which to pay fees enables price to continue to play
a signalling role in the higher education sector, fostering allocative Efficiency.
Second, on the ICL model, the amount ultimately paid by each graduate
tracks much more closely the extent of private benefit they received from
higher education than happens on the GT model. Once they have repaid their
loan, graduates make no further payments. Thus ICL is superior to GT from
the point of view of Fairness as well as from that of Efficiency.
By allowing the retention of fees thus fostering Fairness and Efficiency but
using the consumption-smoothing device of income-contingent student loans to
ensure manageable payment thus fostering Access ICL reconciles the three
values of Efficiency, Access and Fairness more successfully than FHE, DF or GT.
The virtues of ICL have been visible to policy-makers for some time.
Versions of ICL have been successfully introduced on a large scale in Australia
and the United Kingdom.31 South Africas National Student Financial Aid
Scheme (NSFAS) already embodies it to a limited degree.32 In recent years
other African countries have increasingly turned away from FHE and DF
funding models and towards ICL models.33
30 Barr (2009) Financing higher education: Lessons from economic theory and reform in England in Higher Education in
Europe, 34(2).
31 Barr (1998) Higher education in Australia and Britain: What lessons? in Australian Economic Review, 31(2), pp. 179-
188; Barr (2012) The Higher Education White Paper: The good, the Bad, the unspeakable - and the next White Paper in
Social Policy & Administration, 46(5), pp. 483-508.
32 Pillay (2008) Higher education funding frameworks in SADC in Towards a Common Future, p. 169.
33 Pillay (2010) Good practices, possible lessons and remaining challenges in Pillay (ed.) Higher education financing in east
and southern Africa, p. 230.
574
In order fully to realise the value of Access, an ICL scheme must enable
prospective students from even the poorest backgrounds to pursue higher
education without fear of running into serious financial difficulties either
during their course of study (which could lead to them failing or dropping out)
or afterwards (which could lead to bankruptcy and personal disaster). Thus
Access provides us with a strong reason for increasing the size of NSFAS loans
in South Africa so that they cover not only full tuition costs, but also the costs
of transport, books, food and accommodation, and other reasonable living
costs.34 For the same reason, the earnings threshold at which repayment
of a NSFAS loan kicks in should be raised from the current very low level of
R30 000 per year,35 to at least the earnings threshold at which income tax
payment begins.36 Access also dictates that the coverage of NSFAS loans should
be extended to include the missing middle households with a total annual
income of between R122 000 and R500 000, which do not qualify for NSFAS
loans but struggle to fund university tuition.37 These households frequently
take out expensive and risky private loans in order to cover university fees.38
The Government should use its ability to borrow money more cheaply than
private individuals can to convert bad debt into good.39
It might be thought that, owing to human psychology, the presence of
fees even when accompanied by a comprehensive loan scheme must
always constitute a substantial disincentive to go on to university study,
particularly for those from less advantaged socio-economic backgrounds, so
that from an Access point of view FHE and GT would always have the edge
on DF and ICL. However, empirical findings indicate otherwise. Data collected
by the Organisation for Economic Co-operation and Development (OECD)
show absolutely no cross-country relationship between the level of tuition
countries charge and the participation of disadvantaged youth in tertiary
education. On the contrary, social mobility is worse in Germany which pays
34 The Department of Higher Education and Training and other stakeholders agreed that such an expansion of NSFAS was
a priority at the Higher Education Transformation Summit in Durban in October 2015, as recorded in the summits press
release (www.dhet.gov.za); see also Wolhuter & Mlambo (2015) Tax to help poor students mooted in Cape Argus, 19
October.
35 This is the earnings threshold quoted on the NSFAS website: www.nsfas.org.za.
36 I give a further reason for this reform to NSFAS loans below in section 5.1.
37 Cloete (2015) The flawed ideology of Free Higher Education in University World News, 6 November.
38 Z. Dano (2015) Not poor enough for student financial aid in Cape Argus, 2 November.
39 Kruger (2015) Perspectives on student funding (unpublished colloquium paper).
575
for all university education through the public purse than it is in the UK.40
In the UK, university fees were allowed to rise to up to 9 000 per year in
2011, in conjunction with an expanded ICL scheme. Yet the Universities and
Colleges Admissions Service (UCAS) reported that in 2014, disadvantaged
young people were over 10% more likely to enter higher education than in
2013, and over 30% more likely to than in 2009.41
In the South African context a different argument against ICL is sometimes
made. This argument claims it is unfair for graduates from less advantaged
socio-economic backgrounds to have to repay their NSFAS loans, because
they are often expected to support members of an extended family or other
members of their home communities.
It is certainly true that many South African students with NSFAS loans pay
the black tax. But this is not a good argument against ICL, and in favour of
FHE or DF. South Africans who suffer due to sickness, old age, poverty or
unemployment should not be helped by the clumsy and uncertain method
of writing off their relatives student debt. Instead, help should come to them
directly through targeted policies: public pensions, measures to end child
poverty, a comprehensive unemployment insurance scheme and adequate
public healthcare. The country will have more funds for these vital purposes
if NSFAS loans to cover university fees are paid back in full by all middle- and
high-income graduates.
4. Equality
So far this paper has made the case for a mixed higher-education funding
model, combining public subsidy and student fees. In Section 3 it was argued
that it would be justifiable for fees at South African public universities to rise
until they contributed somewhat more to tuition costs than government
subsidy. But rising fees are only acceptable when accompanied by the
consumption-smoothing device of income-contingent government loans to
40 A. Schleicher (2015) The sustainability of the UKs higher education system in OECD Education & Skills Today, 6th
January.
41 N. Hillman (2015) Keeping up with the Germans? A comparison of student funding, internationalisation and research in
UK and German universities, pp. 17-18.
576
students. If the value of Access is to be realised simultaneously with the values

of Fairness and Efficiency, NSFAS must increase the size of its loans, broaden
its coverage, and raise the threshold earnings level at which repayment of
student loans kicks in.
The present section goes further, arguing that eligibility for expanded
NSFAS student loans needs ultimately to be extended to all South African
first-time undergraduate students. An expansion of NSFAS on this scale would
clearly require a large capital investment to begin with, and many would
object that it is simply unaffordable. I explain below in Section 5 why this is
not necessarily the case. The primary basis for expanding NSFAS into a loan
scheme with universal eligibility is the present section argues the value of
Equality.
There is a growing consensus among egalitarian political philosophers that
acknowledgement of the equal moral worth of all society-members entails
more than just instating equal legal status, fostering equality of opportunity,
and achieving a fair distribution of goods crucial and challenging as these
goals are. How equal a society is depends also on the nature of the relations
which exist between its members.42 This development in philosophical theory
complements an increasing interest from governments and international
bodies in the texture of social relations, and especially in identifying measures
which foster social cohesion.43
Of course, many societies in the past achieved cohesion through systems
of violent coercion, practices of habitual deference and myths of natural
superiority and inferiority, all of which are anathema to a country like
present-day South Africa which acknowledges each citizens equal moral
worth. So the goal of policy must be, not cohesion of any sort whatever, but
a cohesive society of equals.
I use the term Equality to refer to the social or relational value realised by
a society whose cohesion depends, not on deference, obedience or mythical
natural hierarchies, but rather on the solidarity of individuals who treat each other
as, and feel that they are, equals.44 Moving a society towards Equality will involve
42 C. Fourie, F. Schuppert & I. Wallimann-Helmer (2015) The nature and distinctiveness of social equality: An introduction
in C. Fourie, F. Schuppert & I. Wallimann-Helmer (eds.) Social equality: On what it means to be equals, pp. 1-17.
43 M. Healy (2013) Philosophical perspectives on social cohesion: New directions for education policy.
44 D. Miller (1997) Equality and justice in Ratio (new series) 10(3), pp. 222-237; E. Anderson (1999) What is the point
of equality? in Ethics, 109(2), pp. 287-337; C. Fourie (2012) What is social equality? An analysis of status equality as a
strongly egalitarian ideal in Res Publica, 18(2), pp. 107-126.
577
dismantling and minimising relations of inequality between society-members,

including relations marked by exclusion, stigma, hierarchy and domination.45
The current South African higher education funding model makes use of a
means test to determine eligibility for a NSFAS loan, and relies on household
contribution to fund some or all of the tuition fees students are charged by
universities. These features of the current model tend to undermine Equality
in two principal ways.
4.1 Stigma
Egalitarian political philosophers have for some time warned that extensive,
invasive means tests tend to undermine efforts to create a cohesive society
of equals. There is potential for conflict between the values of Equality and
Fairness here. Fine-tuning the distribution of the social product to accord with
Fairness is likely to require continuous data collection and comprehensive
means-testing; but these can give the impression that one is not trusted,
that one is an object of suspicion and hence is not being respected,46 and
often require people to do things, or reveal things about themselves, that
they find shameful, leading to a reduction in their respect-standing.47
Means-testing is objectionable from the perspective of Equality insofar
as it causes people to be made to feel inferior,48 and makes government
support into humiliating aid, stigmatising its recipients.49 Means-testing
should be avoided when possible, due to the disrespect communicated by
subjecting the poor to a level of scrutiny and control not experienced by the
better off and the harmful effects on respect-standing and self-respect
caused by shameful revelation.50
Consequently, advocates of social equality tend to support universal
benefits over conditional benefits, other things equal.51 It can even be worth
tolerating some Fairness losses for the sake of the Equality gains which accrue
from doing away with means-testing.52
Issues raised by students during the campus protests in South Africa in
45 J. Wolff (2015) Social equality, relative poverty and marginalised groups in Hull (ed.) The equal society, Section 1.
46 J. Wolff (1998) Fairness, respect, and the egalitarian ethos in Philosophy & Public Affairs, 27(2), p. 108.
47 Ibid., p. 109.
48 T. Scanlon (2002) The diversity of objections to inequality in M. Clayton & A. Williams (eds.) The ideal of equality, p. 43.
49 Anderson (1999) What is the point of equality? in Ethics, 109(2), p. 308.
50 Wolff (1998) Fairness, respect, and the egalitarian ethos in Philosophy & Public Affairs, 27(2), pp. 121-122.
51 Ibid., p. 121; G. Hull (2014) Creating a society of equals in Cape Times, 12 August.
52 Wolff (1998) Fairness, respect, and the egalitarian ethos in Philosophy & Public Affairs, 27(2), p. 117.
578
October 2015 resonate with these political philosophers warnings about

means-testing. University of the Witwatersrand student Phaphama Dulwana
wrote of the humiliation of standing in a National Student Financial Aid
Scheme line, of being treated like a number while your entire future hangs
on how someones day is going, being told you have to prove the degree of
your impoverishment.53 A member of the University of the Western Cape
Fees Must Fall movement, Thozama Nozuko, wrote, [W]e are calling for the
Student Credit Management office, which expects students to prove their
poverty before every registration, to fall.54
If Equality was all that mattered, it would be justifiable to introduce
universal free higher education for the sake of fostering a cohesive society of
equals. The campaign for free higher education in South Africa last year itself
frequently achieved an impressive degree of solidarity among students, with a
reduction of the familiar divisions along class and racial lines on South African
university campuses. But our goal must be to realise Equality simultaneously
with the distinct values of Efficiency, Fairness and Access as far as is possible.
This points us towards an alternative universal solution: not universal free
higher education, but universal eligibility for income-contingent student
loans.
4.2 Domination
A higher-education funding model, like South Africas, which relies on a
household contribution to a students costs of study (up to full tuition and
living costs) preserves the power of household-members to interfere with
students decision-making about which university to apply to, which subject
to study, and even whether to go to university at all. This discretionary power
undermines Equality, since it establishes asymmetrical relations of domination
between adult society-members with regard to important life decisions.
The financial leverage that heads of households currently have over
prospective students decision-making is also likely to undermine Access and
Efficiency.
Household-heads may decide to fund the university costs of one but not
all of their dependent household-members, or else may fund their costs
53 P. Dulwana (2015) #WitsonFire: Student factionalism must fall in Mail & Guardian Thought Leader, 28 October.
54 T. Nozuko (2015) Institutional racism quietly thrives at UWC in Cape Argus, 23 October.
579
differentially, due to prejudices of various kinds. In the UK context, Barr

& Crawford found that both unpaid parental/spouse contributions and
pressure to conform with parental/spouse wishes were likely to affect
women more strongly than men, particularly women from certain cultural
and ethnic backgrounds.55 Though in the Southern African Development
Community region there is a general trend for fewer women than men to
attend university,56 this is not true in South Africa, where the reverse is the
case.57 But household-heads financial leverage can undermine Access without
doing so along gender lines indeed it can do so without resulting in any
statistical trend likely to be detected. The larger point is that when a higher-
education funding model relies on household contribution, it effectively
makes Access a hostage to the beliefs and attitudes of household-heads.
Reliance on household contribution can also be expected to impede
allocative Efficiency. Due to the rapid pace of technological change, parents and
grandparents are likely to be less well-informed about the current demands
of the labour market than their adult children or grandchildren. They are also
sure to be less well-informed about the true aspirations, interests and to an
important degree skills and talents of their adult children or grandchildren
than those adult children or grandchildren themselves. To the extent that
household-heads use their financial leverage to influence prospective
university students choices regarding university study, we can legitimately
fear they will track the nature of the labour market twenty or more years
ago rather than the nature of the labour market today. These problems with
the information on which decisions influenced by household-heads are based
will likely lead to the supply of graduates not matching demand in the labour
market, to students dropping out or underperforming, and to graduates
being unmotivated in their jobs or opting to return to university for reskilling.
But most fundamentally, the arbitrary power which a funding models
reliance on household contribution puts into the hands of household-heads
generates asymmetrical relations of domination and dependence between
55 Barr & Crawford (1997) The Dearing Report, the governments response and a view ahead in The Dearing Report,
paragraph 115.
56 P. Pillay (2008) Higher education funding frameworks in SADC in Towards a common future, pp. 130-135.
57 Wangenge-Ouma (2012) Tuition fees and the challenge of making higher education a popular commodity in South
Africa in Higher Education: The International Journal of Higher Education Research, 64(6), p.833.
580
adult society-members which undermine Equality.58 This is an objection

to the funding model even in cases in which Access and Efficiency are not
undermined.
5. Reconciling Efficiency, Access,

Fairness and Equality
Sections 1 to 4 of this paper together amount to an argument for a very
substantial expansion of NSFAS. I have made the case that reconciling the
values of Efficiency, Access, Fairness and Equality requires that all South
African first-time undergraduate students be eligible for income-contingent
government loans covering university tuition fees, accommodation, books,
food, transport, and other reasonable living costs.
Implementing this proposal would, in the first few years, require a very
large outlay of funds. DHET officials quote just shy of R40 billion as the extra
annual outlay which would be required to extend NSFAS loan coverage to
students from the missing middle.59 Implementing universal eligibility for
NSFAS loans could require the same amount again, bringing annual outlay
on loans up to a total of close to R90 billion (since annual transfers to NSFAS
are at the time of writing a little less than R10 billion).
It might seem that this proposal is patently unaffordable. In terms of
the conceptual apparatus introduced above in 1.3, wouldnt this inevitably
constitute a violation of inter-sectoral Efficiency?
A full answer to this question would require us to determine what proportion
of the total national budget should be allocated to higher education. There
is currently deep disagreement on this issue, with some advocating a large
increase in government spending on higher education as a percentage of
gross domestic product (GDP),60 and others arguing that, even if government
revenue could be increased, the extra funds should be allocated to sectors
58 M. Garrau & C. Laborde (2015) Relational equality, non-domination, and vulnerability in Fourie, Schuppert &
Wallimann-Helmer (eds.) Social equality, pp. 45-64.
59 D. Parker (2015) Higher education funding challenges and the call for free education (unpublished colloquium
presentation).
581
other than higher education.61 I cannot resolve this complex debate here.
This section outlines six concrete steps which, if taken, could make
universal student loans an affordable policy even without any substantial
increase in the proportion of GDP spent on higher education. Some of these
are measures needed to confirm NSFAS identity as a loan, not a bursary,
scheme. Others are levers which policy-makers can use to ensure the shape of
the loan scheme is in line with government spending decisions and liquidity.
5.1 Collection of NSFAS debt via the South African Revenue Service (SARS)
Efficient debt collection is indispensable to any large-scale student loan
scheme. In South Africa, student loan debt collection has recently become
less efficient.62 This state of affairs must be rectified, by making student
loan debt collection a responsibility of SARS, to be carried out in the course
of income tax collection. Each NSFAS loan should be a direct contractual
arrangement between a student and NSFAS, with SARS collecting payments
due on the basis of a graduates declared earnings. Debt collection by SARS
can be facilitated by bringing thresholds for NSFAS loan repayment into line
with the income tax thresholds.
5.2 No conversion of loan into bursary

Currently up to 60% of a NSFAS loan is converted into bursary in order to
incentivise performance and timely completion of a degree.63 It is uncertain
to what extent these incentives have an effect upon student behaviour, and
to what extent they simply reward students who attended higher-quality
secondary schools. What is certain is that converting so much loan into
bursary makes the current student loan scheme far more expensive than it
would otherwise be. Eliminating the conversion of NSFAS loans into bursaries
would make the scheme both hugely more affordable and for the reasons
given above in Section 3 ultimately more fair.
61 Pillay (2015) Financing of universities (unpublished colloquium paper).

63 The figure quoted on the NSFAS website is 40 per cent: www.nsfas.org.za. However with the introduction of the Final
Year Programme this figure must be revised up to 60 per cent (Parker (2015) Higher education funding challenges and
the call for free education (unpublished colloquium presentation)).
582
5.3 An interest rate above the Governments cost of borrowing

In South Africa, as previously in other countries, the error has been committed
of both setting the rate of repayment of a student loan at a percentage of a
graduates income, and subsidising the interest rate on the loan. The interest
rate on NSFAS loans currently stands at 80% of the repo rate.64
How much of their NSFAS loan a graduate pays back per month is
determined, not by the size of their loan or the interest rate on their loan, but
solely by how much they are earning. Consequently, lending to students at
a subsidised interest rate does not break down barriers to Access by making
repayment more manageable; all it does is reduce the total amount of money
repaid by loan-recipients to NSFAS. Due to the relatively long time it can take
for graduates to repay their loans, a subsidised interest rate greatly increases
the ultimate cost to the taxpayer of a student loan scheme.65 This extra
expense, rather than fostering Access, just undermines Fairness, since it in
effect takes the form of an extravagant gift from the state to middle-income
graduates.66 Thus the interest rate on NSFAS loans should on no account be
lower than the Governments cost of borrowing.
There are two good reasons for raising the interest rate on NSFAS loans even
further, to above the Governments cost of borrowing though still below the
rate charged in the commercial credit markets.67 Firstly, it disincentivises the
practice of arbitrage, whereby students with access to other funds nonetheless
take out a NSFAS loan, place the money in a high-interest savings account, and
reap the profit.68 Arbitrage undermines Fairness, so it is desirable for an end
to be put to this practice. Secondly, when the rate of interest stands at above
the Governments cost of borrowing, this means that not all of the loss on the
loans portfolio must be borne by the taxpayer. Adding a risk premium69 to the
interest rate introduces a social insurance element into the higher-education
64 This is the rate quoted on the NSFAS website: www.nsfas.org.za. The repo rate is the rate at which the South African
Reserve Bank lends to commercial banks.
65 In a previous incarnation of the UKs student loan scheme, one third of all money lent to students was not repaid purely
because of the interest rate subsidy (Barr (2004) Higher education funding in Oxford Review of Economic Policy, 20(2),
p. 271.
66 Ibid., p. 271.
67 I am no longer of the view that government loans to students should be low-interest, if that is taken to mean an interest
rate at or below the governments cost of borrowing (G. Hull (2015) Free university education is not the route to social
justice in The Conversation (Africa), 27 October).
68 Barr (2004) Higher education funding in Oxford Review of Economic Policy, 20(2), p. 271.
69 Barr (2012) The Higher Education White Paper: The good, the bad, the unspeakable - and the next White Paper in Social
Policy & Administration, 46(5), p. 503.
583
funding model, and can make a loan scheme substantially more affordable. This
feature has already been successfully introduced in New Zealand and the UK.70
Once a risk premium is added to the interest rate, a loan scheme with
universal eligibility has a progressive fiscal incidence across those who attend
university. In South Africa, the non-completion rate is far higher for students
from poorer households currently eligible for a NSFAS loan than for students
from richer households.71 When they pay back their loan at the higher interest
rate, graduates from the latter group will also cover the cost of irrecoverable
loans to non-graduates from the former group to a substantial degree.
5.4 Recoverable loans recognised as an asset in the public accounts

When a government introduces a large-scale student loan scheme, it is
crucial for it to represent perspicuously in its national accounts the distinction
between (a) money invested which will ultimately be recovered and (b)
monetary outflows which will not be recovered. Only outflows of type (b)
i.e. that portion of outlay on loans which is not expected to be recovered
should be marked as expenditure in the public accounts. Finance Minister
Pravin Gordhan has recently reaffirmed that South Africas expenditure
ceiling is sacrosanct.72 This is a welcome move. However, it should not be
allowed to disable the Government from turning bad student debt into good,
which it will do for as long as the repayable part of loans is treated in the
same way as grants to students in the national accounts.73
Of course, until a reliable method of debt collection has been put in place, it
is impossible to make an accurate prediction of how much outlay on loans will
ultimately be recovered. And, even with a reliable method of debt collection
in place, if overly large chunks of student debt are routinely written off, and
the interest rate on loans is too generously subsidised, then outflows of type
(a) i.e. the investment in loans which will ultimately make its way back into
the public coffers will amount to nil, or close to nil.
But if the reforms outlined above in 5.1 to 5.3 are implemented, the
situation changes considerably. Let us assume that, with debt collection by
70 Ibid., p. 497; Barr (2004) Higher education funding in Oxford Review of Economic Policy, 20(2), p. 271.
71 S. Nxasana (2015) Education is part of the real world in News 24, 30 November.
72 C. Bisseker & L. Ensor (2015) One blow too many: SA heads for recession and an earlier junk rating after the Finance
Ministers axing in Financial Mail, 17-23 December, p. 28.
73 National Committee of Inquiry into Higher Education (1997) Higher education in the learning society: Report of the
National Committee, p. 327.
584
SARS, an end to the conversion of loan into bursary, and an interest rate equal
to the governments cost of borrowing, 80% of outlay on loans can ultimately
be recouped once borrowers have achieved healthy earnings.74 That means
that, of R90 billion total outlay, only R18 billion should be recognised as
expenditure in the public accounts. Then let us assume that, with the interest
rate on loans raised somewhat above the governments cost of borrowing,
as recommended above in 5.3, half of the loss on the loans portfolio can
ultimately be borne by repaying graduates. That brings the total expenditure
on NSFAS loans down to R9 billion a much less daunting figure.
NSFAS counts its outflows on student loans adjusted for an impairment
due to anticipated non-repayments as an asset on its financial statement.75
This is as it should be, and is in accord with the Standards of Generally
Recognised Accounting Practice.76 But the repayable part of loans should be
recognised as an asset not just of NSFAS, but of the State. To effect this, an
amount equal to the loans asset on NSFAS balance sheet should be recognised
as owed by NSFAS to DHET,77 and the same amount should be recognised as
owed in its turn by DHET to the National Treasury. This would be a simple and
perspicuous way of marking the difference between loans (refundable) and
bursary payments (expenditure) in the public accounts.
Currently, the South African Governments accounts treat student loans in
the same way as bursaries, a practice which misleads rather than informs.78
For as long as it persists in this accounting practice, Government expenditure
targets will irrationally constrain South Africas ability to empower its young
people to invest in their future.79
74 I dont think this is an unrealistic assumption, given that South African university fees are cheap by international
standards (see Cloete (2015) The flawed ideology of Free Higher Education in University World News, 6 November),
and graduate unemployment in South Africa is low.
75 NSFAS (2015) 2014/2015 annual report: Toward a student-centred approach, p. 79 & 87.
76 Thanks to Ilse Lubbe for guidance on this point.
77 Currently DHET recognises all outflows to NSFAS as grants.
78 National Committee of Inquiry into Higher Education (1997) Higher Education in the Learning Society, p. 327; Nicholas
Barr and Iain Crawford write: Since not all lending to students is repaid, it would be wrong to deduct all student loans
from public expenditure. But it makes equally little sense to present the public accounts as though no student loans
are repaid. This approach implicitly assumes that there will be a plague which wipes out all graduates on the day they
graduate, thus preventing any repayments at all (Barr & Crawford (1997) The Dearing Report, the governments
response and a view ahead in The Dearing Report, paragraph 93).
79 Barr comments: It is true that loans will bring in significant additional resources in 20 years time but (as one Vice-
Chancellor put it on the day the Dearing Report was published) you cannot revive a corpse (Barr (1998) Higher
education in Australia and Britain: What lessons? in Australian Economic Review, 31(2), p. 183).
585
5.5 A temporary graduate tax

Needless to say, the change in accounting practice outlined above in 5.4
does not conjure money out of thin air. There remains the cash-flow issue
of how to raise the capital required for the substantial expansion of NSFAS
argued for in this paper. It might be possible to raise sufficient capital through
the issue of Government bonds and by restructuring the higher-education
budget so that less is spent on subsidies to universities and more on student
financial aid.80 If not, a temporary graduate tax is one device which could
help achieve the necessary liquidity without redirecting funds from other
Government priorities.
Above in Section 3 it was explained why an income-contingent student
loan scheme is a better form for the student contribution to the costs of
higher education to take than a graduate tax. But there would be a clear
Fairness rationale for temporarily levying a tax on current graduates who
studied and paid fees in the past. Current graduates paid proportionally less
towards the costs of their higher education than todays students, which is an
intergenerational inequity. A temporary graduate tax on current graduates
taking the shape outlined above in Section 3 would enable that inequity to
be rebalanced, albeit in a rough and ready manner.
5.6 Universal eligibility to be phased-in gradually

Another way of ensuring sufficient liquidity for the proposed reforms to
NSFAS would be to introduce these reforms not all at once, but gradually. The
changes outlined above in Section 3 increasing the size of loans and bringing
the missing middle inside the NSFAS tent need to be prioritised and ideally
implemented within the next two to three years. On the other hand, the
introduction of universal eligibility for NSFAS loans though important (as
argued above in Section 4) is not quite so urgent. This further expansion of
NSFAS could be implemented five to ten years from now, once the trickle of
NSFAS loan repayments has increased to a steady stream.
The measures outlined in 5.15.6 above indicate that the policy of income-
contingent student loans with universal eligibility can reconcile the values of
Efficiency, Access, Fairness and Equality not only in theory but also in practice.
80 Above in section 5 I explained why such a restructuring would be fair.

586
Once it is decided how much funding should be allocated to higher education,

and what a fair split between university subsidies and student financial aid
would be, (a) a temporary graduate tax, (b) adjustment to the interest rate on
loans, and (c) the gradual introduction of universal eligibility can all be used to
tailor the loan scheme to fit budgetary and cash-flow constraints.
To achieve the liquidity required for the expansion of the loan scheme in the
short term, the Government should issue special Government bonds marked
as Student Financial Aid Scheme Government Bonds, which will attract
socially responsive investors both in South Africa and abroad. Investing in
these specially marked Government bonds would be a more constructive way
for business corporations to contribute to the funding of university tuition
than the current somewhat piecemeal approach. Investment in Student
Financial Aid Scheme Government Bonds would be an attractive form of
corporate social responsibility for many business corporations.
In the closing months of 2015, the South African Government was
confronted with an articulate, attractive and well-coordinated student
pressure group which demanded lower university fees and ultimately free
higher education. As argued in this paper, neither of these policies would lead
to a more just society for South Africa. If it is to engage successfully with this
pressure group, and maintain its legitimacy in the eyes of its broader citizenry,
the Government must not only choose the right higher education funding
policy, but also communicate persistently and persuasively why the values
behind that policy make it the right one. The route to social justice is for South
Africa to empower its young people from all socio-economic backgrounds to
invest in their shared future.81
81 I acknowledge gratefully the helpful comments on earlier drafts of this paper which I received from Dean Chapman, Greg
Fried, Rob Hull, Catherine Kannemeyer, John Kruger, Ilse Lubbe, Sean Muller, Lungisile Ntsebeza, Ian Scott, Bernhard
Weiss, Jimmy Winfield and Jonathan Wolff.
587
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Annexure B
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Governance innovation for funding tertiary

education in South Africa:
The case for a public private partnership in the
management of income contingent loans
Report to the Commission of Inquiry

into Higher Education and Training
19 May 2017
Author:
Lorenzo Fioramonti
Professor of Political Economy
Director - Centre for the Study of Governance Innovation
University of Pretoria
Email: [email protected]
Phone: 012-4202696
Centre for the Study of Governance Innovation (Govlnn)

Old College House
University of Pretoria, Private Bag X20
Hatfield - 0028 Pretoria
South Africa
Phone: +27 (0)12-4204178
www.governanceinnovation.org
593
Contents
Background........................................................................................................................................ 3
Income contingent mechanisms: a brief technical overview ............................................................ 5
An income contingent mechanism has two generic forms: a graduate tax and a loan. ................... 6
Repayments can be organised in different ways: .............................................................................. 7
A practical example: Australia ............................................................................................................8
Designing an ICL system .....................................................................................................................9
Repayment rate .............................................................................................................................. 9
Repayment threshalds .................................................................................................................... 9
Interest rate .................................................................................................................................. 10
Capping loans ...............................................................................................................................10
Time horizon: early repayment and maximum duration ............................................................. 11
Collection mechanism................................................................................................................... 11
A hybrid ICL approach to the case of South Africa........................................................................... 11
A public-private partnership ......................................................................................................... 12
How much funding is needed? ..................................................................................................... 13
Flexible design ..............................................................................................................................14
Conclusion .................................................................................................................................... 16
References and further reading .......................................................................................................17
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Background
There is growing consensus that the future of development is heavily dependent on the quality of
human capital. Societies that do not put education at the core of their economic policy planning
are doomed. Wealth and progress indeed depend on how we treat young and future generations
as well as the resource base upon which they thrive. This is why the issue of financing education
is so important. In many regards, education is the essential driver of economic transformation,
technological progress, social emancipation and conflict resolution.
State support for universities in South Africa has been declining over time, with levels of public
investment far below other 'developing' and 'middle-income' countries like Cuba, Senegal, Ghana
and Malaysia.' Often third-stream income is presented as a substitute for public funds, but it is
unlikely to fill the gap for a number of reasons: 1) universities compete with one another for
national funds; 2) international funds have been shrinking due to the global economic crisis as
well as the exclusion of South Africa from more traditional development aid in line with its 'upper
mille-income' status; 3) private sector funding is less likely to be available for disciplines and
sectors that have no immediate application and relevance to industry's priorities; 4) project
based research can interfere with academic freedom and may ultimately skew accountability
relations, with priorities being dictated by external preferences rather than lecturers and
students.
Currently the National Student Financial Aid Scheme (NSFAS) is under a lot of pressure because of
insufficient resources and because of the so-called 'missing middle': a growing number of
students who cannot afford the rising costs of tertiary education, yet does not qualify for aid or
preferential loans. At the same time, government has been decreasing its overall investment in
universities, which forces management to increase fees. It is a vicious circle that makes
everybody tense and can easily trigger conflict.
Against this backdrop, students and most academics have called for free tertiary education,
arguing that public resources can be diverted from other sectors and additional taxes can be
introduced, especially on top income earners. This is certainly a legitimate demand, which points
to the need to redistribute resources in what remains one of the most unequal societies in the
world. At the same time it begs the question of whether allocating such additional revenues to
tertiary education would be the most 'socially just' decision, in a country in which public
healthcare as well as public primary/secondary education are extremely under-resourced. In fact,
achieving free tertiary education through public revenues may not be a very equitable decision.
Indeed, university graduates tend to enjoy higher incomes than average citizens. As result,
funding their studies by diverting ordinary taxation, which could instead be used to support the
achievement of more basic needs, would be tantamount to asking the current poor to subsidize
the future rich through forfeited benefits. While additional and more innovative taxation systems
would be needed in the country, the revenues should be channelled towards fulfilling more basic
needs than tertiary education.
To break out of this impasse we may benefit from some governance innovation capable of
reducing the frictions between students, universities and government while involving the rest of
society to take responsibility for ensuring a more equitable and affordable education system. In
this regard, it is an encouraging sign that the lkusasa Student Financial Aid Programme (ISFAP)
was launched in 2017 with a pilot in a selection of universities. ISFAP adopts a hybrid model
1
Universities South Africa, University Funding in South Africa; A Fact Sheet. Available online:
http://www.uct.ac.za/usr/news/downloads/2016/UniversitiesFundingSouthAfrica FactSheet.pdf
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involving public grants, bank loans and a series of other funding mechanisms, including donations
and social impact bonds with a view to providing support particularly for the 'missing middle'.
Key private sector organizations in the country, including the Banking Association of South Africa
(BASA), Business Leadership South Africa and the Association for Savings and Investment South
Africa have supported the ISFAP pilot, with private institutions donating over ZAR 138 million and
ZAR 20 million in operating costs to ensure the pilot is implemented despite the short notice.
This report recommends building on the current ISFAP public-private partnership with a view to
streamlining and simplifying the approach. In particular, it is recommended that one unified
funding structure be managed by a single private partnership providing funding to all students,
not only to the poorest segments of the population and a selection of missing-middle
households. To achieve such a universal approach, South Africa can learn from the experience of
Australia and other countries, which have introduced a financial mechanism allowing students to
defer the costs of tuition until they get employment and making repayments proportional not to
the amount due but to their future salary scales. In technical terms, this system is called 'income
contingent loans' (!CL). Unlike conventional loans, which fuel a debt trap among millions of
students, also in South Africa, a repayment method proportional to future earnings guarantees
fairness and a better distribution of risk, given that some students will end up paying more than
they have loaned, thus subsidizing those whose jobs are not remunerated well enough, who may
enjoy lower premiums. Students who do not find a job or fall beneath a minimum 'salary
threshold' will be exonerated from repayment for as long as they remain in that condition,
provided that the government may require them to perform functions of collective benefit in
return for the public investment that allowed them to study at no cost.
Such a system has numerous advantages. First of all, it provides an immediate relief to students
who want to pursue an education but have no means to do so. By using future earnings rather
than current economic conditions as the repayment parameter, it breaks the vicious cycle of debt
and the anxiety that comes with the uncertainty surrounding the capacity to repay. Moreover,
this system is more efficient than conventional public funding and more democratic than private
loans: anybody can access it, poor and rich, without expensive screening processes that delay
applications and sap already limited financial resources. Indeed, diverse participation in the
funding scheme is crucial, because the financial sustainability of the system depends on the
possibility of future cross-subsidies between students accessing higher-paid professions and
those who get less lucrative jobs. The more diverse are the applicants, the more likely it is that
high-income earners' contributions will offset the lower repayments of those earning less.
Given the specific circumstances of the South African economy and in line with the ISFAP
approach, the report recommends a 'hybrid' adaptation of the ICLs, with the establishment of a
public-private partnership involving government, revenue service and private banks. The revenue
office would be in charge of collection, given that the simplest and most effective repayment
process is through conventional employer withholding in the payslip (similar to social security
withholdings). The banks would make funding available and the government may act as a payer
of last resort, either as a guarantor that public money would be injected into the system in case
of unexpected losses or by committing to buy off the banks any debt excessing a mutually agreed
margin. This proposal has been discussed with South Africa's banking associations and
representatives of commercial banks, with a generally positive feedback and interest to engage in
developing it further.
The crucial positive aspect of this hybrid approach is that it shifts the responsibility for equitable
education from individual students and their families to society as a whole. It also produces an
596
important alignment of interests between the public and the private sectors. Why? Because both
government and the business community will be able to profit from the proper management of
the economy and the creation of decent and well-remunerated work. On the one hand,
government would indeed save previous resources for as long as the positive cycle of repayments
is maintained: resources that could be invested in other critical areas of social development, thus
reinforcing the positive cycle. On the other hand, banks could profit directly from job creation,
which would give them an additional incentive to provide credit particularly to companies that
create good jobs, thus reducing their appetite for financial market operations. This alignment of
interests has the potential to turn the current lose-lose economic situation into a win-win, saving
government a lot of money and creating good investment opportunities for the private sector.
This system would be not only an innovative way to deal with the funding crisis in tertiary
education, but could also be a trigger of transformation and social justice. It is exactly what we
need to turn the economy around.
Income contingent mechanisms: a brief technical overview

We all understand how conventional mortgage style loans work. To begin with, they involve a
nominal repayment of $X per month for n years. Moreover they have the following
characteristics: 1) an increase in the interest rates raises monthly nominal repayments; 2) the
duration of the loan is fixed but the fraction of a person's income absorbed by repayments
(referred to as the repayment burden) can vary; 2) the repayment burden increases if income
falls, because repayments stay the same (in the absence of interest rates changes) regardless of
the borrower's salary fluctuations.
An income-contingent loan (ICL) challenges most of these aspects. For starter, repayments
depend on the borrower's income at the time of repayment (not on the amount loaned). In
virtually all !CL systems, payments are taken only after income reaches a threshold, with a view
to eliminating (or at least minimizing) financial stress and risks. In an ICL system the variable
component is the duration of the loan and the repayment rate applied, which can be longer or
shorter, higher or lower depending on the levels of income.
As a consequence, income-contingency turns many standard understandings about student loans

upside down:
Repayment rates do not change unless income changes, so as to keep the repayment
burden constant.
Duration of the loan is flexible to allow for more sustainable repayments (and higher
returns for the banks, given that graduate students tend to earn a higher salary as their
career progresses).
No repayment is expected until and unless the borrower is in the financial conditions to
pay.
The repayment burden is a crucial aspect of student loan design because it reflects the difficulty
or ease of meeting contractual obligations. With non-lCL systems, a borrower is required to repay
its debt each month for the duration of the loan (usually 10 years), irrespective of his/her
financial capacity to do so. As a result, borrowers experiencing unemployment or low earnings
through non-graduation (a particularly likely outcome for borrowers who did not complete their
degree), may end up facing proportionally higher repayment burdens, causing hardship and in
many cases leading to default. As a consequence, the fixed character of conventional loans can
seriously distort both labour market decisions (whether to work in the public or private sector, do
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volunteering, look after family members) and decisions about family formation (partnership and
when to have children) in ways that are neither efficient nor equitable.
The distinction between past and current income would be immaterial with stable and
predictable incomes, but that is not the way the world works for borrowers. For instance, the
incomes of young people are least stable, and depend significantly on the state of the labour
market when first seeking full-time employment.
Thanks to its adaptability and flexibility, an income contingent design is always to be preferred to
a conventional loan as a means to finance human capital. Indeed, financing education is very
different from financing conventional built capital (Friedman 1955). Why?
There is a lack of collateral. In contrast to home loans, for instance, there is no tangible
property a borrower can offer to the lender in case of default.
There is asymmetric information. Students are better informed than lenders about
whether they aspire to careers in say financial markets or the arts, with implications in
terms of ability to repay.
The first problem implies excessive risk for borrowers; both problems imply excessive risk for
lenders. As a result, with conventional mortgage-type loans, investment in human capital is too
low, because lenders impose tough conditions to guarantee repayment, which make the
repayment burden excessive and often leads to default: a negative outcome for both borrower
and lender. Mortgage-type loans are also discriminatory, because they tend to offer more
favourable conditions to well-off students, who are more likely to repay, than to students coming
from more disadvantaged backgrounds. In turn, this reinforces inequality and marginalization.
These market failures imply that to achieve an efficient level of investment in human capital a
loan system needs two elements:
Consumption smoothing: the loan needs to be large enough to provide full support over
the course of the loan.
Insurance: if consumption smoothing is to be effective (that is, people borrow enough to
finance the efficient amount of investment in human capital), the loan needs to provide
an element of insurance against low earnings.
In many ways, student loans are analogous to social security and should operate on the same
principles. Pensions redistribute from a person's younger to her older self; student loans
redistribute from middle years to earlier years, and across individuals with different earning
capabilities.
An income contingent mechanism has two generic forms: a graduate tax and a loan.
In the case of a graduate tax, graduates pay a fraction of their earnings for life or (say) till
retirement. This is equity finance: repayments are contingent on lifetime income; thus
people with higher lifetime earnings repay more in present-value terms.
In the case of loans, repayment continues until the borrower has repaid some specified
amount, for example, 100% of the amount borrowed in present value terms (thus
including an interest rate). In this design, contingency affects both the rate and the
timeline of repayments, which vary according to the ability to repay and the income of
the borrower.
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The report will deal at length with the strengths and weaknesses of the second approach, which
is based on income contingent loans. As regards the graduate tax (which this report does not
discuss in detail), the strengths include: low administrative costs and perceived fairness; the
weaknesses include: negative social perceptions of additional taxation, life-time duration of the
tax and cyclical tendencies in times of low economic growth.
Repayments can be organised in different ways:

They can be based on current income at the time of repayment, which adjusts
automatically to current earnings (this is the case in Australia and New Zealand).
They can be based on past income (which is the case in Hungary).
Or they can be developed through a combined arrangement, like in the Netherlands,
where the system follows a traditional mortgage-like approach, but if a person's earnings
are low, he/she can contact the student loans administration and request a lower
repayment rate.
For a number of reasons, including automaticity and low administrative transactions costs, the
first model is the most desirable.
Stiglitz (2014) has labelled these advantages 'transactional efficiencies' and promotes this aspect
as one of the most important benefits of ICL. The resulting benefits take two forms:
The marginal cost of collection is small because the system builds on an existing
administrative income-contingent collection apparatus'.
The benefit for the borrower is that repayments automatically adjust to financial
circumstances.
In general, ICL systems are designed so that higher-earning borrowers will generally be in a
position to repay their loans (plus interest) over a shorter period of time than low-earning
graduates. However, it is important to point out that there is good economic argument for having
a relatively long-term repayment term for these loans (say 20-30 years). It would be efficient to
set a short repayment period if the lifetime of a loan were somehow related to the lifetime of the
asset: for instance, a 3-year car loans and 25-year home loans. But given that the benefits of
higher education last throughout a person's working life, the option of longer repayment
duration should be seen as efficient, with the advantage that it reduces the risk of default.
Moreover, as already indicated, graduate students tend to earn more as their career progresses,
which means that longer loan terms are likely to generate higher returns for the lenders.
Important: it is always possible to design an ICL system that is cost neutral to the state and, by
association, to tax payers. In this regard, key variables include a combination of low loans, real
interest rates above the government cost of borrowing, loan surcharges, lower thresholds, higher
repayment rates, longer loan terms, and a healthy labour market with good earnings growth.
Some of these variables can be controlled, others cannot. A good ICL system should be
transparent, easy to understand, with universal take-up (essential to spread the risk and
guarantee smooth repayment), easy to access, easy to administer, placing low burden on
borrowers once they enter the labour market, and basing repayments on current earnings.
To summarize, the core elements of an ICL are:
2
Administrative costs in the Australian system is about 3% of the annual revenue collected (Chapman,
2014).
599
The repayment rate(s), that is, the percentage of a person's income after graduation that
is directed towards repaying the loan, which also includes the interest rate;
The repayment threshold, that is, the level of income at which repayments start;
A cap on total and/or annual borrowing from the student loan system;
The maximum number of years of repayment, that is, forgiveness after n years;
Conditions for early repayment;
A robust collection mechanism.
A practical example: Australia

Universities in Australia operate in the public sector with tuition charges set by government. Fee
levels have changed considerably over the last 20 years and are currently between about AUD
6,000 (ZAR 60,000) and AUD 9,000 (ZAR 90,000) per full-time student per year depending on the
course studied, there being three tiers (for example, law and medicine are in the top and arts and
humanities are in the bottom tiers).
Upon enrolment, domestic students choose between paying tuition upfront or deferring their
obligation through an ICL system. Over 85% choose to defer, because of the financial advantages
integrated into the ICL, and a student's debt is recorded and linked to his/her unique social
security/tax file number. When a borrower starts work, employers withhold loan repayments
based on the borrower's current income in the same way that they withhold social security
payments and income tax. Outstanding debt is recorded and reconciled within a government
agency. In other countries, this process is managed by a public private partnership (in the case of
the UK, for instance, it a separate a separate loans administration, the UK Student Loans
Company).
Like in most countries adopting the ICLs, borrowers have no repayment obligation unless their
incomes exceed a certain amount. In Australia, this is set at AUD 57,000 (ZAR 570,000) per
annum. Above these thresholds loan repayments increase proportionally with income up to a
maximum of 8% of the monthly salary (repayment burden). When the loan (plus interest) has
been fully repaid, employers are informed and repayment collections cease; the median duration
is about 8 years (in the UK, where average debts are much higher due to the high-cost of tertiary
education, the median is over 20 years). Although in Australia there is no maximum repayment
period, in other countries all outstanding debt is forgiven after about 30 years. ICL repayments in
Australia reflect a borrower's current capacity to repay, since repayments are collected on the
basis of the borrower's current weekly, fortnightly or monthly income.
Between 1994 and 2004, the Australian government introduced a Student Financial Supplement
Scheme that operated in part as a hybrid model, with funding sourced from the Commonwealth
Bank of Australia.3 In line with the conventional ICL design, repayments would not commence
until five years after the loan was taken out and only if the minimum threshold was exceeded. In
the meantime, voluntary repayments made during the contract period and before the repayment
terms attracted a 15% bonus. When the contract period expired, the Government paid the bank
the amount the student still owed and collected the debt through a HECS style arrangement
administered by the Tax Office.
The Australian experience points to the following conclusions.
3
See: http://www.aph.gov.au/Parliamentary Business/Bills Legislation/bd/bd0304/04bd027.
600
ICLs deliver major benefits in terms of consumption smoothing and insurance, because
they eliminate concerns with high repayment burdens and hence largely eliminate
defaults;
A system of repayments through employer withholding based on current income is the
simplest and cheapest approach for both lenders and borrowers;
Avoiding the complications of reapplication has significant administrative and financial
benefits both for government and borrowers; and
The parameters of an ICL must be developed and agreed upon by all parties involved,
especially if a hybrid model involving public and private institutions is chosen.
Designing an ICL system

As discussed, the ICL approach has multiple objectives, including consumption smoothing and
social mobility (hence avoiding high repayment burdens), as well as fiscal parsimony (thus
limiting the financial burden on governments/tax payers while allowing loans to be large enough
to provide full support for students, and sufficiently widely available to bring about the efficient
level of investment in skills).
In designing an JCL, the choice of parameter values will depend on:

The relative weights given to these different objectives;
The choice of the other parameters, i.e. the parameters interact with each other;
The size of the Joan;
The level, distribution and projected rate of change of graduate earnings;
The tax and benefit regime operating in a country and the tax base;
Political sensitivity connected with taxation, real interest rates and surcharges.
Repayment rate
Let us start with the choice of a repayment rate. In the UK, the 9% repayment rate applies only to
earnings above the threshold of GBP 21,000 per year; thus the repayment for someone earning
GBP 22,000 per year is GBP 90, i.e. 9% of GBP 1,000. In Australia, once a borrower's earnings
cross the threshold of AUD 54,000, a 4% repayment rate applies to all earnings; thus the
repayment for someone earning AUD 55,000 is AUD 2,200, i.e. 4% of AUD 55,000. Other things
equal, the Australian system can have a lower starting repayment rate, but at the expense of a
'cliff edge' as earnings cross the threshold. Australian evidence suggests that this has behavioural
tax reporting effects in the short run (a bunching of earnings just below the threshold), which
however quickly disappears (after about one year).
In cases where income inequality is particularly pronounced, as in South Africa, it would be

advisable to consider a number of brackets with different repayment rates, so as smoothen the
burden more efficiently and ensure that top income earners offset lower repayment rates among
Jess well-off borrowers.
Repayment thresholds
This is the point at which a borrower's income activates repayments. In societies in which salary
gaps are wider, the risk of a 'cliff edge' can be reduced by having more thresholds with smaller
changes in the repayment rates. Other things being equal, a lower repayment threshold increases
repayments, making it possible, for example, to have a lower repayment rate. At the same time,
the case for a higher threshold is to avoid the proportionally higher marginal tax rates faced by
many low earning recipients and to reduce financial stress on low earners. In sum, a higher
601
threshold disentangles student loan repayments from other welfare considerations, with both
efficiency and equity gains, but it reduces revenue.
The choice of threshold depends on the balance between repayment flows and social concerns,
and will depend crucially on the median level of income in a country, the extent of income
inequality, its tax and benefit systems and the efficiency of the tax collection/employer
withholding system.
Interest rate
If government is in charge of the ICL system, then the interest rate can be tweaked according to
political preferences, but if banks are involved, then the interest rate must take into account the
cost of borrowing and must be set at prime or above prime to generate a level of profit for the
private investors.
As a general rule, an interest rate below the cost of borrowing means that taxpayers or private
,investors will have to fill the gap, given that no borrower is expected to repay in full in present
value terms. In the case of government loans, the outcome can be expensive in fiscal terms
(especially if the government's cost of borrowing is high). However, a lower interest rate may be
politically more palatable, reduce adverse selection and is also more progressive in terms of the
proportion of the loan paid by the cohort of borrowers in present value terms across the earnings
4
distribution.
If the interest rate is set above the cost of borrowing, borrowers who repay their loan in full
r:epay more than the cost of their loan in present value terms. However a note of caution is
necessary here, given that the interest rate and repayment rate may interact in ways that affect
the progressivity of the monetary contribution made by borrowers. For instance, if the richest
graduates repay their loan faster, they contribute less proportionately in present value terms. An
alternative to a positive real interest rate, or an option alongside a real interest rate, is a loan
surcharge. A surcharge has the advantage of transparency (unlike compound real interest rates)
and can help maintain progressivity within the cohort of borrowers by allowing real interest rates
in a revenue neutral way (due to the increased revenue from the surcharge). A disadvantage is
that the surcharge, particularly a large surcharge, invites adverse selection.
Capping loans
Loans should be capped for two reasons: 1) to prevent people from borrowing more than the
fees and associated costs will require; 2) to help to contain fee inflation, a relevant consideration
in most countries, where tertiary education is becoming extremely expensive. In the UK, where
fees were allowed to rise up to a maximum of GBP 9,000 in 2012 and ICL loans were allowed to
5
rise commensurately, virtually all fees went up to GBP 9,000. This was repeated in 2016 when
fees for 2017 were allowed to rise to GBP 9,250 and all but a handful of universities raised fees to
6
the maximum level. In order to avoid a sudden increase in tuition fees, the cap should not be set
to a general threshold across all universities, but pegged to the inflation rate and proportional to
the cost of tuition applied before the entry into force of the ICL mechanism. This would avoid
4
In Australia, the interest rate is 0% real, in New Zealand is is 0% nominal - so below the government cost
of borrowing. Conversely in the UK the interest rate is 3% real and above the government cost of
borrowing.
5
See Haroon Chowdry et al. (2012b) and Lorraine Dearden et al. (2014).
6
See https://www.offa.org.uk/access-agreements/.
602
that 'cheaper' universities resort to increasing their fees instrumentally to reach the cap, as was
the case in the UK.
Time horizon: early repayment and maximum duration

In a system with positive real interest rate, a lower maximum repayment duration is more
progressive (since lower earners are increasingly protected), but at the expense of less revenue.
As discussed, the U K has a maximum repayment duration of 30 years, i.e. any outstanding loan
balance after 30 years is forgiven. In Australia, by contrast, there is no maximum period of
repayment but implicitly is set to be the death of a debtor.
A well designed system should have no incentives to repay early and/or ensure that there is no
loss of revenue if there is early repayment.
Collection mechanism
As discussed earlier, employer withholding on the basis of current earnings is cheap, robust (also
in South Africa, where tax authorities are well resourced and skilled) and essential if the
insurance element in the loan is to be effective. A system in which employer-withholding is done
in the same way as is done for social security contributions is ideal (Dynarski 2016).
In sum, a good loan scheme has the characteristics summarized below:

Income-contingent repayments based on future earnings.
A write-off after n years, or at retirement or death.
Repayment threshold and rate so that:
o A graduate with 'good' earnings repays (in PV terms) 100% and for high-earners
more than 100%.
o Distortions like large cliff edges or wedges are avoided.
Low administrative costs and fiscal efficiency, because a streamlined loan approach
reduces bureaucratic costs and increases investment in human capital. By contrast,
complex administration processes restrict one or more of:
o The number of loans that are made available;
o The size of loans;
o Student numbers;
o The breadth of the loan system, e.g. not covering living costs, or excluding part
time students, postgraduate students and students in sub-degree tertiary
education.
All these problems are particularly detrimental to students from disadvantaged
backgrounds, who enjoy limited family financial support.
A fair and sustainable approach to offsetting losses and spreading risk. Here the critical
question is where the loss on low-earning borrowers should fall: (a) on the taxpayer, or on
the cohort of borrowers through (b) a cohort risk premium or (c) a surcharge. A large
fiscal cost creates downward pressure on the number and/or size of loans, and crowds
out other beneficial activities (like spending on other areas of welfare). A large loss
requires a substantial risk premium, that is, an interest rate significantly above the cost of
borrowing, risking adverse selection and creating potential political and social problems. A
large loss requires a substantial surcharge, again raising the prospect of adverse selection.
A hybrid ICL approach to the case of South Africa

The key virtue of the ICL approach is its flexibility: it can be adapted in many different ways, with
a view to responding to specific economic factors and cultural/social dimensions. South Africa is a
603
highly unequal country, which means that the income capacity of one sector of the population
can be used to rebalance low levels of repayment in other sectors. The country also needs to
prioritize public spending in the provision of basic services, notably healthcare and
primary/secondary education, which means that additional public taxation or different budgetary
decisions should target these critical areas first, rather than funding tertiary education.
For all these reasons, a hybrid ICL approach is preferable. Involving the private sector will indeed
unleash new capabilities and financial resources, potentially addressing the problem at no cost to
government. Moreover, it would guarantee a reasonable spreading of risk by making the funding
approach universally applicable to everyone. Finally, it creates an opportunity for a public-private
partnership aimed at shifting the responsibility to fund tertiary education from government,
universities and families to society as a whole.
The desirability of a hybrid approach has also been stressed by a number of universities. For
instance, a report by the University of the Witwatersrand states:
to surpass the current crisis a new "hybrid model" is required. This envisages a multi-faceted
approach in which Government {as the main custodian of higher education), the Private
Sector and university revenues {fees, donor funds and endowments) all contribute in various
ways ta the general we/I-being and sustainability of the higher education sector'.
In the next sections, the report outlines various options for a hybrid ICL model to tackle the
tertiary education crisis in South Africa.
A public-private partnership
For the ICL approach to work effectively in the South African context, where state resources
should prioritize other basic needs, it is essential to involve the private sector in the lending
process. In particular, South African banks appear well positioned and resourced to provide a
leading role. Many commercial banks in the country are already providing conventional loans to
students, parents and guardians, whose investment could be more usefully directed towards
funding the ICL approach. In addition, banks also fund an increasing number of scholarships,
whose administration comes with a cost, which could be better streamlined by investing directly
in the ICL funding scheme. According to BASA's report to the Commission, South African banks
already spend roughly ZAR 500 million per annum through grants and bursaries, with roughly
5000 bursaries dispensed across the country each year and ZAR 1 billion worth of student loans
annually. Most of these loans already include flexibility in repayment, with only interest and fees
charged during the period of study, some support in case of unemployment and a grace period
after graduation, when full repayment begins. It's clear that the ICL approach would make this
process much more streamlined for both borrowers and lenders, limiting administrative burdens
and spreading the risk across a more diverse population.
In preparing this report, a series of conversations were held with South African commercial
banks, namely, Standard Bank, ASSA, Nedbank and First National Bank, as well as with BASA. All
parties involved confirmed their interest in engaging in conversation with all parties involved to
discuss how a hybrid ICL approach could be implemented as a response to the current funding
crisis.
7
Report of the University of the Witwatersrand Panel on Funding Model(s) for Higher Education in South
Africa. Available online: https://www.wits.ac.za/news/latest-news/general-news/2016/2016-08/wits
submits-report-on-higher-education-funding.html#sthash.WdfCDHPr.dpuf
604
In order to guarantee 'neutrality', such partnership should be managed by an independent
institution similar to the several bodies already identified by the Chapter 9 of the Constitution. It
should be accountable to Parliament, but guided by a board involving also the Banking
Association of South Africa and the South African Revenue Service (SARS). The role of SARS is
crucial to ensure that repayments are processed automatically as part of tax returns through
direct employer withholdings.
Why such a partnership? First of all, because the private sector needs to take more responsibility
in ensuring that tertiary education is made accessible to everyone. Second, because it would be a
good investment for many banks seeking a decent return on investment, especially against the
backdrop of widespread unsecure lending in the economy at large. Third, because it would save
government money (at a time of shrinking public budgets), which should rather be invested in
other critical areas of social development, from primary and secondary education to healthcare.
More importantly, perhaps, this partnership helps align the short-term interests of government
and business with those of society at large. How? By making government revenues and banks'
profits directly dependent on the creation of good jobs. By investing in the future careers of
students, banks will have a stake in the real economy rather than in the financial markets, thus
redirecting most of their capital towards lending rather than speculation. Indeed, the likelihood
of steady repayment will be proportional to the creation of good and dignified jobs across
society, not in one sector but in as many sectors as possible. As the profitability of the loans will
depend upon the diversification of such job creation, banks will be more inclined to provide
credit to small and medium enterprises (SMEs), which are the real job creators vis-a-vis some
traditional corporate giants, which have become structurally unable to generate good jobs and
are actually downsizing the workforce across the board. The ICL partnership would be a further
incentive to upgrade existing efforts by the banking industry, including their activities under
auspices of the CEO Initiative, such as the creation of an SME fund to invest in black enterprises
and the Youth Employment Service.
Government will have a similar interest, because if the repayment cycle sustains itself thanks to
the steady creation of good jobs, it will not need to use its own resources to back up the loans. As
a consequence, we should expect policymakers to focus on policies that promote diversification,
job creation, good governance, and broad-based economic empowerment. This will contribute to
levelling the regulatory playing field between large corporations, which have thus far been
supported by cheap labour and direct/indirect subsidies without a direct impact on the creation
of dignified and sustainable jobs, and the many small and medium enterprises, which are the real
job creators, yet struggle to access credit and operate in a legislative environment that is not
enabling to their success.
How much funding is needed?

It is difficult to gauge exactly the amount of financial resources necessary to cover the costs of
tertiary education for all students, also because the elimination of fees may increase enrolments.
A generic estimate is however possible. According to the Centre for Higher Education and Trust,
which collects data from the South African Department of Higher Education and Training's Higher
Education Management Information System and universities' annual financial statements, there
8
are about 1 million students enrolled nationally, with a success rate of about 77%. A rough
estimate of yearly tuition fees plus basic additional costs (including a small stipend for
8
See: https://chet.org.za/data/sahe-open-data.
605
accommodation and transport) hovers around ZAR 50,000 per year (with a Bachelor of Medicine
at the University of Cape Town, which is the most expensive degree in the country, costing about
9
ZAR 65,000 per annum and a Bachelor of Science at UNISA set at about ZAR 13,000 per annum).
This would amount to about ZAR 150,000 ZAR for bachelor degree and roughly 200,000 ZAR for a
full degree including honours. Such an admittedly generic and rough calculation sets the overall
need of funding at about 50 billion ZAR per an num, with a total of about 200 billion ZAR for all
completed degrees nationally.
Ideally, a good system of funding and incentives should minimize failure and drop-out, which is
why we assume a 100% success rate. Should the success rate only improve marginally from
current trends (say from 77% to 85%), the overall cost of education would obviously decrease as
compared to the assumed trajectory. In comparison, NSFAS has a budget of about 15 billion ZAR
in 2017, which has been disbursed through grants and loans to assist over 400,000 students. At
the national level, South African banks possess assets for about 4 trillion ZAR, with a significant
(albeit decreasing) amount invested in unsecured credit, which could be more profitably directed
0
to support socially beneficial activities, including tertiary education.' Moreover, private
companies already make significant funds available in terms of bursaries and fellowships to a
number of universities, faculties and departments. All this funding, which is possibly quite
significant in terms of scale, could be absorbed by the ICL mechanism, thus reducing the actual
amount of money loaned directly from the banks.
In short, the partnership would work as follows:

An independent institution is created as a joint initiative by the Department of Higher
Education and Training, SARS and the Banking Association of South Africa, accountable
directly to Parliament. This institution will manage an annual funding portfolio of roughly
150-200 billion ZAR, made available by South African private banks and other investors.
The NSFAS's annual budget (currently 15 billion ZAR) is set aside as a guarantee fund in
case of insufficient repayments. If the system is in balance after four years, the NSFAS
budget can be redirected to finance other areas of social welfare. Two alternatives are
possible: 1) these funds could be used to start repaying banks at a low interest rate after
the first two years of contract; 2) these funds are used to cover most of the costs of first
year e nrolments, where drop-out rates tend to be higher (about 12% on average
according to recent studies of the cost implication of the White Paper), thus absorbing
much of the risk upfront while leaving banks to cover the students during the remaining
years, in line with the current approach adopted by ISFAP.
Private businesses interested in providing bursaries and fellowships would contribute
directly to the ICL public-private partnership, either by making donations or purchasing
interest-free bonds or equivalent financial obligations, in exchange for the right to
indicate the sector of learning to which they would like their funds to be allocated.
Flexible design
This hybrid ICL partnership must be designed in a flexible fashion so as to achieve social mobility,
redistribution and drive the economy in a more sustainable direction, ultimately becoming a
countercyclical process to spur economic development, especially in times of stagnation. To
achieve such multiple objectives, the following is recommended:
9
See: https:ljafricacheck.org/reports/how-much-will-it-cost-to-go-to-a-south-african-university-in-2016/
10
See: http://www.banking.org.za/docs/default-source/publication/banking-sector-
overview.pdf?sfvrsn=6
606
Time horizon
Preference should be given to a long-term repayment horizon in order to minimize risks of
default. There should be a possibility for early repayment, but with a premium (or loan
surcharge) in order to discourage a surge of repayments in the early stages of a professional
career, when income is lower and risks are higher.
The long-term repayment is also likely to ease the burden on graduates facing the so-called
'black tax', a customary tradition among many black communities in the country, according to
which young professionals are expected to support their families mostly through covering the
cost of their siblings' education. It must be noted that, in a fully-functional ICL system, it is
likely that education expenses will massively decrease or disappear altogether, thus reducing
the burden associated with customary practices.
Thresholds and caps

As discussed, the choice of threshold depends on the balance between repayment flows and
social concerns. It will need to take into account the level of inequality in South Africa and the
median income, ultimately exonerating all post-graduation poor households (and potentially
some of those belonging to the so-called 'missing middle') from any repayment obligation.
It is important that loans are capped to avoid an increase in university fees. However, given
the vast disparity in costs among the various South African universities, the cap must be
introduced in ways that do not generate a perverse incentive for 'cheaper' universities to
increase their charges instrumentally to reach the cap.
Rates
Unlike conventional ICLs, in which government manages loans directly and can decide to set
interest rates below the cost of borrowing (thus requiring an injection of revenues from
taxpayers), a hybrid model involving private banks will require a higher, although
incremental, approach to interest rates. In practice, it is recommended that a minimum entry
level be equivalent to prime plus inflation, with progressive marginal increments proportional
to the income of the borrower. Due to South Africa's massive inequality, it is advisable to
introduce a relatively large number of repayment scales (thus smoothening repayment
obligations) with an exponential increase for top income earners.
It is paramount that interest rates are chosen carefully so as to ensure that repayments
exceed the amounts loaned, with a view to offset the forfeited debt owed by those falling
below the threshold.
Universality
For the ICL approach to work optimally, the pool of students signing up to the facility should
be as large and diverse as possible. Ideally, it should be universal, with all students
subscribing to it upon successful registration. As discussed, uptake rates around the world are
quite high, because ICL systems are designed in a way that comes with virtually no risk to the
students and repayments are proportional to the financial means of the graduate after
finding employment. In a country like South Africa, which suffers from high levels of income
and wealth inequality, it is paramount that students from all socioeconomic backgrounds
participate in the process. Otherwise, there would be a significant risk of adverse selection,
with low levels of repayment, which is currently a major problem for both NSFAS and ISFAP.
An optimal level of uptake can be achieved in two ways:
607
Making it mandatory for all students to subscribe to the ICL funding mechanism upon
registration;
Attaching a 'fee discount' to students that sign up for the ICL approach.
In the first case, the legislator would need to introduce a universal requirement for students
in public universities, adapting it to Constitutional requirements of equal treatment and non
discrimination. In the second case, it would be a process agreed upon directly between the
ICL partnership and universities. For instance, it could be agreed that universities will only
receive government subsidies in proportion to the number of students enrolled through the
ICL process. As a consequence, universities may need to increase tuition fees to supplement
the forfeited public funds, which however would not apply to students funded through ICLs.
For ICL students fees would only increase proportionally to the rate of inflation, while non-lCL
students would be charged according to other financial considerations. Not only is such an
approach a powerful alternative to the obligatory adoption of ICLs, but it can easily result in
an indirect subsidy from opt-out students to ICL students, thus maintaining the sustainability
of the partnership.
Incentives and sanctions

Last but not least, there is a clear need for better incentives and stricter sanctions for
students. Good performance is indeed essential for this hybrid mechanism to work
effectively. Being a loan, the ICL is less likely than other types of funding (e.g. a graduate tax)
to generate perverse incentives, whereby students with no real interest to pursue graduation
or no particular professional aspirations attend university simply because it is free, thus
posing an excessive burden on public funds. In any case, stricter performance assessment
mechanisms will need to be implemented by universities to minimize such risk and to ensure
that as many students as possible graduate in time and with distinction.
Conclusion
No funding system is perfect, but the hybrid ICL approach described in this report is possibly the
least imperfect of all. It avoids the debt trap in which many students are currently falling, which
feeds suspicious financial schemes, often with the tacit consent of university administrators. It
avoids sapping important public funds, which should rather be spent to support other areas of
social welfare.
In some ways, this hybrid model is a better option than any other income contingent forms of
funding, including a 'graduate tax'. The latter, too, has a number of advantages, but it is unlikely
to alter the current economic status qua, which points towards a shrinking labour market going
forward. A tax risks undermining its sustainability even in the short term, because the graduates
expected to pay it may never find the good jobs they want. Moreover, it is more likely to cause an
inflation of enrolments, also by students who may not be particularly motivated or interested to
achieve graduation but would welcome the idea of attending university with no strings attached.
Above all, what makes the hybrid approach more promising is its capacity to align different
interests in society. Unlike a tax, this hybrid system may activate countercyclical dynamics, thus
helping turn the economy around: something unlikely to happen for as long as government,
business and the rest of society pull in different directions. Unlike a tax, which becomes a
bilateral relationship between students and government, the hybrid model turns the private
sector into a direct stakeholder in the tertiary education process. Achieving accessible quality
education is not just a responsibility of public departments, universities and students: as a public
good at the basis of a healthy society, it is everybody's moral duty and in everybody's best
interest.
608
References and further reading
Nicholas Barr (1989),'Alternative Proposals for Student Loans in the U nited Kingdom', in Maureen
Woodhall (ed.), Financial Support far Students: Grants, Loans ar Graduate Tax?, Kogan Page,
pp. 110-121.
Nicholas Barr (2010), 'A properly designed 'graduate contribution' could work well for U K
students and higher education - even though the original "graduate tax" proposal is a terrible
idea', LSE British Politics and Policy, 20 August 2010,
http://blogs.lse.ac.uk/politicsandpolicy/a-properly- designed-%E2%80%98graduate
contribution%E2%80%99-could-work-well-for-uk-students-and-high e r -education-even
though-the-original-%E2%80%98graduate-tax%E2%80%99-proposal-is-a-terrible-idea/
Nicholas Barr (2012a), The Economics of the We/fore State, 5th edition, Oxford and New York:
Oxford University Press.
Nicholas Barr (2012b), 'The Higher Education White Paper: The good, the bad, the unspeakable -
and the next White Paper', Social Policy and Administration, Vol. 46, No. 5, October, pp. 483-
508.
Bruce Chapman (2014), "Income Contingent Loans: Background" in Bruce Chapman, Timothy
Higgins and Joseph E. Stiglitz (eds), Income Contingent loons: Theory, practice and prospects,
Palgrave McMillan; New York: 11-19.
Bruce Chapman and Lorraine Dearden (2016), "Conceptual and Empirical Issues for Alternative
Student Loan Designs: The Significance of Loan Repayment Burdens for the US", forthcoming
Annals.
Bruce Chapman, Lorraine Dearden and Louis Hodge {2016), "The distributional and fiscal
implications of different income contingent loan systems for the US", forthcoming IFS
Working Paper.
Bruce Chapman and Andrew Leigh (2009), "Do Very High Tax Rates Induce Bunching?
Implications for the Design of Income Contingent Loan Schemes", Economic Record, Vol. 85
(270) (September): 276-289.
Haroon Chowdry,, Lorraine Dearden, Alissa Goodman and Wenchao Jin. (2012a), The
Distributional Impact of the 2012-13 Higher Education Funding Reforms in England. Fiscal
Studies, 33: 211-236. doi: 10.1111/j.1475-5890.
Haroon Chowdry, Lorraine Dearden, Wenchao Jin and Barnaby Lloyd, November (2012b), Fees
and student support under the new higher education funding regime: what are different
universities doing?, IFS Briefing Notes , BN134, http://www.ifs.org.uk/bns/bn134.pdf.
Lorraine Dearden, Louis Hodge, Wenchao Jin, Alexander Levine and Laura Williams {2014),
"Financial support for HE students since 2012", IFS Briefing Notes, BN152,
http://www.ifs.org.uk/bns/bn152.pdf.
Susan Dynarski (2016), "How to - and How Not to - Manage Student Debt", The MiIken Institute
d
Review, 2 Quarter.
Milton Friedman (1955), 'The Role of Government in Education', in Solow, Robert A. (ed.),
Economics and the Public Interest, New Brunswick, New Jersey: Rutgers University Press, pp.
123-44.
Adam Looney and Constantine Yannelis (2015), "A crisis in student loans? How changes in the
characteristics of borrowers and in the institutions they attended contributed to rising loan
defaults". Brookings Papers on Economic Activity Fall, Washington, DC.
Hamish Low, Costas Meghir and Luigi Pistaferri (2010), "Wage Risk and Employment Risk over the
Life Cycle." American Economic Review, 100(4): 1432-67.
Shapiro, D., Dundar, A., Wakhungu, P.K., Yuan, X., Nathan, A. & Hwang, Y. (2016, November),
Completing College: A National View of Student Attainment Rates - Fall 2010 Cohort
(Signature Report No. 12). Herndon, VA: National Student Clearinghouse Research Center.
609
Joseph E. Stiglitz (2014), "Remarks on income contingent loans mitigating risk" in Bruce
Chapman, Timothy Higgins and Joseph E. Stiglitz (eds), Income Contingent loons: Theory,
practice and prospects, Palgrave McMillan; New York: 29-37.
610
-- .. Annexure C
Unemployment Insurance Fund

Assessment of the financial impact of the Amendment Bill of
2015
31 March 2016
OED Actuaries & Consultants (Pty) Ltd

Confidential
611
.. .
Table of Contents
ExectJtive Summary................................................................................................................................. 2
1 ..... JntrodtJction .............................................................................., ......... f+++-o.oo. ....................................... 5
2 ..... Reliances and Limitations ................................................................................................................6
3 ...... Data ............................................................................................................................................................. 7

.
4 ..... Changes Since the Previous Review .............................................................................................. 9
5 ..... Benefit amendments and proposed methodology .........................................................................1O

6 .... Results .........................................,...................................................................................................................19
7 ....... Concius.ion fp-....PPt-47
Appendix A: Part o:................................................................................................................................ 50
Appendix" B: Part 1: ...............................+t".............................................................................................. 51
Appendix C: Part 2: ............................................................................................................................... 52
Appendix O: Part 3: ............................................................................................................................... 53
Ap:per,dix E: Part 4: ..... f ............................................, ....... ,................................................ p.... ...... t ..., ......,, .... ........... 54
Appendix F: Part 6: P+ ............................................................. , ............... .............,............................................55
Appe:OOtx G: Part 7; ....t+..............................56
Appendix H: Part 9: .................................................,. p........................................................ p P-57
Appendix I: Part 10: ............................................................................................................................... 58
Appendix J: Part 11: ++f._...............................................,................ ,.t ......................................
Appentlix K: Part 12:.................. .....

p .. ........... +
1 ..............................................................14( ........................................ ........

".,.59
60
Appendix L: Part 1'2A: +-+.................... p............. ...... ,.................................................... , ...... , ...... , .. 61
Appendix M: Shocks applied .................................................................................................................62
Appendix N: Shocks to Part 11 .............................................................................................................64
Appendix 0: Shocks to Part 12 .............................................................................................................68
Appendix P: Shocks to Part 12A ...........................................................................................................72
Appendix Q: Benefit deseriptiOn ............................................................................................................76
Unemployment Insurance Fund I Actuarial Review

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612
., '
Executive Summary
1. QED Actuaries & Consultants (Pty) Ltd C-OED") has been appointed by the management of
the Unemployment Insurance Fund ("UIF" or "the Fund") to assess the financial impact of
proposals in the Unemployment Insurance Amendment Bill of 2015. Management have
requested that additional scenarios, which are currently under discussion in the National
Economic Development and Labour Council ("NEDLAC"), be considered, the financial impact
of which is also assessed in this report.
2. This report focuses on the adjustments that will have an impact on the future financial
performance of the Fund.
3. Benefit changes proposed in the 2013 Amendment Bill, which also appear in the 2015
Amendment Bill, are considered in the following Parts of the report:
Part 1: Extension of benefits to 365 days with a flat rate of 20% after 238 days, and
adjustment of benefit. accrual at rate of 1 day for every 5 days worked
Part 2: Maternity and Illness benefit changes
Part 3: Unemployment benefit cycle changes
Part 4: Extension of Death claims submission period from 6 to 18 months
Part 5: Extension of Unemployment claims submission period from 6 to 12 months
Part 6: Death claims to allow for nominated beneficiary
Part 7: Inclusion of persons on leamership contracts and migrant workers
4. Benefit changes proposed in the 2015 Amendment Bill, which were not proposed in the 2013
Amendment Bill, are considerd In the following Parts of the report:
Part 8: Payment of benefits in the case of reduced salary

Part 9: Extension of Maternity claims submission period from 8 weeks prior to birth to
12 months after child birth
5. Benefit. changes as under discussion in NEDLAC are considered in the following parts of the
report:
Part 10: Inclusion of persons employed in the informal sector

Part 11: Payment of 12 days of paternity leave to fathers
Part 12: Payment of benefits to persons who have resigned
6. As an alternative option for Part 12, which we have referred to as Part 12A, we recommend
that the IRR used to calculate resignation benefits be 60% of the actual IRR for the first 238
days, and the proposed fixed 20% IRR thereafter.
7. The cumulative PAYG rate following the respective proposed benefit changes that lead to a
deterioration in the claims experience of the Fund is estimated as follows:
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PAYG Rate
Death Illness M&A Total Chan e
Q.Jrrent 0.041% 0.038% 0.117% 0.892% 1.322%
Part 1 0.047% 0.038% 0.120% 1.044% 0.235% 1.483% 0.161%
Part 2 0.047% 0.043% 0.183% 1.044% 0.235% 1.552% 0.069%
Part3 0.047% 0.043% 0.183% 1.200% 0.235% 1.708% 0.157%
Part4 0.047% 0.043% 0.183% 1.200% 0.235% 1.708% 0.000%
Part5
Part6 0.070% 0.043% 0.183% 1.200% 0.235% 1.732% 0.023%
Part7 0.072% 0.045% 0.189% 1.239% 0.235% 1.780% 0.048%
Part B
Parts 0.072% 0.046',(, 0.208% 1.239% 0.235% 1.799% 0.019%
Part 10 0.078% 0.048% 0.223% 1.327% 0.235%
Part 11 0.078% 0.048% 0.351% 1.327%
!P.ir.H2, .OiD'illYt___.O..B'W !0:3.51'KI 2.D.Bt'I.%
Part12A 0.078% 0.048% 0.351% 1.779%
8. Benefit changes that lead to no anticipated deterioration in claims experienc;e to the Fund are
reflected as blank lines in the above table. The revision in PAYG rate for each line reflects the
cumulative impact of all benefit changes considered up to that Part.
9. Part 9, highlighted in light grey and balded in the table above, shows the cumulative impact on
the PAYG rate, should the changes proposed in the Amendment Bill be implemented. Part
12, highlighted in dark grey and balded, shows the impact on the Fund, should the changes
proposed in the Amendment Bill, as well as those under discussion in NEDLAC be
implemented. Part 12A, at the bottom of the table, shows the impact in the Fund, should Part
12A be implemented instead of Part 12.
10. The cumulative Impact of benefit changes proposed in the Amendment Bill that lead to a
deterioration in claims experience of the Fund is a revision of the PAYG rate for the Fund from
1.322% in the base financial projection to 1.799%. This means that all changes proposed in
the Amendment Bill are affordable at the current contribution rate of the Fund of 2.00%.
11. The cumulative impact of benefit changes proposed in the Amendment Bill and those under
discussion in NEDLAC result in the PAYG rate of the Fund increasing from 1.322% to 2. 792%.
This means that all benefit changes under discussion in NEDLAC cannot be fully funded by
the current contributions to the Fund. However, the high level of accumulated funds results in
the investment income being able to fund the difference. As a result, the Fund is able to afford
the changes under discussion in NEDLAC as well as those proposed in the Amendment Bill.
However, the operating shortfall under this scenario is significant. As most of this is due to
Part 12, we recommend that the Fund consider implementing Part 12A initially, rather than
Part 12.
12. Details of the base financial projection (per the 2016 Actuarial Review Report), and a 10-year
financial projection conducted using the revised PAYG rate of 1.799% and 2.792% are shown
in the report. The surplus and Solvency Ratio of the Fund continue to grow in the long term
under a PAYG rate of 1.799%, although there is an initial decrease in the year in which the
changes are implemented. The once-off, initial decrease in surplus and solvency ratio is due
to an increase in the Unexpired Risk Reserve ("URR"), which is dependent on the PAYG rate
of the Fund. An increase in the PAYG rate results in an increase in the URR.

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614
13. Under a PAYG rate of 2.792% the accumulated surplus continues to grow, however the
solvency ratio decreases due to the increase in contributions.
14. The Fund continues to earn substantial investment returns under a scenario of a PAYG rate of
2.792%, and this leads to ongoing growth in the surplus position of the Fund, in the long term.
The projected surplus of the Fund, after 10 years, allowing for the changes proposed by the
Amendment Bill is R297.0 billion, with a solvency ratio of 945%. Should the changes
proposed by NEDLAC discussions also be implemented the surplus is projected to be
R124.8 billion in 10 years with a solvency level of 380%. Based on Part 12A the solvency in
10 years is projected to be 414% and the accumulated surplus is projected to be
R136.1 billion.
15. We conclude that we are comfortable that the proposed benefit changes in the 2015
Amendment Bill as well as those proposed by NEDLAC are affordable by the Fund. However,
we recommend that the IRR used to calculate the resignation benefit be set at 60% of the
actual IRR for the first 238 days, rather than 100%. The key measure in making this
conclusion is that the accumulated funds continue to increase after the benefit changes are
made, although there is an initial sharp decrease initially. Furthermore, the solvency position,
though decreasing slowly, remains at a high position.
L Moroney
Consulting Actuary
Fellow of the Actuarial Society of South Africa
Telephone : +27 11 038 3713

E-mail : [email protected]
1 June 2016

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1. Introduction
1.1 OED Actuaries & Consultants (Pty) Ltd ("OED.), has been appointed by the management of
the Unemployment Insurance Fund ("UIF" or "the Fund") to assess the financial impact of
proposals in the Unemployment Insurance Amendment Bill of 2015.
1.2 This report is produced in our capacity as employees of OED.
1.3 This report is addressed to the directors and management of the Fund.
1.4 In Notice 738 of 2013 ("2013 Amendment Bill"), the Minister of Labour published proposed
amendments to the Unemployment Insurance Act of 2001 ("the Act"). In Government Gazette
No. 39273 of 8 October 2015 ("2015 Amendment Bill"), the Minister of Labour has published
proposed revised amendments to the Act. Furthermore, proposed additional scenarios, which
are currently under discussion in NEDLAC have been considered.
1.5 The purpose of the Act is to establish a Fund to which employers and employees contribute
and from which employees who become unemployed, or their beneficiaries as the case may
be, can benefit. In that regard, the harmful economic and social effects of unemployment can
be alleviated.
1.6 In order to improve service delivery by the Fund, the Unemployment Insurance Board decided
to recommend to the Minister that the Act should be amended so as to meet these demands.
1.7 The Minister for Labour has introduced in the National Assembly and gazetted a number of
proposed amendments to the Unemployment Insurance Act (Act 63 of 2001 ).
1.8 The financial impact of previous proposed amendments to the Act has been assessed in a
report by OED, previously known as Aon Hewitt (Actuarial).
1.9 This report focuses on the adjustments that will have an impact on the future financial
performance of the Fund. Further detail qf the latest proposed benefit adjustments proposed
in the 2015 Amendment Bill as well as additional scenarios being discussed by NEDLAC is
described in the report. An attempt is made in the results section of this report to quantify the
impact of the respective proposed benefit changes on:
the claims ratio (expressed as a pay-as-yotrgo rate); and,

the projected financial position of the Fund.
1.1O Appendix Q details the benefits which the Fund currently provides, as well as the proposed
amendments.
1.11 The contents of this report are confidential. Further, the report should not be considered as
appropriate for any purpose other than that for which it was intended. The written approval of
the signing actuary must be obtained before this report is disclosed, whole or in part, to any
party other than those mentioned in paragraph 1.3 above.
1.12 This report should be read as a whole, as sections taken on their own could be misleading.
1.13 This report assumes knowledge of certain financial and actuarial concepts and principles.
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2 Reliances and Limitations
2.1 This report and the estimates of value and opinions contained herein are subject to the
following primary reliances and limitations, amongst others.
2.2 This exercise relies on our interpretation of the intended purpose of the assessment;
specifically: to provide Management with insight into the expected impact of the
2015 Amendment Bill as well as additional scenarios proposed by NEDLAC on the financial
performance of the Fund.
2.3 Reliance is placed on the 10-year financial projection conducted as part of the Actuarial
Review Report as at 31 March 2016.
2.4 The results are based on internal data of the Fund as provided by Management.
2.5 The responsibility for maintaining accurate data files in respect of the Fund's business lies with
Management. Certain reasonability checks are undertaken and no material errors are noted.
This comment notwithstanding, these checks do not guarantee the integrity of the data used.
2.6 The accuracy of the values in this report and the conclusions based thereon are limited to the
accuracy of the data.
2.7 More specific reliances and assumptions are documented, where relevant, in the remaining
sections of the report.

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3 Data
3.1 This review relies on data provided by the Fund.
3.2 The following data and information were considered in order to perform the assessments in
the report:
claims information tables for the 2016 financial year, split by the type of claim into
Unemployment, Adoption, Death, Illness and Maternity;
payment information tables for the 2016 financial year, split into the same claim types;
QED's Actuarial Review Report as at 31 March 2016; and
QED's Report on the expected impact of the Proposed Unemployment Insurance
Amendment Bill of 2013.
3.3 The claim and payment data tables each contain multiple dimensions which can be used to
assess the impact of a proposed change in benefits. These include:
date of the event giving rise to the claim;

date of the claim application;
date of approval or rejection;
date the claim was captured in the system;
average salary;
benefit amount;
number of credit days entitled, claimed and available;
date of payment;
amount of payment; and
any over- or underpayments.
3.4 The following table shows a summary of the financial year 2016 claims data by benefit type in
terms of the total benefits that claimants had accrued.
Benefit cate90 Number of claims Data

Death 16,470 R 314,086,226
Dlness 17,342 R 336,209,031
Maternity 97,006 R 975,149,228
Une!!]:!loll'T'ent 589,740 R 7,608,100,043
Total 720,558 R 9,233,544,527
3.5 The Adoption benefit is ignored for the purpose of quantifying the impact of benefit changes as
there are very few claims for this benefit type (70 claims in 2016).
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3.6 The claims data captured over the year ending 31 March 2016 is based on an Income
Replacement Ratio ("IRR") of 38%-60% and an earning threshold of R14,872.
3.7 The table below shows the average salary, average IRR and average credits available at the
claim stage for the 2016 claims data.
Benefit category Average salary Average IRR Average credits available

Death R G,670.30 44.37% 178.86
Illness R S,905.48 45.16% 195.84
tollaternlty R 6,458.32 45.74% 108.09
Unelll)loyrrent R S,798.32 46.51% 138.33
Average R &,933.75 46.33% 1 36.67
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4 Changes Since the Previous Review
4.1 The financial impact of previous proposed amendments to the Act has been assessed by
OED.
4.2 The following changes proposed in the 2013 Amendment Bill, and assessed in QED's
previous report, are not being considered in the 2015 Amendment Bill:
4.2.1 Changes in unemployment start date, from the date of unemployment to the date of
application for a benefit.
4.2.2 Adjustment of benefit accrual at a rate of 1 day for every 4 days worked and 1 day for
every 5 days worked were previously considered. We now only consider accrual at a
rate of 1 in every 5 days worked.
4.2.3 Inclusion of public servants.
4.3 The following changes were not included in the 2013 Amendment Bill, but have been
proposed in the 2015 Amendment Bill:
4.3.1 Payment of benefits to contributors, in the case of a salary reduction following a

reduction in their working hours.
4.3.2 Extension of the Maternity claims submission period from before 8 weeks prior to birth,
to up to 6 months after birth.
4.4 The items below are changes which are currently under discussion in NEDLAC:
4.4.1 Inclusion of persons employed in the informal sector.
4.4.2 Payment of 12 days of paternity leave to fathers.
4.4.3 Payment of unemployment benefits to persons who have resigned from

employment.
4.5 We recommend an alternative to the resignation benefits, where the benefit is based on 60%
of the contributors' IRR, rather than 100%.
4.6 The methodologis that are applied in this report to estimate the impact of proposed benefit
changes per the 2015 Amendment Bill are consistent with that applied in the previous report.
Further detail is contained In the following sections of the report.
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5 Benefit amendments and proposed methodology
5.1 A description of the proposed benefit adjustments included in the 2015 Amendment Bill and
proposed by NEDLAC, together with the methodology used to assess the financial impact, is
given in this section.
5.2 In all cases, the financial impact Is first assessed in terms of the impact on the pay-as-you-go
rate ("PAYG rate") and then the impact on the projected financial position is assessed.
5.3 The financial impact of the respective areas of benefit change is reported in the Results
Section 6. Part O of the Results Section shows the 10-year financial projection of the Fund
from the QED 2016 Actuarial Review. The subsequent parts of the Results Section
progressively assess the impact of the benefit adjustment being considered. In the projections
we have assumed that all benefit changes will apply from 31 March 2017.
5.4 The benefit changes impact the Unexpired Risk Rserve ("URR") from 31 March 2017, due to
the URR being linked to the PAYG rate. In the following year (i.e. from 1 April 2018 onwards)
the claims ratio is projected to increase, based on the change in the PAYG rate.
5.5 Text in italic in the below sections describes the proposed benefit changes per the 2013 and
2015 Amendment Bills or as under discussion in NEOLAC.
Part O: Base Financial Projection
5.6 A 1 0-year financial projection of the Fund, on a best-estimate basis, is included in this section
(per QED's 2016 Actuarial Review). This is used as a base from which to project the impact of
the respective areas of proposed benefit change per the 2015 Amendment Bill.
5.7 The Solvency Ratio as at each year-end is included in the projection. This is quantified as the
ratio of the accumulated surplus at the financial year-end to the contributions received in the
last 12 months. The Solvency Ratio is a key measure of the financial strength of the Fund,
and changes In this ratio will indicate a change in financial strength of the Fund.
5.8 Part O of Section 6 sets out the assumptions underlying this projection .
Part 1: Extension of benefits to 365 days with a flat rate of 20% after 238 days, and adjustment
of benefit accrual at rate of 1 day for every 5 days worked
Description
5.9 Currently, the benefits that an eligible contributor is entitled to, accrue at a rate of 1 day's
benefit for every completed 6 days of employment as a contributor. This is subject to a
maximum of 238 days' benefit in the four-year period preceding the date of application for
benefits less any days received by the contributor (excluding maternity benefits) during this
period.

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5.10 The benefit level is based on the current Income Replacement Rate ("IRR") formula. The IRR
is at its maximum when income equals zero, and it reaches its minimum where income is
equal to the benefit transition level (currently R14,872 per month). The maximum IRR is
currently set at 60%. The minimum IRR is currently set at 38%.
5.1 1 The 2015 Amendment Bill seeks ta extend the benefits ta 365 days. The first 238 days are
paid at the /RR rate, and at a flat rate of 20% after the 238 days will apply. Benefits will
accrue at a rate of one day's benefit far eve,y completed 5 days of employment as a
contributor.
5.12 Methodology
5.13 The methodology used to quantify the impact of this benefit change is described as follows.
5.14 All benefit types are impacted by the benefit change being considered in Part 1 . The revised
benefit that each beneficiary will be eligible for after the proposed benefit change is calculated
from the 2016 claims data. A ratio of the revised eligible benefits to the actual 2016 eligible
benefits is calculated per benefit type. A revised PAYG rate for each benefit type is calculated
by applying this ratio to the current PAYG rate per benefit type.
5.15 The maximum number of days that an Individual can accumulate, based on benefits accruing
at a rate of one day's benefit for 5 days of employment. is 292 days. Thus, the benefit change
which has been modelled is effectively that the first 238 days are paid at the IRR rate and a
flat rate of 20% is applied to the following 54 days (292 days less 236 days)
5.16 It is assumed the change In benefit will apply from 31 March 2017. The revised benefit will
apply immediately from this date accordit)Q to the number of days worked in the last four
years.
Part 2: Maternity and Illness benflt chaf'!ges
Description
5.17 For Maternity claims the maximum accrual period is currently 121 days (17.32 weeks) for
normal births and 6 weeks for a miscarriage or still birth. The benefit level is based on the IRR

formula. The days of benefits that a contributor is entitled to is reduced by the payment of
Unemployment benefits.
5.1 8 The Amendment Bill looks to improve the /RR on Maternity benefits to a flat rate of 66%.
Further, the payment of Unemployment benefits may not affect the payment of Maternity
benefits.
5.19 A contributor who has a miscarriage during the third trimester or bears a stillbom child will be
entitled ta a full maternity benefit (of 17.32 weeks).
5.20 In addition, the Amendment Bill looks to decrease the waiting period on Illness benefits from
14 days ta 7 days.

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Methodology
5.21 The impact of all benefit changes described in this section is quantified in one step.
5.22 For each claimant in the 2016 Maternity claims data, we calculate the revised Maternity benefit
assuming that the claimant did not have their benefits reduced by prior Unemployment claims.
We also adjust the maternity benefit to a flat rate IRR of 66%.
5.23 It is possible to identify miscarriage/ still born maternity cases from the 2016 claims data. A
lower usage of eligible benefits was indicated for these cases compared other Maternity
claimants. Benefit levels for these cases were increased to the usage level indicated for
normal Maternity cases.
5.24 Four times the eligible benefits in respect of claims that were rejected due to the period of
Illness being less than 14 days were included in the eligible benefit total. These have been
multiplied by four to allow for claimants who have not applied due to the knowledge that their
claim would be rejected due to a period of illness of less than 14 days.
Description
5.25 Unemployment benefits must be paid to the Unemployed contributor regardless of whether the
contributor has received benefits within that four-year cycle or not provided the contributor has
credits.
Methodology
5.26 Discussions with Management have revealed that this benefit change may have a material
impact on the claims experience of the Fund. Data on potential additional claimants that can
arise from this benefit change is not readily available to the Fund, as in many cases 'repeat'
claimants may not have been registered by the Fund .
5.27 The method relies on the usage of credit days observed in the claims data. For each claim, it
is possible to determine the percentage of available credit days used, which comes to 86.1 %.
To make an allowance for repeated claims, the benefit has been recalculated 'as if the 9redit
days' usage was instead 100%. This leads to an approximate 15% increase in the amount
paid for unemployment benefits.
Part 4: Extension of Death clalms submission period from 6 to 1 8 months
Description
5.28 The UIF looks to extend the application for Death benefits from 6 months to within 18 months
of the date of termination of employment.
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Methodology
5.29 The distribution of claim application delays by month since Death is graphed in respect of the
2016 claims data. A Poisson Statistical Distribution is fitted to the empirical distribution to
project the additional claims that are expected to will be submitted after six months under this
new condition.
Description
5.30 The UIF looks to extend the application for Unemployment benefits from 6 months to within
12 months of the date of termination of employment.
Methodology
5.31 The distribution of claim application delays by month since Unemployment is graphed to
assess the potential impact of extending the claim submission period.
Description
5.32 Currently, the surviving spouse or a life partner of a deceased contributor is entitled to the
dependant's benefits.
5.33 Any nominated beneficiary of the deceased contributor may claim dependant's benefits. A
nominated beneficiary will qualify for benefits ff there is no surviving spouse, life partner or
dependent children ofthe deceased.
Methodology
5.34 For the purpose of this draft report, the impact of this benefit change is illustrated by assuming

that Death claims will increase by 50%. This is considered a prudent estimate of the potential
impact of this benefit change.
5.35 NBC, a previous actuarial service provider to the Fund, estimated that the number of such
Deaths were almost equal to the actual Death claims submitted to the Fund in the period. A
potential under-utilisation of this benefit is indicated from the data. It was agreed in
discussions with management in prior years that this change should not have a significant
impact on claims experience, as in the majority of cases there should be either a surviving
spouse, life partner or a dependent child of the deceased contributor. Some work will need to
be done to control the process of submitting evidence of the existence of nominated
beneficiary.

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= )
Part 7: Inclusion of persons on learnershlp contracts and migrant workers
Description
5.36 The Act currently excludes employees under a contract of employment contemplated In
section 18(2) of the Skills Development Act, 1988 (Act No. 97 of 1 998), and their employers.
5.37 The Amendment Bill looks to delete this section so that the benefits of the Fund will apply to
such persons.
Methodology
5.38 The impact of allowing migrant workers to claim is estimated from data on migrant workers
obtained from the 2011 census. The overall proportion of non-SA citizens in the country
(3.2%) is used to ratio up the total expected claims experience of the Fund.
5.39 Workers on Government learnershlp and internship programs will be more significant than
those on such programmes in the private sector. Such learners classify as public servants
and any benefit payments will be reimbursed by the Government.
5.40 Per the above point, learnerships in the private sector will not be many, salaries will be low
and the contract term will be one year. For this reason, the impact of inclusion of learnerships
on claims experience of the Fund is not considered to be significant and is not quantified in
this report.
Part B: Payment of benefits In the case of reduced salary
Description
5.41 The Act currently dos not provide for benefits to be paid should a contributor's salary reduce
due to reduced working hours.
5.42 The Amendment Bill seeks to provide benefits to contributors, whose salary has reduced, due
to a reduction in working hours, provided the total income is below the benefit level that the
contributor would have received should they have become unemployed.
Method
5.43 We have considered the total benefits that would be payable to contributors, based on various
levels of salary and reductions In working time, should their salary reduce due to reduced
working hours. This Is compared to the benefit which they would have been eligible to receive
if they had become unemployed. We assume that all employees have the full number of credit
days available for use, thus we consider this to be the upper limit of the claims that could
occur.
5.44 The difference between the benefit following unemployment, and the reduced salary is the
resulting benefit.

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Part 9: Extension of Maternity claims submission period from 8 weeks prior to birth to 12
months after child birth
Description
5.45 Currently the Amendment Bill states that all applications for maternity benefits must be made
at least 8 weeks before childbirth, while the Commissioner may on good cause shown accept
an application made after the 8 weeks.
5.46 The Amendment Bill seeks to include allow persons 12 months after the birth of a child to
claim for maternity benefits.
Method
5.47 We have considered the average time in months between the birth of a child and application
for maternity benefits, as presented in the current data. This, combined with research of the
UIF maternity benefits, indicates that many of the claims which are paid are in respect of
applications made after 8 weeks prior to birth up to 6 months after the birth of the child. The
claims data further indicates that most of the applications made for maternity benefits occur
after childbirth.
5.48 We have thus allowed for a 10% increase to the claims, which may result if employees are
made more aware of the extended timeframe for submission of applications.
Summary of Impact of amendments proposed In the Amenqment BIii
Description
5.49 This section shows a summary of the impact of all proposed amendments to the 2015
Amendment Bill as assessed in the respective Parts of Section 6.
Part 10: Inclusion of the lnfonnal sector
Description
5.50 The Act currently does not include the informal sector.
5.51 NEDLAC seeks to include workers in the informal sector.
Methodology
5.52 The 2011 census report indicates that the informal sector is 14.3% of those who are formally
employed and employed in private households. We have assumed that the claim experience
of these individuals will be 50% higher than the average claim experience. We consider this to
be a prudent assumption.

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5.53 Although this 50% increase would slowly phase into the Fund, as those in the informal sector
build up credit days, we have allowed for the full impact from 31 March 2017. This allows for
the additional administration expenses which the Fund may occur, due to additional
contribution collection as well as an increase in the number of claim applications.
5.54 We have also allowed for a 2% increase in the contributions received by the Fund.
Description
5.55 The Act currently does not provide any benefits with respect to paternity.

5.56 NEDLAC seeks to include 12 days ofpaternity leave for fathers.
Method
5.57 The average age of women claiming maternity benefits Is 31.0 years. We have assumed that
on average males will be three years older than the females, thus the average age of males
claiming paternity benefits is a ssumed to be 34.0 years.
5.58 To assess the financial impact which this change will have on the Fund we have assumed that
there will be twice as many paternity claims as maternity claims. This allows for the high level
of maternity benefits which are offered by most companies, compared to a lower level of
paternity benefits. Thus many females may not claim from the Fund, while their partners may
submit a claim, as they do not receive paternity benefits from their company. It also allows for
the higher number of employed males compared to employed females. For example, the
Unemployment Insurance Fund Statistics Report as at 31 March 2015, as prepared by OED,
shows that there are 57% more male unemployment claims that female unemployment claims
in the 2015 financial year.
5.59 We have further assumed that each father will have all 12 days available to claim. The
average salary for fathers at age 34 was found for male claimants in the Unemployment
claims data. The ratio of the average salary for females age 34 in the maternity claims data
over the average salary for 34-year-old females in unemployment data was derived. This ratio
was applied to the average 34-year-old male salary for unemployment claims, to derive the
expected salary for paternity claims. We have assumed a flat IRR of 66% for paternity
benefits, in line with the proposed change to the maternity benefits.
Part 12: Payment of benefits t o persons who have resigned
Description
5.60 The Act currently pays unemployment benefits provided the reason for unemployment is
termination of the employees' contract, or the ending of a fixed term contract, the dismissal of
the contributor, insolvency or, in the case of a domestic worker, termination of a contract due
to the death of the employee.

627
,.
5.61 NEDLAC considers extending benefits to include paying benefits to contributors who have
resigned from their employment and not taken up employment elsewhere.
5.62 We have assumed that employees who retire may also claim this benefit.
5.63 We have not allowed for abuse of this benefit and the Fund should ensure that this benefit
cannot be manipulated. For instance, an unintended consequence may be that individuals
resign from their job for a few months to take a vacation, while relying on benefits from the
Fund to support them. Then once the benefits are depleted they may seek employment again.
5.64 Furthermore, should an individual resign to become a housewife for example, it is unlikely that
they are In financial difficulty. This person has contributed to the Fund and hence an

argument can be made that they should receive some benefit. However, the Fund should also
consider whether this is the best use of the available funds.
Method
5.65 The Fund currently does not receive any data which can be used to quantify the impact of this
benefit, as contributors are not currently able to claim if they resign. Furthennore, awareness
is likely to be created about the benefit, should it be added to the Amendment Bill. We have
thus made use of conservative assumptions in calculating the impact. Furthennore, we have
assumed that all contributors retiring from employment will be able to claim.
5.66 Research has shown that the annual tumover rate of staff is approximately 10%. We have
applied a 2.5% loading to this, to allow for additional staff turnover which this change may
cause. We have assumed that 20% of this turnover is in respect of individuals who are
leaving the workforce (as opposed to changing jobs etc.).
5.67 The December 2015 Quarterly employment statistics report, prepared by Statistics South
Africa, indicates that there were 9 million people employed in South Africa as at
December 2015: This excludes private households, agriculture and the informal sector. If
these are include<! the number of people employed in South Africa is approximately 13 million,
excluding the public sector.
5.68 We have applied the assumed rates of turnover and exit from the workforce to the number of
employed individuals, and assumed that they will claim 20% more than the average amount
experienced for unemployment.
5.69 Given the large impact which this is likely to have on the Fund, as well as the difficulty in
quantifying the impact to the Fund, we recommend that the Fund consider basing the benefit
on 60% of the contributor's IRR rather than 100% for the first 238 days and using the fixed
20% IRR thereafter. This can be revised later on, should the impact be less than expected.
Unemployment Insurance Fund I Actuarlal Review

628
Summary of Impact of all proposed amendments
Description
5.70 This section shows a summary of the impact of all proposed amendments to the 2015
Amendment Bill and changes under discussion in NEDLAC as assessed in the respective
Parts of Section 6 .
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II
6 Results
Part O: Base Financial Projection
6.1 A 10-year financial projection of the Fund, on a best-estimate basis, is graphed in this section
(per QED's 2016 Actuarial Review). Detailed figures underlying the projection are shown in
the Appendix A. This is used as a base from which to project the impact of the respective
areas of proposed benefit changes. This projection is made on the basis of the current benefit
structure of the Fund.
6.2 The Solvency Ratio as at each financial year end is included in the projection. This is the ratio
of the accumulated surplus divided by contributions received in the last 12 months.
6.3 The Fund is in a very strong financial position as at 31 March 2016 (the starting point of the
financial projection). Per the 2016 Actuarial Review Report, the surplus of the Fund at this
date was R98.5 billion with a Solvency Ratio of 575%. As can be seen in the below graph, the
surplus and Solvency Ratio is projected to grow substantially over the next 10 years.
450 1400%
400
1200%
-. 350
300
1000%
- -- --
>,
800%
_. --
a::
:S 250 0
--
C
9l
u, 200
:J 600% 0
Cl)
150
400%
1 00
200%
50
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- Accumulated surplus elf - - Solvency ratio
6.4 The graph below shows the operating surplus and investment income over the next 10 years.
The top of the bar indicates the combined income for each of the next 10 years.

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- )
50
45
40
35
C 30
0
:: 25
ft: 20
15
10
5
2016 2017 2018 201 9 2020 2021 2022 2023 2024 2025 2026
Operating income Investment income
6.5 The key assumptions underlying this projection are as follows:
The salary contribution rate will remain constant over the period of the projection;
Fund contributions are projected using the 2016 revenue Indicator model combined with a
projection of economic variables;
The unexpired risk reserve is projected allowing for a 48 month earning period of
contributions;
The Fund's incurred PAYG rates for benefits (1.09%) and expenses (0.23%) will remain
constant;
Expenses arising from Unemployment Alleviation Schemes are budgeted figures for the
next three years, and thereafter the Lay-off schemes and Social Plan funding portion is
e projected forward at the inflation rate assumed below. The Training of the Unemployed
portion is as per the three-year budget.
The following balance sheet asset items remain constant:
o Property, plant and equipment
o Intangibles
o Trade and other receivables
o Financial derivatives
The following balance sheet liability items remain constant:
o Trade and other payables
o Financial derivatives
o Overdraft
o Non-current provisions

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The following asset return assumptions are made:
o Inflation of 6% per annum
o Equity real return of 4.9% , i.e. 10.9% nominal
o Government bond real return of 2.5%, i.e. 8.5% nominal
o Corporate bond real return of 3.5%, i.e. 9.5% nominal
a Property real return of 3.7%, i.e. 9.7% nominal
o Money market real return of 1%, i.e. 7% nominal

o Cash real return of 0.5%, i.e. 6.5% nominal
Assuming that the Fund's asset split remains constant over the period, the portfolio total
return is 9.01% per annum.
6.6 A breakdown of the PAYG rate, showing detail by benefit type and expenses, is given in the
table below.
Benefit category PAYG Rate

Death 0.041%
Dlness 0.038%
Maternity 0.117%
Unef'Tl)loyment 0.892%
ecpenses 0.235%
Total 1.322%
Part 1: Extension of benefits to 365 days with a flat rate of 20% after 238 days, and adjustment
of benefit accrual at rate of 1 day for every 5 days worked

6.7 Actual eligible benefits per the 2016 claims data, and revised eligible benefits allowing for this
change in benefit, are shown in the table below.
Amount eligible to be claimed
Benefit category Number of claims Original Data Revised Part 1 Ratio

Death 16,470 R 314,086,226 R 359,295,598 1.144
Hlness 17,342 R 336,209,031 R 336,213,115 1.000
Maternity 97,006 R 975,149,228 R 1,001,002,064 1.027
Une!!:Ek>):ment 589,740 R 7,608,100,043 R 8,904.645,408 1.170
Total 720,558 R 9,233,544,527 R 10,601,156,185 1.148

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6.8 The revision in PAYG rate taking into account this benefit change is as follows:
Benefit catego PAYG Rate Ratio New PAYG Rate

Death 0.041% 1.144 0.047%
fllness 0.038% 1.000 0.038%
Mlternlly 0.117% 1.027 0.120%
Unerrployrrent 0.892% 1.170 1.044%
Exe!:nses 0.235% 1.000 0.235%
Total 1.322% 1.122 1.483%
6.9 A 10-year financial projection is conducted using this revised PAYG rate. The graph of
projected accumulated surplus allowing for this benefit change is shown below.
450 1400%
400 1 200%
- 350
C
0 1 000%
: 300
-

250 800%
>
en 200 600% 0
a. UJ
1 50 !!!!I
:l 400%
UJ 1 00 -- f/!;!J
200%
50
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf - - Accumulated surplus elf new
solvency ratio - Solvency ratio new
6.1 O The graph below shows the impact which this change has on the income of the Fund over the
next 10 years. The solid black line indicates the new operating income, based on the changes
to the benefits. The increase to the dotted line indicates the new investment income. The
level of the dotted line indicates the combined income, based on the revised benefits, over the
next 10 years.

R \South Africa\UIF\2016\Reports\002 Amendment BUl.docx
633
50
45
40
35
6 30
= 25
,g
it= 20
15
10
5
0
2m6 2m1 2ma 2mg 20 21 22 23 24 2s 26
- Operating income - Investment income
- Operating income (new) - - Combined income (new)
6.11 Detailed figures underlying the financial projection are shown in Appendix B.
Part 2: Maternity and Illness benefit changes
6.12 Eligible benefits per the 2016 claims data post the benefit change considered in Part 1, and
revised eligible benefits further adjusted allowing for the benefit change considered in this
Part 2, are shown in the below table:

Benefit catego Number of claims Revised Part 1 Revised Pa rt 2 Ratio
Death 16,470 R 359,295,598 R 359,295,598 1.000
Rlness 17,342 R 336,213,1 1 5 R 385,088,701 1 . 1 45
Maternity 97,006 R 1,001,002,064 R 1 , 533,263,840 1.532
lkllormnt 589,740 R 8,904,645,408 R 81904,645,408 1 .000
Total 720,558 R 10,601,156,185 R 11,182,293,548 1.055
6.13 The revision in PAYG rate taking into account this benefit change is as follows:

Death 0.047% 1.000 0.047%
Ulness 0.038% 1.145 0.043%
Maternity 0.120% 1.532 0.183%
Unell"()loyrmnt 1.044% 1.000 1 .044%
cxeenses 0.235% 1.000 0.235%
Total 1.483% 1.047 1.552%

R\Soulh Africa\UIF\2016\Reports\002 Amendment Bill.docx 23
634
6.14 The base financial projection, and a 1 0-year financial projection conducted using this revised
PAYG rate is graphed as follows:
450 1400%
400 1200%
-
C
350
0 1000%
: 300
:s 250
-
>,
u
,, ,,,,
800% C
,, -,
CII
>
200
..
U> 600% 0
-
::,

U)
a. 150
c::, e t!9 400%
U> 1 00
50 200%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf - Accumulated surplus elf new

- Solvency ratio - Solvency ratio new
6.15 The graph below shows the impact which this change has on the income of the Fund over the
next 10 years.
50
45
40
35
5 30
;; 25
o: 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
6.16 Detailed figures underlying the financial projection are included in Appendix C.
Unemployment Insurance Fund f Actuarial Review

R\South Africa\UIF\2016\Reports\002 Amendment Bill docx 24
635
6.17 Eligible benefits per the 2016 claims data post the benefd change considered in Part 2, and
revised eligible benefits further adjusted allowing for the benefit change considered in this
Part 3, are shown in the table below.

Benefit catego Number of claims Revised Part 2 Revised Part 3 Ratio
Death 16,470 R 359,295,598 R 359,295,598 1.000
Illness 17,342 R 385,088,701 R 385,088,701 1.000
Maternity 97,006 R 1,533,263,840 R 1,533,263,840 1.000
UneIO}'.rTeOt 589,740 R 8,904,645,408 R 10,240,342,219 1.150
Total 720,558 R 11,182,293,548 R 1 2,517,990,359 1.119
6.18 The revision in PAYG rate taking this benefit change into account is as follows:

Death 0.047% 1.000 0.047%
Blness 0.043% 1.000 0.043%
Maternity 0.183% 1.000 0.183%
Expenses 0.235% 1.000 0.235%
Total 1 .662% 1.101 1.708%
6.19 The base financial projection, and a 10-year financial projection conducted using this revised
450 1400%
400
1200%
- 350
C
0 1000%
: 300

a:
:E 250 800%
in 200
-- -- 600%

"'
..
0
....-- ::::
:,
ii 150 --
400%
UJ 100 - d
50 200%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf - Accumulated surplus elf new


R \South Africa\UIF\2016\Reports\002 Amendment Bill doe,r 2S
636
= )
next 1O years.
50
45
40
35
C 30
.2
= 25
,g
h: 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

6.21 Detailed figures underlying the financial projection are included in Appendix D.
Part 4: Extension of Death claims submission period from 6 to 18 months
6.22 The below graph shows the number of Death claims by application delay from the 2016 claims
data (in blue). A statistical function is fitted to the graph of actual Deaths to project the
additional claims that are expected to arise (in grey) if the claims submission period is
extended to 18 months.

R \South Alrlca\UIF\2016\Repost$\002 Amendment 8ill.docx
637
5000
4500
4000
E 3500
3000
o 2500
2000
j 1 soo
1000
500
0
0 1 2 3 4 5 6 7 8 9 10 11 12
Actual Projection
Delay in months
revised eligible benefits further adjusted allowing for the expected increase In number of Death
claims considered in this Part 4, are shown in the below table:

Death 16,470 R 359,295,598 R 360,758,708 1.004
llness 17,342 R 385,088,701 R 385,088,701 1 .000
Maternity 97,006 R 1,533,263,840 R 1,533,263,840 1.000
Uneloxrrent 589,740 R 10,240,342,219 R 10,240,342,219 1.000
Total 720,658 R 12,517,990,359 R 12,519,463,469 1.000

Death 0.047% 1.004 0.047%
Ulness 0.043% 1.000 0.043%
Maternity 0.183% 1.000 0.183%
Unerrploym:,nt 1.200% 1.000 1.200%
Exnses 0.235% 1 .000 0.235%
Total 1.708% 1.000 1.708/.

R \South Africa\UIF\2016\Reports\002 Amendment Blll.docx 27
638
,,0 : )
450 1400%
400
1200%
-
C
350
0 1000%
:: 300
-
P
250
800%
.,.. --
C
--
Cl)
200 .?
-:: --
u, 600%

...
a. 150 .,.. en0

.,..
400%
en 100 .,e,. e'!

50 200%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

-Solvency ratio - Solvency ratio new
next 10 years.
50
45
40
35
S 30
:: 25
o= 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

6.27 Detailed figures underlying the financial projection are shown in Appendix E.
Unemployment ln11urance Fund I Actuarial Review

R\South Africa\UIF\2016\Repo11sl002 Amendment Bill.docx
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6.28 The below graph shows the number of Unemployment claims by application delay from the
2016 claims data.
300000
250000
- 200000
o 150000
1 00000
50000
0
0 1 2 3 4 5 6 7 8 9 10
Actual Projection
Delay in months
6.29 The graph shows that the reporting of Unemployment claims has already tailed off by month 6.
The extension of the claim submission period for this benefit to 12 months is not considered to
have a material financial impact on the Fund.
6.30 For the purpose of this draft report, the impact of this benefit change is illustrated by assuming
that Death claims will increase by 50%. This is considered to be a conservative estimate of
the impact of this benefit change. The additional take-up rate of the Death benefit is expected
to be less than modelled here.
revised eligible benefits further adjusted allowing for the expected increase in number of Death
claims considered in this Part 6, are shown in the below table:

Benefit catego Number of claims Revised Part 4 Revised Pa rt 6 Ratio
Death 16,470 R 360,758,708 R 541,138,062 1 .SOO
Dlness 17,342 R 385,088,701 R 385,088,701 1.000
Maternity 97,006 R 1,533,263,840 R 1,533,263,840 1.000
une!!Elolrrent 589,740 R 10,240,342,219 R 10,240,342,219 1.000
Total 720,568 R 12.619,463,469 R 1 2.699,832,823 1.014

R\Soulh Africa\UIF\2016\Reports\002 Amendmenl Blll.docx 29
640
- )

Cleath 0.047% 1.500 0.070%
Blness 0.043% 1.000 0.043%
Maternity 0.183% 1.000 0.183%
Unerrployrrent 1 .200% 1.000 1 .200%
Exnses 0.235% 1.000 0.235%
Total 1.708% 1.014 1.732h
450 1400%
400 1 200%
-
C
350
0 1 000%
: 300
:sb:: 250
-
>,
CJ
800% C
i
-
0 200 600% 0

c.
1 50
400%
e

U> 1 00
200%
50
0 0%
-
2016 201 7 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf Accumulated surplus elf new

....--- soency ratio - Solvency ratio new
next 1 O years.

R \South Alrica\UIF\2016\Reports\002 Amendment a docJi 30
641
50
45
40
35
C 30
.2
:: 2 5
.Q
1' 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

6.35 Detailed figures underlying the financial projection are included in Appendix F.
Part 7: Inclusion of persons on learnershlp contracts and migrant workers
6.36 The impact of allowing migrant workers to claim is estimated by factoring up the total expected
claims experience of the Fund by 3.2%.

Benefit category Number of claims Revised Part 6 Revised Part 7 Ratio
Death 16,470 R 541,138,062 R 558,454,480 1.032
llness 17,342 R 385,088,701 R 397,411,540 1.032
IVlaternlty 97,006 R 1,533,263,840 R 1,582,328,283 1.032
Uneroirrent 589,740 R 10,240,342,219 R 10,568,033,170 1.032
Total 720,558 R 12,699,832,823 R 13,106,227,473 1.032
Benefit cateeo!:l PAYG Rate Ratio New PAYG Rate

Death 0.070% 1.032 0.072%
mness 0.043% 1.032 0.045%
IVlaternlty 0.183% 1.032 0.189%
eceenses 0.235% 1.000 0.235%
Total 1.732% 1.028 1.780%

642
450 1400%
400
1 200%
-
C
350
0 1 000%
= 300
- 800%
,..... - -
:S 250
0:: C
-
Cl)
>
-
en 200 600%
-- --
::, 0
e- 150
::, 400%
u, 1 00 -= :::.
50 200%
0 0%
2016 2017 2018 201 9 2020 2021 2022 2023 2024 2025 2026
---- Solvency ratio - Solvency ratio new
next 10 years.
50
45
40
35
C 30
.2
: 25
.Q
O:: 20
15
10
5
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026

6.40 Detailed figures underlying the financial projection are included in Appendix G.
Unemployment lneuranco Fund I Actuarial Review

R \South Alrtca\UIF\2016\Reports\002 Amendment Blll.docx 32
643
Part 8; Payment of benefits In the case of reduced salary
6.41 The impact on the Fund of the total benefit payable, should the salary be reduced, for
various levels of salary, and for differing levels of reduced hours, is shown in the table below.
Reduction In working time

Monthl:t sala!l'. 40% 50% 60% 70% 80% 90% 100%
R 2,000 R 352 R 1,917 R 3,482 R 5,047 R 6,967 R B,887
R 3,000 R 2,271 R4,618 R 6,966 R 9,846 R 12,726
R 4,000 R 2,384 R 5,514 R B,644 R 12,484 R 16,324
R S,000 R 2,322 R 6,234 R 10,146 R 14,946 R 19,746
R 6,000 R 2,129 R 6,823 R 1 1 ,518 R 17,278 R 23,038
R 7,000 R 1,835 R 7,312 R 12,789 R 19,509 R 26,229
R S,000 R 1,462 R 7,722 R 13,981 R 2 1 ,661 R 29,341
R 1 0,000 R 538 R B,363 R 16,188 R 25,788 R 35,388
R 1 2,000 R B,834 R 18,223 R 29,743 R 41,263
R 14,000 R9,185 R 20,140 R 33,580 R 47,020
R 14,872 R 9,309 R 20,948 R 35,223 R 49,501
6.42 The 100% reduction shows the total unemployment benefit payable, should the contributor
become unemployed.
6.43 Only in cases where the reduction in hours exceeds 50% is a benefit payable to the individual.
Furthermore, the benefits remain small, in the lower salary bands and lower reductions in
working time. While the benefits under a 90% reduction in time become larger it is unlikely
that any individual will retain 10% of their working hours, rather they are more likely to become
fully unemployed and already be covered by the Fund.
6.44 Given the low level of benefits, on a conservative assumption that the full number of credit
days are available, it is unlikely that this benefit change will have a material impact on the
Fund.
Part 9: Extension of Maternity claims submission period from 8 weeks prior to birth to 12
months after child birth
6.45 The graph below shows the difference, in months, between the application date for maternity
benefits and the date of birth of the child, rounded down. Thus, to interpret the graph below,
claims in the zero band represent all claims where the application date was either the same as
the date on which the child was born, or in the month following birth.

644
70, 000
60, 00 0
.5 50,
f/)
00 0
40, 000
.!'- 30, 000

i 20, 00 0
1 0, 00 0
a _____I
(7) (6) (5 ) (4) (3) (2 ) {1 ) 0 1 2 3 4 5
1__ 6
Delay in months between a plication and birth
6.46 Given the sharp decline in the number of claims following the birth of a child, we do not expect
the applications to increase significantly due to the extended application period. However,
there may have been some mothers who did not submit a claim eight weeks prior to birth and
decided not to apply later due to reading the Amendment Bill, and thinking that their claim
would not be accepted. We have thus allowed for a 10% increase in maternity claims.
6.47 The impact on the Fund of extending the application for maternity clafms is shown in the table
below.

Death 16,470 R 558,454,480 R 558,454,480 1.000
lness 17,342 R 397,411 ,540 R 397,41 1,540 1.000
Maternity 97,006 R 1,582,328,283 R 1,740,56 1 . 1 1 1 1.100
Une!!Elolrrent 589,740 R 10,568,033,170 R 10,568,033.170 1.000
Total 720,558 R 13,106,227,473 R 13,2641460,302 1.012
Benefit cateso PAYG Rate Ratio New PAYG Rate

Death 0.072% 1.000 0.072%
Ulness 0.045% 1.000 0.045%
Maternity 0.189% 1.100 0.208%
Unerrployrrent 1.239% 1 .000 1 .239%
Exeenses 0.235% 1.000 0.235%
Total 1.780% 1.011 1.799%
Unemployment ln1urance Fund I Actuarial Review

R \South Alrica\UIF\20 16\Reports\002 Amendment BUI docx
645
PAYG rate is graphed below.
450 1400%
400 1 200%
- 350
1 000%
C:
o 300
-
>.
P 250
a:
800%
--- - - -- --
G>
en 200
>
.. - ,,,
600% 0
c. 1 50
:::, 400%
rn 1 00 - C:
50 200%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

next 1 0 years.
50
45
40
35
C 30
.2
: 25
,Q
b:: 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

- Operating i ncome (new) - - Combined Income (new)

R \South Alrica\UIF\2016\Reports\002 Amendment BI: doe.,r 35
646
Summary of Impact of amendments proposed In the Amendment BIii
6.51 This section shows a summary of the impact of the amendments to the 2016 Amendment Bill
proposed in the Amendment Bill, as assessed in the respective Parts of Section 6.
6.52 The revision in PAVG rate taking the proposed benefit changes into account is as follows:
PAYG Rate
Death Illness M&A Unemeloiment Exeenses Total
Current 0.041% 0.038% 0.117% 0.892% 0.235% 1.322%
Part 1 0.047% 0.038% 0.120% 1 .044% 0.235% 1 .483%
Part 2 0.047% 0.043% 0.1 83% 1.044% 0.235% 1 .552%
Part 3 0.047% 0.043% 0.1 83% 1.200% 0.235% 1.708%
Part 4 0.047% 0.043% 0.183% 1.200% 0.235% 1.708%
Part 5
Part 6 0.070% 0.043% 0.183% 1.200% 0.235% 1 . 732%
Part 7 0.072% 0.045% 0.189% 1 .239% 0.235% 1.780%
Part 8
Part 9 0.072% 0.045% 0.208% 1 .239% 0.235% 1 .799%
6.53 Benefit changes that lead to no anticipated deterioration in claims experience to the Fund are
6.54 The cumulative impact of all benefit changes that lead to a deterioration in claims experience
of the Fund is a revision of the PAVG rate for claims and expenses from 1.322% in the base
financial projection to 1.799% considering all changes proposed in the Amendment Bill. This
means that all benefit changes proposed in the 2015 Amendment Bill result in the claims and
expenses being below the current contribution rate of the Fund of 2.00%.
6.55 The base financial projection, and a 10-year financial projection conducted using the revised
PAVG rate of 1. 799% is graphed as follows and is the same as that presented in Part 9 of this
Section:
Unemployment lneurance Fund I Actuarial Review

R:\South Africa\UIF\2016\Reports\002 Amendment Bill.docx 36
647
... bol'-
450 1400%
400
1200%
-
C
350
0 1000%
: 300
-
P
0::
250
u, 200
800%
Cl)
>
e- 1so ,: -
, .,,,. 600% 0
400%
::s
VJ 100 .- :::
50 200%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf - - Accumulated surp lus elf new

6.56 Should the changes proposed in the Amendment Bill be implemented, the solvency and
accumulated surplus continue to increase. By Implementing the changes proposed in the
Amendment Bill the growth of the solvency is slower, but continues to increase at a steady
rate and is projected to be 945% in 10 years' time.
next 10 years, based on the changes in the Amendment Bill.
50
45
40
35
C 30
.5?
E 25
.0
o::: 20
15
10
5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

- Operating i ncome (new) - - Combined income (new)
I
Unemployment Insurance Fund Actuarial Review
R \South Alrica\UIF\2016\Reports\002 Amendment Bill.docx 37
648
6.58 Should the changes proposed in the Amendment Bill be implemented, the operating surplus
becomes remains positive and continues to increase. This, combined with the increasing
investment income, results in a steady increase in the combined income, even after the
change proposed in the Amendment Bill have been implemented.
6.59 We thus conclude that the Fund can afford the all the benefit changes proposed in the
Amendment Bill.
Part 10: Inclusion of persons employed In the Informal sector
6.60 The impact on the Fund of including persons employed in the informal sector is shown in the
table below.
Amount eligfble to be claimed

Benefit cateso!l Number of claims Revised Part 9 Revised Pa rt 10 Ratio
Death 16,470 R 558,454,480 R 598,470,283 1 .072
Ulness 17,342 R 397,41 1,540 R 425,887,884 1.072
Mlternlty 97,006 R 1 ,740,561 ,1 1 1 R 1 ,865,280,230 1.072
Unerrploment 589,740 R 10.568,033.170 R 1 1 ,325,280,804 1.072
Total 720,568 R 13,264,460,302 R 14,214,919,202 1.072
6.61 The revision in PAYG rate taking this benefit change Into account is as follows:
Benefit catego!l PAYG Rate Ratio New PAYG Rate

Death 0.072% 1 .072 0.078%
Illness 0.045% 1 .072 0.048%
Mltemlty 0.208% 1.072 0.223%
Unerrployrrent 1 .239% 1 .072 1.327%
E'xe!!nses 0.235% 1 .000 0.235%
Total 1.799% 1.062 1.911%
6.62 An allowance is made for a 2% increase in contributions under this scenario.
PAYG rate and contribution rate is graphed as follows:

R \South Africa\UIF\2016\Reports\002 Amendment BWI docx 38
649

450 1 400%
400
1200%
350
1000%
300
>.
-
P 250
0::
800%
--
ci,
.,, 200 600% 0
,.- -
:,
e-
::, 1 50
,_. _. u,
Cl) 400%
1 00 .0
200%
50
0 0%
-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
next 1 0 years.
50
45
40
35
c: 3 0
.2
:: 25
.c
b:: 20
15
10
5
2016 201 7 201 8 201 9 2020 2021 2022 2023 2024 2025 2026


R \South Africa\UIF\2016\Reports\002 Amendment B.:J doQ 39
650
6.65 The impact on the Fund of paying 12 days of paternity leave to fathers is shown in the table
below.
Benefit catego Number of claims Revised Part 1 0 Revised Part 1 1 Ratio
Death 16,470 R 598,470,283 R 598,470,283 1.000
Illness 17,342 R 425,887,884 R 425,887,884 1.000
Maternity 97,006 R 1,865,280,230 R 2,933,356,759 1.573
Une!!]:!lo):rrent 589,740 R 11,325,280,804 R 11,325,280,804 1.000
Total 720,568 R 14,214,919,202 R 15,282,996,731 1.075

Death 0.078% 1.000 0.078%
nrness 0.048% 1.000 0.048%
1'111aternlty 0.223% 1.573 0.351%
Exeenses 0.235% 1.000 0.235%
Total 1.911% 1.067 2.038%
450 1400%
400
1200%
- 350
C
=0 300 1000%
,
- -
>-
- ,
-
u
:S 250
, 800%
-
C
b: G)
_. ,,,,,.
-- -- - -

:sCl> 200
,,,,,. 600%
e, 150
0
U)
:J 400%
U> 100 c::,
200%
50
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus elf - - Accumulated surplus c/f new

6.68 The above graph shows that although the PAYG rate is slightly higher than the 2%
contribution, the Fund's surplus and solvency ratio continue to grow steadily.
Unemployment ln1uranc:e Fund I Actuarial Review

R'\South Alrica\UIF\2016\Reports\002 Amendment Bill . docx 40
651
next 10 years.
50
45
40
35
30
.2C
:: 25
.a
20
15
10
5
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

- Operating income (neN) - - Combined income (nEMI)
6.70 The above graph shows that should the first 11 changes be implemented, the operating
income will become almost zero, while the investment income will continue to increase, driving
the continuous increase in the combined income. This is the cause of the growing solvency
ratio, see in the previous graph.
6.71 We have considered two shock scenarios based on Part 11. These include an increase to the
assumed change in the PAYG rate based on the amendments, as well as the impact should
investment returns decrease due to economic downturn.
6.72 The results of these shocks are shown in Appendix N. Details of the shocks applied can be
found in Appendix M.
Part 12: Payment of benefits to persons who have resigned
6.73 The table below shows the impact on the Fund, should benefits be paid on resignation.

Benefit catego!l'.: Number of claims Revised Part 1 1 Revised Part 1 2 Ratio
Death 16,470 R 598,470,283 R 598,470,283 1.000
Illness 17,342 R 425,887,884 R 425,887,884 1.000
Maternity 97,006 R 2,933,356,759 R 2,933,356,759 1.000
Une!!Elolrrent 589,740 R 11,325,280,804 R 17,755,160,128 1.568
Total 720,558 R 16,282,995,731 R 21,712,875,054 1.421

R\South Africa\UIF\2016\Reports\002 Amendment Bldocx 41
652
6.74 The addition of resignation benefits leads to a projected 56.8% increase in the unemployment
claims, which translates to a 42.1% increase in the Fund's overall claims. Of all the changes
considered in this report, the proposed inclusion of resignation benefits is projected to have
the biggest impact on the overall PAYG rates.
Benefit cateso!1 PAVG Rate Ratio New PAYG Rate

Death 0.078% 1.000 0.078%
Ulness 0.046% 1.000 0.048%
Maternity 0.351% 1.000 0.351%
Unerrploy ment 1.327% 1 .568 2.081%
eceenses 0.235% 1.000 0.235%
Total 2.038% 1.370 2.792%
6.76 The resulting PAYG rate now significantly exceeds the 2% contribution level. This means that
value of the benefits provided to contributors exceeds the contribution made.
450 1 400%
400
1200%
350
C 1 000%
.2 300
-
:S 250

tn 200
800%
600%
C
G>
>
0
--- --- - - - - - - -- -
:l
u,
e- 1 50
400%
u, 1 00 <I -
200%
50
0 0%
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026

6.78 The accumulated surplus continues to increase, following the implementation of all the benefit
changes. This, as seen in the graph below, is primarily due to the investment returns
generated by the significant level of surpluses accumulated to date. The accumulated surplus,
should all amendments be made, is projected to be R124.8 billion In 1 0 years' time.

R \South Africe\UIF\2016\Reports\002 Amendment Bill docx 42
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6.79 Although the accumulated surplus continues to grow the solvency ratio slowly reduces, due to
the increase in the contributions received by the Fund.
next 1 0 years.
50
40
30
C
.2 20
10
( 1 0)
(20)
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026

- Operating income (na.v) - - Combined income (na.v)
6.81 Should the Fund implement the resignation benefit, in addition to the other changes proposed,
the Fund will incur an operating loss. The investment income will result in the Fund
experiencing a combined surplus.
6.82 The results of the two scenario tests based on Part 12 are detailed in Appendix 0.
6.83 Given the large impact on the Fund, due to the introduction of the resignation benefit, we
recommend that this benefit be gradually implemented. We recommend that the IRR used to
determine the benefits on resignation be 60% of actual IRR for the first 238 days, and the fixed
20% IRR thereafter. We have referred to this alternative as Part 12A in the remainder of this
report.
6.84 This serves two purposes. Firstly, it reduces the impact to the Fund, allowing the Fund to
gradually determine the impact which this amendment will have. Given the level of awareness
that is likely to be created, should this benefit be introduced, it is likely that the Fund will
experience significant claims, the level of which being difficult to quantify with a high degree of
accuracy. Once the impact is better understood, the Fund could consider adjusting the
proportion of salary used to detennine the resignation benefits.
6.85 Secondly, this will reduce the incentive for contributors to take a vacation, as the benefit which
they will receive will be lower compared to the salary levels.
Unemployment lnaurance Fund I Actuarial Review

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Part 12A: Payment of benefits to persons who have resigned based on 60o/. of IRR
6.86 The graph below shows the benefit, as a proportion of monthly salary, for the first 238 days,
where the resignation benefit is based on 100% of IRR (dark blue line) and 60% of IRR (light
blue line).
70%

: 600/o
0 50%
4 0%
Cl)
j
i 300/o
e8_ 20%
: 10%
=
!
Monthly salary
- 100% of IRR -60% of IRR
6.87 Should the benefit be based on 60% of the IRR for the first 238 days, the benefit as a
proportion of salary at the threshold of R14,872 is 22.8%. This results in a smooth transition
for the subsequent days, where the proposed amendment is that a fixed IRR of 20% be used.
6.88 The graph below shows the solvency ratio and accumulated surplus of the Fund, should 60%
of IRR be used to determine the resignation benefits.
Unemployment Insurance Fund I Actuarial Rtvlllw

R \South Africa\UIF\2016\Reports\002 Amendment Bffl.docx 44
655
= )
450 1400%
400 1200%
c 3so
1000%
: 300
-

250 800% C
- -- -- - - - - - - - - ...
u, 200 >
... 150
a.
600% 0
400%
"'
"':s 100 C:
200%
50
0%
2016 2017 2016 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus - - Accumulated surplus (new) e

- Solvency ratio - Solvency ratio (new)
6.90 The accumulated surplus in 10 years' time is projected to be R136.1 billion, should all
amendments be implemented and Part 12A be implemented instead of Part 12.
next 10 years.
50
40
30
-
C
20

10 - -
(10)
(20)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus - Investment income

- Operating surplus (new) - - Combined income (new)
6.92 The scenario tests, based on Part 12A, are detailed in Appendix P.

R \South Alrica\UlF\2016\Reports\002 Amendment Bhl doc,c
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Summary of Impact of all proposed amendments
6.93 This section shows a summary of the impact of an proposed amendments to the 2016
Amendment Bill as assessed in the respective Parts of Section 6.
6.94 The revision in PAYG rate taking the proposed benefit changes into account is as follows:
PAYG Rate
Current 0.041% 0.038% 0.117% 0.235% 1.322%
Part 1 0.047% 0.038% 0.120% 1 .044% 0.235% 1.483% 0.161%
Part 2 0.047% 0.043% 0.183% 1 .044% 0.235% 1.552% 0.069%
Part 3 0.047% 0.043% 0.183% 1.200% 0.235% 1 .708% 0.157%
Part 4 0.047% 0.043% 0.183% 1.200% 0.235% 1.708% 0.000%
Part 5
Part s 0.070% 0.043% 0.183% 1.200% 0.235% 1.732% 0.023%
Part 7 0.072% 0.045% 0.189% 1.239% 0.235% 1.780% 0.048%
Part s
Part 9 0.072",{, 0.046% 0.20% 1.23_9,(, 0.236% 1.799% 0.019%
Part 10 0.048% 0.223% 1 .327% 0.235%
Part 11 0.235%
- o.:SS%
0.236% 2.490% 0.452"k
6.95 Benefit changes that lead to no anticipated deterioration in claims experience to the Fund are
6.96 The cumulative Impact of all benefit changes that lead to a deterioration in claims experience
of the Fund is a revision of the PAYG rate for claims and expenses from 1.322% in the base
financial projection to 2.792% considering all proposes benefit changes. This means that all
benefit changes proposed in the 2015 Amendment Bill result in the claims and expenses being
likely to exceed the current contribution rate of the Fund of 2.00%. Should Part 12A be
Implemented instead of Part 12, the PAYG rate will increase to 2.490%.

R\Soulh Afnca\UIF\2016\Reports\002 Amendment BIii docx
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7 Conclusion
7.1 A summary of the impact of all proposed benefit changes in the 2015 Amendment Bill as well
as changes proposed by NEDLAC, in terms of the estimated impact on the PAYG rate, is as
follows:
PAYG Rate
QJrrent 0.041% 0.038% 0.117% 0.892% 0.235% 1.322%
Part 1 0.047% 0.038% 0. 120% 1.044% 0.235% 1 .483% 0.161%
Part 2 0.047% 0.043% 0.183% 1.044% 0.235% 1.552% 0.069%
Part 3 0.047% 0.043% 0.183% 1.200% 0. 235% 1.708% 0.157%
Part 4 0.047% 0.043% 0.183% 1.200% 0.235% 1.708% 0.000%
Part s
Part 6 0.070% 0.043% 0.183% 1.200% 0.235% 1.732% 0.023%
Part 7 0.072% 0.045% 0.189% 1.239% 0.235% 1.780% 0.048%
Part s
Part 9 O.J>72% O.CM5k 0.208% 1,239% 0.235'.4 1.799% 0.019%
Part 10 0.078% 0.048% 0.223% 1.911% 0.112%
Part 11 0.128%
,O:lY..
Part 12A 0.078% 0.048% 0.351% 1.779% 0.236% 2.490% 0.462%
7.2 The cumulative impact of benefit changes proposed in the Amendment Bill that lead to a
deterioration in claims experience of the Fund is a revision of the PAYG rate for the Fund from
1.322% in the base financial projection to 1.799%. This means that all changes proposed in
the Amendment Bill are affordable at the current contribution rate of the Fund of 2.00%.
7.3 The cumulative impact of benefit changes proposed in the Amendment Bill and those under
discussion by NEDLAC result in the estimated PAYG rate of the Fund increasing from 1.322%
to 2.792%, This means that all benefit chnges proposed by NEOLAC cannot be fully funded
by the current contributions to the Fund. However, the high level of accumulated funds results
in the investment Income being able to fund the difference. As a result, the Fund Is expected
to be able to affora the changes proposed by NEDLAC as well as those proposed in the
Amendment Bill, although there will be a gradual decrease in the solvency level as a result.
7.4 The 10-year projection of accumulated surplus for the base projection, Part 9, Part 12 and
Part 12A is shown in the graph below.

R\South Africa\UIF\2016\Reports\002 Amendment Sil.docx 47
658
450
400
350
300
250
:a 200
150
1 00
50
tl 2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026
-Base - Part 11 - Part 12 Part 12A
7.5 Under a scenario of the PAYG rate of the Fund being 2.792% (above the contribution rate of
2.00%), the surplus of the Fund continues to grow. The reason for the continued p rojected
growth of the Fund, where benefits and expenses exceed contributions, is due to the
substantial the surplus of the Fund as at 31 March 2016 of R98.5 billion with a Solvency Ratio
of 575%. The Fund continues to earn substantial investment returns under a scenario of a
PAYG rate of 2.792%. A surplus of R124.8 billion is projected after 10 years considering all
proposed benefit changes.
7.6 The graph below shows the projected solvency for the base case, Part 9, Part 1 2 and Part
12A.
1400%
1 200%
1000%
800%
600%
400%
200%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
-Base - Part 11 - Pa rt 1 2 Part 1 2A
Unemployment lnauranc:e Fund I Actuarial Ravlaw

R \South AfricalUIF\2016\Reports\002 Amendment BUl.docx 48
659
7.7 The solvency ratio continues to increase in Part 9, although for Part 12 and Part 12A it
gradually reduces despite the increase in accumulated Funds. The reason for this decrease is
the projected increase in the contributions.
7.8 In conclusion, we are comfortable that the proposed benefit changes in the 2015 Amendment
Bill and the changes proposed by NEDLAC are affordable by the Fund. The key measure in
making this conclusion is that the accumulated surplus continues to grow under a scenario of
a PAYG rate of 2.792% largely because of a substantial surplus position of the Fund as at
31 March 2016. The Fund is expected to maintain a strong solvency ratio in 1 0 years' time of
380%.
7.9 As seen in the report, the resignation benefit has the biggest impact on the financial position of
the Fund. As can be seen in the scenarios shown in the Appendices, by reducing the benefit
offered in Part 12, the Fund will have greater resilience against adverse scenarios. We thus
recommend that the Fund consider implementing Part 12A (with some reduction to the IRR
used to determine the resignation benefit). Based on a 60% reduction to IRR the Fund is
expected to have a solvency ratio of 414% in 1 0 years' time.
7.10 We would be pleased to assist with any matters that may arise in respect of the interpretation
of the content of this report.
7.1 1 We would like to thank the management of the Fund for their assistance.
L Moroney
Consulting Actuary
Fellow of the Actuarial Society of South Africa
Telephone : +27 1 1 038 3713

E-mail : [email protected]
1 June 2016

R \South Africa\UIF\2016\Reports\002 Amendment Blll.docx
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11
= ) ., ..... .)l\ ,.)gil:f"...
Appendix A: Part 0:
Base Financial Projection
2016103/31 2017/03131 2018/03/31 2019/03/31 2020/03/31 2021103/31 2022/03/31 2023/03/31 2024103/31 2025/03/31 2026103/31
R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO R'OOO
Ace surplus blf 90,292,812 98,498,097 114,146,241 132,115,436 162,277,238 175,430,057 201,329,422 230,261,417 262,537,576 298,488,441 338,481,227
Ravsnue received 171128,778 18,001,003 19,176,185 20,495,327 21,943,658 231472,199 25,067,867 26,742,998 28,479,878 30,302,881 32,208,420
Benefits paid (7,691 ,153) (8,313,414) (8,803,089) (9,322,540) (9,893,808) (10,526,774) (11 ,234,653) (12,010,580) (12,833,838) ( 13,697,734) (14,600,702)
01!!!! In erovlslon !392.211) !253,153) 260,275) (285,20 p14',7912 p50,129) (393,678) !420,638) (443,05") (483,106) (4'84,036)
Benefits Incurred (8,083,364) (8,666,567) (9,063,363) (9,607,746) (10,208,600) (10,1176,903) (11,628,330) (12,431,218) (13,276,892) (14,160,841) (1 6,084,738)
Adjuslrrent to provision
Training of the LhelTl)loyed (28,799) (500,000) (529,000) (559,882)
Lay-off schemes & Social Ran funding (51 ,772) (1 ,448,400) (1 ,056,021) (1 ,065,226) (1,129,140) (1,196,888) (1,268,701) (1,344,823) (1 ,425,513) (1,511,043) (1 ,601,706)
661
Operallng exe!!!ses !1,788,0892 {1,852,594} {1 .960,0302 c2.on.1sa2 2.207.6982 !2,352,224') (2,514,727) (2,688,358} (2,871 ,242) !3.062,404) (3,262.205)
Operating surplus 7,176,764 6,633,442 6,567,770 7,184,916 8,398,221 9,046,184 9,666,109 10,278,696 10,906,231 11,568,693 12,269,771
hveslrrent lncamt 3,504,047 1 1.199,691 12.739,749 14,503,472 16,484,040 18.755,151 21,292,555 24,117,566 27.255,743 30,735,369 34,590,1 36
Net surplus for year 10,6110,801 16,833,133 19,307,619 21,688,388 24,882,261 27,801,336 30,948,664 34,396,162 38,161,974 ..2,303,962 46,849,907
Transfer to lflR (2,475,516) (1,184,989) (1 ,338,324) (1 ,526,585) (1 ,729,442) (1 ,901 ,970) (2,016,670) (2,120,004) (2,211,108) (2,311,177) (2,415,863)
Ace a urplua elf 98,498,097 114,146,241 132,11 5,436 152,277,238 175,430,057 201,329,422 230,261,417 262,637,576 298,488,441 338,481,227 382,915,270
Solvan!:l ratio 576% 634% 689% 743% 799".4 858% 919% 982% 1_048/o 1j_ _17"/o_ 1 189%

R:\Soulh Africa\UIF\2016\Reports\002 Amendment 8111.docx 50
,k) :: )
.....
#IQ ....h-r.';! ""
Appendix B: Part 1 :
Extension of benefits to 365 days with a flat rate of 20% after 238 days, and adjustment of benefit accrual at rate of 1 day for
every 5 days worked
201 6/03131 2017/03/31 201 8/03131 2019103/31 2020103131 2021103131 2022/03/31 2023/03131 2024/03131 2025103/31 2026103131
Ace surplus blf 90,292,81 2 98,498,097 1 10,928,870 1 26,883,838 144,792,099 1 65,369,685 1 88,306,592 213,881 ,255 242,352,376 274,005,280 309,1 55,179
Revenue received 17,1 28,778 1 7,560,306 1 8,706,717 1 9,993,564 21,406,437 22,897,657 24,454,160 21>,088,279 27,782,639 29,561 ,01 2 31 ,419,899
Benefits paid (7,691,153) (8,313,414) (9,442,052) (10,703,015) (11 ,358,876) (12,085,571) (12,898,272) (13,789,098) (14,734,263) (15,726,085) (16,782,764)
Ola!;!ae In Erovlsion SJ92.21 1) !253,153! !983,408) !327,438) !361 ,405} !401,975) (451 ,973) (482,928) {508,661) !531,683) (555,712)
Benefits Incurred (8,083,364) (8,566,567) (10,405,459) (11,030,453) (11,720,281) (12,487,547) (13,350,246) (14,272,024) (15,242,925) (16,257,768) (17,318,475)
Adjustment to provision
Training of the Ulelr()loyed (28,799) (500,000) (529,000) (559,682)
662
Lay-off schemes & Social Aan funding (51,772) (1,448,400) (1,056,021) (1 ,065,226) (1,129,140) (1,198,888) (1 ,268,701 ) (1,344,823) (1,425,513) (1,511 ,043) (1 ,601 ,706)
Opera!!!:!!! exEenses (1 ,788,089) (1 ,852,594} {1,960,030) (2,077,758} !2,207,698) !2,352.224} 12.s14,12n (2,888,358) !2,871 ,242} p,062,404) (3,262,205)
vestment tncome 3,504,047 11,199,891 12,700,027 14,360,263 16,158,269 18,219,543 20,516,375 23,066,161 25,890,254 29,012,665 32,462,466
Net surplus for year 10,680,801 1 6,392,436 17,466,233 1 9,620,708 22,507,588 25,080,441 27,836,863 30,849,235 34,133,21 3 37,742,462 41,699,980
Transfer to (2,475,516) (3,961,663) (1,501,285) (1,712,447) (1,940,001) (2,133,534) (2,262,199) (2,378,114) (2,480,310) (2,592,562) (2,709,994)
Ace surplus elf 98,498,097 11 0,928,870 1 26,883,838 144,792,099 166,369,685 1 88,306,692 213,881 ,255 242,362,376 274,006,280 309,1 65,179 348,145,16 5

Solve n.!:I ratio 575% 632% , 678% 724 !. 772% 822% 87&9!. 929% 986% 1046% 1108%

R:\South Africa\UIF\2016\Reports\002 Amendment Blll.docx 51
e e
= ) tr..on:ll'W!ticrt:-. Ofw.J
Appendix C: Part 2:
Maternity and Illness benefit changes
2016'03131 2017/03/31 2018/03/31 2019103131 2020/03/31 2021/03131 2022/03/31 2023/03/31 2024/03/31 2025/03/31 2026'03131
Ace surplus b/f 90,292,812 98,498,097 109,736,507 125,045,180 142,237,956 161,985,583 183,997,062 208,509,175 235,777,275 266,072,589 299,694,051
Revenue received 17,128,778 17,560,306 18,706,717 19,993,564 21,406,437 22,897,557 24,454,160 26,088,279 27,782,639 29,561,012 31,419,899
Benefits paid (7,691 ,153) (8,313,414) (9,716,436) (11,295,820) (11 ,988,007) (12,764,952) (13,812,665) (14,552,831) (15,550,346) ( 18,597,101) (17,891 ,198)
Otange In provision (392,2112 (253,153} f1,265,3482 (345,574) (381,422) (424,240) (477,006) (509,674) (538,834) (561 ,131) (566,491)
Adjustmmt to provision
Training of lhe U'le111>loyed (28,799) (500,000) {529,000) {559,682)
Lay-off scherres & Social Ran funding {51,772) (1 ,448,400) (1 ,056,021) (1,065,226) { 1 ,129,140) (1,196,888) ( 1.268,701 ) (1,344,823) (1 ,425,513) (1,511 ,043) (1,601,706)
663
Operating exeenses (1.788,0892 {1,852.5942 (1,960,030) (2,077,758) (2,207,6982 (2,352,224) (2,514.7272 (2.688,3581 (2,871.2422 (3,062,404) (3,262,205)
mestment Income 3,504,047 11,199,691 12,700,027 14,3351531 16,0771877 18,0751198 20,298,686 22,764,460 25,492,521 28,505,525 31,831,109
Net surplus for year 10,680,801 16,392,436 16,879,909 18,985,036 21,778,047 24,244,452 26,879,747 29,757,052 32,891,224 36,334,858 40,109,408
Transfer to Lm (2,475,516) (5,154,026) (1,571 ,235) (1,792,260) (2,030,420) (2,232,973) (2,367,634) (2,488,952) (2,595,91 1) (2,713,395) (2,836,300)
Ace surplus elf 98,498,097 109,736,507 125,045,180 142,237,956 161,985,583 183,997,062 208,509,175 235,777,275 266,072,589 299,694,051 336,967,159
S0IV8R9'. ratio S7S-/. 625% 688% 711% 75'r.4 804% 853% 904.4 958% 1014% 1072.4

R:\South Africa\UIF\2016\Reports\002 Amendment 0111.docx 52
= ) -.,. ro l.oQS"'
Appendix D: Part 3.:

Unemployment benefit cycle changes
2016/03131 2017/03131 2018/03131 2019I03131 2020/03131 2021/03131 2022/03131 2023/03131 202./03131 2025/03131 2026/03/31
Ace surplus bn 90,292,812 98,498,097 107,035,210 120,879,70. 136,.51,5'9 15',341,560 174,233,829 196,338,73 220,881,39' 2"8,101,090 278,259,881
Revenue received 17,128,778 17,560,306 18,706,717 19,993,564 21,406,437 22,897,557 2.454,160 28,088,279 27,782,639 29,561,012 31,419,899
Benefits paid (7,891,153) {8,313,414) (10,338,053) (12,838,819) (13,413,303) (U,271,432) (15,231,122) (16,283,067) (17,399,181) (18,570,388) (19,794,566)
Ola!:!ie In provision (392,211} (253,153) (1 ,949,393) (388,681) (426,771) (474,678) {533,719) (570,271) (600,660) (827,646) (856,221)
AdJustrrent to provision
Training of the Uie1111loyed (28,789) (500,000) (529,000) {559,882)
Lay-off schemas & Social Ran fundtog (51,772) (1 ,448,400) (1,056,021) 11 ,085,226) (1 ,129,140) (1.196,888) (1,268,701) (1,344,8231 l 1,425,513) (1,511 ,0431 H ,601 ,706)
664
Qe!!ra!!!!a ex[!en&es (1 ,788,089! p,852,584! (1,960,030) !2,077,758) (2,207,898) i2,352,224} (21514.727} (2,688,358} (2,871,242} i3,082,404} (3,262,205)
lnvestrrent lncoma 3,504,047 11,199,691 12,700,027 14,279,503 15,895.748 17,748,186 19,805,512 22,080,958 24,591,457 27,358,603 30,400,768
Transfer to t.m (2,475,516) (7,855,322) {1 ,729,753) (1,973,076) (2,235,263) (2,458,251) (2,606,498) (2,740,055) (2,857,805) (2,987.142) {3,122,446)
Ace surplus elf 98,498,097 107,035,210 120,879,704' 136,451,549 154,341,560 17.t,233,829 196,338,734 220,881,39.t 2"8,101,090 278,259,881 311,643,<tOS
893.4
Solveng,_ratlo_____ _ _ __ _S7k _ _ 610%_ 646% 682% 721% 761% 803% 9"1% 99:Z-k
_ 847 .4

R:\South Africa\UIF\2016\Reports\002 Amen<Petll Blll.docx 53
e
e -
= ) hN. l'1''"-
Appendix E: Part 4:
Extension of Death claims submission period from 6 to 1 8 months
2016/03131 2017/03/31 2018/03/31 2019/03131 2020/03131 2021/03/31 2022/03131 2023/03131 2024/03131 202SI03l31 2026/03131
Ace surplus blf 90,292,812 98,498,097 107,031,934 120,874,652 136,444,532 154,332,290 174,221,989 196,323,974 220,863,330 248,079,295 278,233,887
Revenue received 17,128,778 17,560,306 18,708,717 19,993,564 21;406,437 22,897,557 24,454,160 26,088,279 27,782,639 29,561,012 31,419,899
Benefits paid (7,691,153) (8,313,414) (10,338,807) (12,640,448) (13,415,031) (14,273,271) (15,233,085) (16,285,166) (17,401,423) (1 8,572.781 ) (19,797,117)
Ola!!9e in erovision pe2.211) {253,153) p.950,222) {386,711) {426,826) {474,740) {533,788) {570,344) (600,738) {627,927! {656,305)
Benefits incurred (8,083,364) (8,586,567) (12,289,030) (13,027,158) (13,841 ,857) (14,748,01 1) (15,766,873) (16,855,510) (18,002,161) (19,200,708) (20,453,422)
Adjustnent to provision
Training of the U\e111>loyed (28,799) (500,000) (529,000) (559,682)
Lay-off schenes & Social Plan funding (1 ,448,400) (1 ,.056,021) (1,065,226)
665
(51,772) (1,129,140) (1,196,888) (1,268,701) (1 ,344,823) (1 ,425,513) (1,511,043) (1 ,601,706)
Operating exeenses {1,788,089} (1,852,594) {1,960,030) {2:077,758} {2,207,698) (2,352,224} {2,514,72:Q {2,6881358) (2,871 ,242) {3,062,404) {3,262,205)
Operating surplus 7,176,754 5,192,745 2.872,636 3,263,740 4,227,742 4,600,434 4,903,860 5,199,588 5,483,723 5,786,856 6,102,566
'1vestmenl lnco1TB 3,504.047 11 ,199,691 12.700,027 14.279,435 1 5,895,527 17,747,789 19,804,914 22,080,127 24,590,365 27.355,209 30,399,034
Net surplus for year 10,680,801 16,392;43& 15,572,663 17,543,175 20,123,269 22,348,223 24,708,774 27,279,715 30,074,088 33,142,066 36,501,600
Transfer to (2,475,516) (7,858,598) (1 ,729,945) (1 .973,295) (2,235,512) (2,458,524) (2,606,788) (2,740,360) (2,858,122) (2,987,474) (3,122,793)
Ace surplus elf 98,498,097 107,031,934 120,874,652 136,444,532 154,332,290 174,221,989 196,323,974 220,863,330 248,079.295 278,233,887 311,612,694
Solven ratio 575% 610% 646% 682% 121k 761% 803% 847% 893% 941% 992%

= ) "'"'"'.,.,..,c:r:Jf'\ 7.X,.""W"'
Appendix F: Part 6:
Death claims to allow for nominated beneficiary
2016/03131 2017/03/31 2018/03131 2019/03/31 2020/03131 2021/03/31 2022/03131 2023/03131 2024/03131 2025/03131 2026/03/31
Ace surplus b/f 90,292,812 98,498,097 106,628,059 120,251,865 135,579,397 153,189,420 172,762,272 194,504,353 218,636,223 245,392,348 275,029,231
Revenue received 17,128,778 17,560,306 18,706,717 19,993,564 21,406,437 22,897.557 24,454,160 26,088.279 27,782,639 29,561,012 31,419,899
Benefits paid (7,691,153) (8,313,414) (10,431,746) (12,841 ,242) (13,628:129) (14,500,003) (15,475,063) (16,543,856) {17,677,845) (18,867,811) (20,11 1,595)
Ola!:!2!! i'I J!!:Ovision {392,211! {253,153! {2,052,495} (392,853) {433,606! {482,281! {542,26!} {579,404) {610,281! (637,902! (666,731)
Benefits Incurred (8,083,364) 18.566,567) (12,484,241) (13,234,095) (14,061,7361 (14,982,284) (16,017,330) (17,123,260) (18,288,126) (19,505,712) (20,778,325)
Adjustrrent to provision
Trainilg of the UielllJloYed (28,799) (500,000) (529,000) (559,682)
Lay-off schemes & Social Ran funding (51,772) (1,448,400) (1 ,056,021) (1,065,226) (1,129)140) (1,196,888) (1,268,701) (1,344,823) (1,425,513) (1,511,043) (1,601,706)
666
Opera!!!!! exe!!!!ses (1,788,089) (1.852,594! (1,960,030! {2,077,758 (2,207,898! {2,352,224! (2,514,727) {2,688,358! !2,871,242) (3,062,404) (3,262,205!
Operating surplus 7,176,754 5,192,745 2,677,424 3,056,803 4,007,864 4,366,161 4,653,402 4,931,837 5,197,758 5,481,853 s.m,663
nvesln'Snt ncoll'B 3,504,047 11,199,891 12,700,027 14,271,058 15,888,297 17,698,897 19,731,179 21 ,977,936 24,455,645 27,183,432 30,185,181
Net s urplus for year 10,680,801 16,392,436 15,377,451 17,327,861' 19,876,161 22,065,058 24,384,581 26,909,773 29,653,403 32,665,285 35,962,844
Transfer lo UR {2,475,516) (8,262,473) (1,753,645) (2,000,329) (2,286,138) (2,492,206) (2,642,501. (2,777,902) (2,897,278) (3,028,402) (3,165,575)
Ace surplus elf 98,498,097 106,628,059 120,251,865 135,579,397 153,189,420 172,762,272 194,504,353 218,636,223 245,392,348 275,029,231 307,826,500
Solven ratio 575% 607% 643% 678% 716% 755",{, 795% 838% 883% 930% 980%
Unemployment Insurance Fund l Actuarial Review

R:\South Africa\UIF\2016\Reports\002 Amendment 8111.docx 5:5
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Appendix G: Part 7:
Inclusion of persons on learnership contracts and migrant workers
2016/03/31 2017/03/31 2018/03/31 2019/03/31 2020/03/31 2021/03/31 2022/03/31 2023103/31 2024/03/31 2025'03/31 2026/03/31
Ace surplus b/f 90,292,812 98,498,097 105,801,539 118,977,348 133,808,921 150,850,565 169,774,999 190,780,542 214,078,505 239,893,578 268,470,981
Revenue received 17,128,778 17,560,306 18,706,717 19,993,564 21406,437 22,897,557 24,454,160 26,088,279 27,782,639 29,561,012 31,419,899
Benefits paid (7,691.153) (8,31 3,414) (10,621 ,943) (13,252,162) (14;064,230) (14,964,003) (1 5,970,265) (17,073,260) (18,243,536) (19,471 ,581) (20,755,166)
0,a!:!2e in erovislon {392,21 1) {253,153) {2,261,793) (.COS,425) {447,482) {.C97,714) (559,620 {597,945) (629,810) (658,314) {688,066)
Adjustmmt to provision
Trawiilg of the lxlen1)1oyed (28,799) (500,000) (529,000) (559,682)
Lay-off schemes & Social Ran funding (51 ,772) (1 ,448,400) (1 ,056,021) (1,085,226) (1 ,129,140) (1,196,888) (1,268,701) (1,344,823) (1,425,513) (1,51 1,043) (1 ,601,706)
667
QE!rating exeenses p,788,089) (1,852,59,C) {1 ,960,030) {2,077,758 {2,207,698) {2,352,224) {2,514,727) (2,688,358) {2,871,242) p,062,404) {3,262.205)
Operating surplus 7,176,754 5,192,745 2,277,929 2,633;312 3,557,889 3,186,728 4,140,848 4,383,893 4,612,538 4,857,670 5,112,756
nvestment income 3,504,047 1 1 ,199,891 12,700,027 14,253,915 15,812,570 17,598,841 19,580,282 21 ,768,803 24,179,945 28,831,894 29,747,538
Transfer to LRR (2,475,516) (9,088,994) (1,802,147} (2,055,653) (2,328,814) (2,561 .135) (2,715,586) (2,854,733) (2,977,41 1) (3,1 12,161) (3,253,128)
Ace surplus elf 98,498,097 1os.ao1.s39 1 1a.s77,348 133,aoa,s21 1so,aso,56s 1&9,n4,999 190,780,542 214,078,505 239,893,578 268,470,981 300,078,148
Solven ratio 575% 603% 636% 669% 705% 741% 780% 821% 863% 908k 955%

= ) NT0ri0'"'8 b.,.r-..-
Appendix H: Part 9:
Extension of Maternity claims submission period from 8 weeks prior to birth to 1 2 months after child birth
2016/03131 2017103/31 2018103131 2019103/31 2020103131 2021103131 2022/03131 2023103131 2024103131 2025/03131 2026/03131
Ace surplus bit 90,292,812 98,498,097 105,475,166 118,474,071 133,109,802 149,927,008 168,595,397 189,310,099 212,278,772 237,722,245 265,881,286
Revenue received 17,128,778 17,560,306 18,706,717 19,993,564 21,406,437 22,897,557 24,454,160 26,088,279 271782,639 29,561,012 31,419,899
Benefits pald (7,691 ,153) (8,313,414) (10,697,048) (13,414,424) (14,236,435) (15,147,225) (16,165,806) (17,282,308) (18,466,914) (19,709,995) (21,009,297)
Ola!l!e in f!OVision {392,2111 (253,153) 2.344,440) !410,389} (452,961) (503,808} !566,4721 {605,26!} (637,5211 {666,375) {696,491)
Benefits Incurred 18,083,364) (8,566,567) (13,041,488) (13;824,813) (14,689,396) (15,651,034) 116,732,280) (17,887,575) !19,104,435) (20,376,370) !21,705,7871
AdjusllTBnl lo provision
Training of the Une"1)1oyed (28,799) (500,000) (529,000} (559,882)
(1,268,701)
668
Lay-off scheJT'es & Socia! Ran funding (51 ,772) (1,448,400) (1 ,056,021) (1,065,226) (1,129,140) (1,196,888) (1,344,823) (1,425,513) lt,511,043) (1,601,706)
Opera exeenses (1,788,089) (1,852,594! (1,960,030! {2,077,758! {2,207,6981 {2,352,224! (2,514,727! (2,888,358) (2,871,242) (3,062,404! !3.262,205)
hvestrrent incorre 3,504,047 1 1,199,691 12,700,027 14,247,145 15,790,565 17,559.331 19,520,696 21,686,221 24,071,078 26,693,080 29,574,723
Transfer to lJRR (2,475,516) (9,415,367) (1,821,299) (2,077,500) (2,353,564) (2,588,3531 (2,744,446) (2,885,071) (3,009,053) (3,145,235) (3,287,700)
Ace surplus elf 98,498,097 105,475,166 118,474,071 133,109,802 149,927,008 168,595,397 189,310,099 212,278,772 237,722,24'5 265,881,286 297,018,509
Solveng ratio 575% 601% 633% 666% 700% 736% 774% 814'% 856% 899% 945%

R:\South Africa\UlF\2016\Reports\002 Amendment Bill.docx 57
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Appendix I: Part 10:

Inclusion of persons employed in the informal sector
2016/03/31 2017/03/31 2018/03/31 2019/03/31 2020/03131 2.021/03/31 202.2!03/31 202.3/03/31 2024/03/31 2025/03/31 2026/03131
Accsurplus b/f 90,292,812 98,498,097 103,541,808 116,345,769 130,257,147 145,902,519 162,888,152 181,328,256 201,510,549 223,789,224 248,354,292
Revenue received 17,128,778 17,560,308 19,559,708 20,905,233 22,382,531 23,941,643 25,569,224 '1:1 ,856 29,049,476 30,908,939 32,852,588
;zn
Benefits paid {7,691,153} (8,313,414) (11,141 ,949) (14,464,762) (15,649,507) (17,072,196) (18,641,508} (20,259,183) (21,769,168) (23,234,536} (24,766,179}
Ola!!2e in l!rovislon (392,211} (253,153} {2,8341022) (537,880) {711,829! p82,251) 866,104) (827,048) (751,523! {785,536) (821,037}
Benefits Incurred (8,083,364) (8,566,567) (13,975,970) (15,002,6421 (16,361,3361 (17,854,447} (19,507,613) (21,086,231) (22,520,690) (24,020,072) (25,587,216)
Adjusbrent to provision
Trainng of the Ulelll)loyed (28,799) (500,000) (529,000) (559,682)
669
Lay-off schenes & Social Ran funding (51,772} {1,448,400) (1.056,021) (1,065,226) (1,129,140) (1,196,888) (1 ,268,701) (1,344,823) (1,425,513) (1,511,043) (1 ,601,706)
Operating expenses !1,788.089) {1,852,594) {1,960,030! {2,104,014) (2,294,561) (2,503,959} (2,735,804) (2,957,194} {3,158,367) (3,368,644) (3,588,425)
investirent inco 3,504,047 11,199,.691 12,700,027 14,283,928 15,815,798 17,539,622 19,406,137 21,418,770 23,594,193 25,963,872 28,555,998
Nat surplus for year 10,680,801 16,392,436 14,738,714 16,457,597 18,413,293 19,925,971 21,463,243 2.3,308,378 25,539,099 '1:1,973,051 30,631,238
Transfer to lm (2,475,516) (11,348,725) {1,934,753) (2,546,219) (2,767,921) (2,940,338} (3,023,138) (3,126,086) (3,260,424) (3,407,983) (3,562,349)
Ace surplus elf 98,498,097 103,541,808 116,346,769 130,257,147 145,902,519 162,888,152 181,328,266 201,510,549 223,789,224 248,354,292 '1:15,423,181
Solven9:. ratio 575% 590% 595% 623% 652% 680% 709"k 739% 770% 804% 838%

R:\South Afrlca\UIF\2016\Reports\002 Amendment Bfll.docx 58
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Appendix J: Part 1 1 :
Payment of 12 days of paternity leave to fathers
2016/03/31 2017/03131 2018103/31 2019/03/31 2020103131 2021103131 2022/03131 2023/03131 2024/03131 2025/03131 2026/03131
Ace surplus blf 90,292,812 98,498,097 101,338,780 112,948,637 125,501,137 139,565,846 154,724,623 171,064,804 188,854,899 208,431,998 229,952,687
Ravenue received 17,128,778 17,660,306 19,559,708 20,905,233 22,382,531 23,941,643 25,569,224 27,277,856 29,049,476 30,908,939 32,852,588
Benefits paid (7,691 ,153) (8,313,414) (11,648,905) (15,566,829) (16,841 ,840) (18,372,923) (20,061,801) (21 ,802,725) (23,427,756) (25,004,nO) (26,653,109)
Ola!:)2e in erovision (392,211) !253,153) (3,391,891} (578,861 (766,063) (841,850) (932,093 (890,061) (808,781) (845,386) (883,592)
Benefits Incurred (8,083,364) (8,566,567) (15,040,796) (16,145,690) (17,607,902) (19,214,774) (20,993,894) {22,692,788} {24,236,537} (25,850,156} {27,536,701}
Training of the lkle111>loyed (28,799) (500,000) (529,000) (559,682)
670
Lay-off schenes & Social Aan funding cs1,n21 (1,448,400) (1,056,021} (1,065,226) (1,129,140) (1,196,888) (1,268,701) (1,344,823) (1,425,513) (1,511,043) (1,601,706)
Operating expenses {1,788,089) (1,852,594) (1,960,030) (2,104,014} (2,294,561) (2,503,959) (2,735,804) (2,957,194) (3,158,367) !3,368,644! (3,588,425)
Operating surplus 7,176,754 5,192,745 973,881 1,030,621 1,350,928 1,026,022 570,825 283,052 229,060 179,095 125,756
lnvestrrent incorre 3,504,047 11,199,691 12,700,027 14,238.234 15,666,652 17,269,563 18,994,496 20,842,010 22,826,321 24,977,294 27,320,938
Transfer to Lm (2,475,516) (13,551 ,753) (2,064,031) (2,716,355) (2,952,871) (3,136,808) (3,225,141) (3,334,967) (3,478,282) (3,635,700) (3,800,382)
Ace surplus elf 98,498,097 101,338,780 112,948,637 125,501,137 139,565,846 154,724,623 171,064,804 188,854,899 208,431,998 229,952,687 253,598,999
Solven!:l!!!!,o ___ 575% 577% - 577% 600% 624% 646% 669% 692% 718% 744% 772%

R:\Soulh Africa\UIF\2016\Reports\002 Amendment Bill.docx 59
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Appendix K: Part 1 2:
Payment of benefits to persons who have resigned
2016/03/31 2017/03/31 2018/03/31 2019103/31 2020103/31 2021103/31 2022103/31 2023103/31 2024/03/31 2025103/31 2026/03/31
R'OOO R'OOO R'OOO R'OOO R'OOO ROOO R'OOO R'OOO R'OOO R'OOO R'OOO
Ace surplus b/f 90,292,812 98,498,097 88,335,073 92,896,550 97,428,070 102,162,680 106,538,165 110,483,227 114,1 53,020 117,783,661 121,334,440
Rltvenue received 17,128,778 17,5601306 19,559,708 20,905,233 22,382,531 23,941,643 25,569,224 27,277,858 29,049,476 30,908,939 32,852,588
Benefits paid (7,891,153) (8,313,414) (14,641,294) (22,071,946) (23,879,783) (26,050,660) (28,445,292) (30,913,719) (33,217,823) (35,453,845) (37,790,997)
O,ae In erovision !392,21 1) {253,153) (6,684,799! (820,757) {1,088.187) (1,193,646) {1,321,599) !1,2621003! {1,146,757) {1,198,658) (1,252,830)
Adjuslll'Bnt to provision
Traini,g of lhe lk'lelfl)loyed (28,799) (500,000) (529,000) (559,682)
Lay-off schemas & Social Ran funding (S1.n2) (1,448,400) (1,056,021) (1,065,228) (1,129,140) (1 ,196,888) (1 ,268,701) (1,344,823) (1,425,513) (1 ,511 ,043) (1 ,601,706)
671
Qe!ra!!!a expenses (1,788,089) (1,852,594) {1 ,960,030) (2,104,014} {2,294,561) (2,503,959) (2,735,804! (2,957,194) p,158,367) (3,368,644) (3,588,425)
Operating surplus 7,176,754 5,192,745 (5,311 ,436} (5,716,392} (6,007,120) (7,003,510) (8,202,171) (9,199,883) (9,898,983) (10,623,252) (11,381,370)
.,veslll'Bnl income 3,504,047 11,199,691 12,700,027 13,968,518 14,786,293 15,675,498 16,564,727 17,437,598 18.293,846 19,153,870 20,030,809
Net surplus for year 10,680,801 16,392;436 7,388,591 8,252,126 8,779,173 8,671,988 8,362,555 8,237,715 8,394,862 8,530,618 8,649,438
Transfer to l.m (2.475,516) (26,555,459) (2,827,1 14) (3,720,606) (4,044,563) (4,296,503) (4,417,493) (4,567,922) (4,764,222) (4,979,838) (5,205,403)
Ace surplus elf 98,498,097 88,335,073 92,896,550 97,428,070 102,162,680 108,538,185 110,483,227 114,153,020 117,783,661 121,334,440 124,778,475
Solveng ratio 575% 503% 475% 466% 456% 445% 432% 418% 405% 393% 380%

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Appendix L: Part 1 2A:
Payment of benefits to persons who have resigned (60% of IRR)
2016103/31 2017/03/31 2018103/31 2019103/31 2020103/31 2021/03131 2022/03/31 2023103/31 2024'03/31 2025/03/31 2028/03/31
Ace surplus blf 90,292,812 98,498,097 89,481 ,432 94,664,267 99,902,887 105,460,004 110,786,104 1 15,823,874 120,738,460 125,774,881 130,909,821
Revenue received 17,1 28,778 17,560,306 19,559,708 20,905,233 22,382,531 23,941,643 25,569,224 27,277,856 291049,476 30,908,939 32,852,588
Benefits peid (7,691.153) (8,313,414) (14,377,496) (21.498,479) (23,259,326) (25,373;819) (27.706,234) (30,110,528) (32,354.767) (34,532,894) (36,809,122)
Olange in erovislon {392,211) {253,153) {6,394.509) !799,433) {1,057,966) {1.162,6332 {1,287.261) {1,229.2142 {1.116,9622 {1.167,515) (1 ,220.279)
Benefit. Incurred (8,083,364) (8,566,567) (20,772,005) 122,297,912) (24,317,292) (26,536,452) (28,993,496) (31,339,742) (33,471,729) (35,700,209) (38,029,402)
Training or the Uleoyed (28,799) (500,000) (529,000) (559.682)
Lay-off scherres & Social Ran funding (51.772) (1 .448,400) (1,056,021) (1,065.226) (1 ,129,140) (1,196,888) (1,268.701) (1 ,344,823) (1,425,513) ( 1 ,51 1 ,043) (1,601,706)
672
rating exeenses {1 ,788,089) {1.852,594) {1,960.030) (2,104.0142 {2,294.5612 {2.503.959) {2,735,804) !2,957,1942 {3,1 58,367) {3,368,644) p,588,4252
Operating surplus 7,176,754 5,192,745 (4,757,348) (5,121,601) (5,358,462) (6,295,656) (7,428,776) (8,363,903) (9,006,133) (9,670,958) (10,366,945)
lnvesllTent Income 3,504,047 11.199,691 12,700,027 13,992,295 14,863,.902 15,818,024 16.778,926 17,737,718 18,693,412 19,667,241 20,673,479
Transfer lo URR (2,475,516) (25,409,101) (2,759.843) (3,632,075) (3,948,323) (4.194,268) (4,312,380) (4,459,230) (4,650,858) (4,861,344) (5,081,542)
Ace surplus elf 98,498,097 89,481,432 94,664,267 99,902,887 105,460,004 110,786,104 1 15,823,874 120,738,460 125,774,881 130,909,821 136,134,813
Solvency ratio 575% 510% 484% 478% 471% _ 483% - 53,(, 4,Q% 433% 424% 414%

e e
Appendix M: Shocks applied
M.1 We have considered the impact on the Fund of the following two scenarios:
Scenario 1: The impact on the Fund, should the impact of the changes considered in this
report be 20% greater than quantified in the report.
Scenario 2: The impact on the Fund, should there be an adverse economic experience (a
large scale geographical turmoil scenario), which drastically reduces the value
of the Fund's assets over the 2017 financial year.
M.2 We consider Scenario 1 and Scenario 2 to be an indication of the worst case scenarios.
M.3 The table below shows the PAYG rates, for amendments proposed in the Amendment Bill and
those under consideration in NEDLAC, should the impact be 20% greater than determined in
Section 6 of the report. This is used to determine the impact on the Fund, should the changes
be significantly greater than determined above.
PAYG Rate
Death Illness M&A Unemployment Expenses Total
Q.irrent 0.041% 0.038% 0.117% 0.892% 0.235% 1 .322%
Part 1 0.048% 0.038% 0.120% 1.074% 0.235% 1.515%
Part 2 0.048% 0.044% 0.197% 1.074% 0.235% 1 .598%
Part 3 0.048% 0.044% 0.197% 1.262% 0.235% 1.785%
Part 4 0.048% 0.044% 0.197% 1.262% 0.235% 1 .786%
Part 5 0.048% 0 044% 0.197% 1.262% 0.235% 1.786%
Part 6 0.076% 0.044% 0.197% 1.262% 0.235% 1.814%
Part 7 0.079% 0.046% 0.204% 1.308% 0.235% 1.871%
Part 8 0.079% 0.046% 0.204% 1.308% 0.235% 1.871%
Part 9 0.079% 0.046% 0.226% 1,308% 0.235% 1.894%
Part 10 0.050% 0.244% 1.414% 0.235% 2.028%
0.050% 1.414% 0.235% 2.182%
o1olio%
% -...
3j j,.l>_Bjl.
Part 12A o.oso01o 1.957% 0.235% 2.724%
M.4 The table below shows the real and nominal investment returns assumed, for each asset class,
over the projecting period, applied in Scenario 2.

R \South Afrlca\UIF\2016\Reports\002 Amendment Blll.dccx 62
673
2017 2018 2019 2020 2021 2022 to 2026
Inflation 6 00% 6 00% 6 00% 600% 6 00% 6 00%
1:qulty Real (45.80%) 8.40% 8.70% 8.70% 13.20% 4.90%
Noninal (39.80%) 14.40% 14.70% 14.70% 19.20% 10.90%
Corporate bonds Real (25.80%) 6.70% 5.00% 5.00% 4.00% 3.50%
Norrinal (19.80%) 12.70% 11.00% 11.00% 10.00% 9.50%
Governrrent bonds Real (25.80%) 6.70% 5.00% 5.00% 4.00% 2.50%
Norrinal (19.80%) 12.70% 11.00% 11.00% 10.00% 8.50%
A"operty Real 4.50% 4.50% 4.50% 4.50% 4.50% 3.70%
Norrinal 10.50% 10.50% 10.50% 10.50% 10.50% 9.70%
M:mey market Real 0.75% 0.75% 0.75% 0.75% 0.75% 1. 00%
Norrinal 6.75% 6.75% 6.75% 6.75% 6.75% 7.00%
Cash Real (0.25%) (0.25%) (0.25%) (0.25%) (0.25%) 0.50%
Norrinal 5.75% 5.75% 5.75% 5.75% 5.75% 6.50%
M.5 We assume that the asset portfolio is rebalanced at the end of each year, such that the
proportion of assets held in each class remains constant.

R:\South Africa\UIF\2016\Reports\002 Amendment Bhl.docx 63
674
Appendix N: Shocks to Part 1 1
N.1 Scenario 1: The Impact on the Fund, should the Impact of each change in the Amendment
Bill and under discussion In NEDLAC be 20% higher than estimated in Section 6
N.2 The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
impact of the changes considered in Parts 1 to 1 1 be 20% greater than that shown in Section 6.
N.3 The blue lines indicate the solvency and accumulated surpluses, based on the PAYG rates
derived in Section 6, while the grey lines are based on PAYG rates where the impact is 20%
greater than that determined in Section 6.
300 900%
800%
_ 250
---
C
= 200
, 700%
600% >.
-- - - -
:s 500% C
1 50 >
Cl)
II) 400% 0
:I
Q. 100 c:i, e :::: 300% C/J
:I
200%
C/J
50
100%
0 0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 1 1) - - Accumulated surplus (Scenario 1 )

-- Solvency ratio (Part 1 1 ) --- Solvency ratio (Scenario 1 )
N.4 The graph below shows the impact which this scenario has on the income of the Fund over the
next 1 O years. The solid black line indicates the operating income, based on a 20% increase in
the changes to the benefits. The increase to the dotted line Indicates the investment income of
Scenario 1 . The level of the dotted line indicates the combined income, based on Scenario 1 ,
over the next 1 O years.
N.5 The bars indicate the operating income and investment income as determined in Part 1 1 of
Section 6.

R :\South Afrlca\UIF\2016\Reports\002 Amendment BIii docx
675
30
25
20
,_I
- I
15
10
(5)
(10)
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus (Part 1 1 ) - Investment income (Part 1 1 )

- Operating surplus (Scenario 1 ) - - Combined income (Scenario 1)
N.6 Should the impact of the amendments proposed be 20% greater than what has been determined
in Section 6, the operating surplus will become negative. However the investment income is
proj ected to be sufficient to match the operating losses for the next 10 years. This will result in a
combined surplus.
N.7 It is important to note that this is a worst case scenario, particularly given that the assumptions
used to estimate the impact of the amendments have erred on the side of caution.
N.B Scenario 2: The Impact on the Fund, should there be significant economic turmoil In
2017.
N.9 The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
investment returns be as shown Appendix M.
N.10 The blue lines indicate the solvency and accumulated surpluses as per Part 11 in Section 6,
while the grey lines are based on the investment returns in Appendix M .

R:\South Africa\UIF\2016\Reports\002 Amendment Bltt.docx 65
676
= )
300 900%
800%
_ 250
s: 700%
.,,
-
,-
:s
= 200 600%
-
.,,,,.
.,,,,. -
_. ,
-- 500%
-' -- - - -
150
,,,,,. C
GJ
>
400% 0
en
:,
a. 1 00 300% "'
"'
:,
50
200%
100%
0 0%
2016 201 7 2018 201 9 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 11) - - Accumulated surplus (Scenario 2)

-- Solvency ratio (Part 1 1) - Solvency ratio (Scenario 2)
N.11 The graph below shows the impact which this scenario has on the income of the Fund over the
next 1 0 years. The solid black line indicates the operating income, based on the investment
returns in Appendix M. The increase, or decrease, to the dotted line Indicates the investment
income of Scenario 2. The level of the dotted line indicates the combined income, based on
Scenario 2, over the next 10 years.
N.12 The bars indicate the operating income nd investment income as determined in Part 11 of
Section 6.
30
25
20
15
C 10
:s 5
\
201 s , 20111 201 a 2019 2020 2021 i022 023 2024 2025 2026
(5)
( 1 0) \ I
( 1 5)
(20)

\/
- Operating surplus (Part 1 1 ) - Investment income (Part 11)

- Ope rating surplus (Scenario 2) - - Combined income (Scenario 2)

R.\South Afrlca\UIF\2016\Reports\002 Amendment 8111.docx 66
677

N.13 The large decrease in investments occurs in 2017. Thereafter the investment returns are
expected to be higher for the next five years as assets recover from the market shock. This
results in the combined income from 2018 to 2021 being similar to the combined income shown
in Part 1 1 . However, the shock does result in a reduction in the accumulated surplus. Thus
from 2022, when the investment return assumption reverts to 9.01%, the investment income is
slightly below that in Part 1 1 , resulting in a slightly lower combined income.

R \South Afrlca\UIF\2016\Reports\002 Amendment BUI docx 67
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" I
Appendix O: Shocks to Part 1 2

0.1 Scenario 1 : The Impact on the Fund, should the Impact of each change In the
Amendment BIii and under discussion In NEDLAC be 20% higher than estimated in
Section 6
0.2 The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
impact of the changes considered in Parts 1 to 12 be 20% greater than that shown in Section 6.
0.3 The blue lines indicate the solvency and accumulated surpluses, based on the PAYG rates
------
140 700%
- 120 600%
-
,g 1 00 - -"!. 500%
>.
-
CJ
80 400% C

60 300% 0
U)
I,, 40 200%
20 100%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 1 2) - - Accumulated surplus (Scenario 1 )

-- Solvency ratio (Part 1 2) - Solvency ratio (Scenario 1 )
0.4 Should the impact of the amendments be 20% greater than determined in Section 6, for Parts 1
to 12, the accumulated surplus and solvency ratio will drastically reduce over the next ten years.
0.5 The graph below shows the impact which this scenario has on the income of the Fund over the
next 10 years. The solid black line indicates the operating income, based on the revised PAYG
rate. The increase to the dotted line indicates the investment income of Scenario 1 . The level
of the dotted line indicates the combined income, based on Scenario 1 , over the next 1 O years.
0.6 The dark blue bars indicate the operating income as determined in Part 12 of Section 6, while
the top of the light blue bar indicates the combined income.

R:\South Africa\UIF\2016\Reports\002 Amendment Blll.docx 68
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' .
20
15
- IIII
10
5
-1 1 t 1
.2
:s (5)
(10)
(15)
(20)
(25)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus (Part 1 2) - Investment income (Part 12)

-- Operating surplus (Scenario 1) - - Combined income (Scenario 1)
0.7 The above graph shows that the operating surplus under Scenario 1, including Part 12,
drastically decreases during the next 10 years. Furthermore, the combined income is negative
from 2022 and decreases over the next 10 years.
0.8 The combined loss results in the accumulated surpluses being utilised in order to pay the claims
to the Fund, thus reducing the accumulated surpluses. Thus the investment income decreases,
as shown in the graph by the narrowing gap between the solid and dotted lines.
0.9 Scenario 2: The Impact on the Fund, should there be significant economic turmoil In
2017.
0.1O The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
investment returns be as shown in Appendix M and the amendments reviewed in Parts 1 to 12
be implemented.
0.11 The blue lines indicate the solvency and accumulated surpluses as per Part 12 in Section 6,
while the grey lines are based on the investment returns in Appendix M.

R:\Soulh Africa\UIF\2016\Reports\002 Amendment BIii docx 69
680
I I
- - - - --
----
140 700%
-
'2
120
. 1 00
- 600%
500%

- - - - - .. .. - -
:ci 80 400% C

cn -- i
:, 60 300% 0
e, 40 200%
u,
u,
20 100%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 12) - - Accumulated surplus (Scenario 2)

-- Solvency ratio (Part 1 2) - Solvency ratio (Scenario 2)
0.12 The graph below shows the impact which this scenario has on the income of the Fund over the
next 10 years. The solid black line indicates the operating income. The Increase to the dotted
line indicates the investment income of Scenario 2. The level of the dotted line indicates the
combined income, based on Scenario 2, over the next 10 years.
0.13 The dark blue bars indicate the operating income as determined in Part 12 of Section 6, while
20
15
10
--C
5
(5)
(10)
(15)
(20)
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus (Part 1 2) - investment income (Part 12)

-- Operating surplus (Scenario 2) - - Combined income (Scenario 2)

R:\Soulh Afrlca\UIF\2016\Reports\002 Amendment 8111.docx 70
681
. . .,
0.14 Investment losses in 2017 result in a combined loss in 2017, despite an operating surplus.
0.1 5 From 2018 to 2021 the combined income is similar to that shown in Part 12, while from 2022 to
2026 the combined income is lower, as investment returns return to the original 9.01% level.
0.16 The combined income remains positive overthe next 1 0 years.

R:\South Afrlca\UIF\2016\Reports\002 Amendment Bill docx 71
682
I r
Appendix P: Shocks to Part 1 2A

P.1 Scenario 1: The impact on the Fund, should the Impact of each c hange in the
Amendment BIii and under discussion In NEDLAC be 20% higher than estimated in
Section 6
P.2 The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
impact of the changes considered in Parts 1 to 11 and Part 12A be 20% greater than that
shown in Section 6.
P.3 The blue lines indicate the solvency and accumulated surpluses, based on the PAYG rates
------
160 700%
140 600%
s 120
500%
=
-
.c
0:: 80
100
.... - 400%
(J
C
>.
300%
..
0
:, 60 U)
Q.
40 200%
20 100%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 1 2A) - Accumulated surplus (Scenario 1 )

-- Solvency ratio (Part 1 2A) - Solvency ratio (Scenario 1}
P.4 Should the impact of the amendments be 20% greater than determine in Section 6, for Parts 1
to 11 and Part 12A, the solvency ratio will reduce over the next ten years.
P.5 The graph below shows the impact which this scenario has on the income of the Fund over the
next 10 years. The solid black line indicates the operating income, based on the revised PAYG
rate. The increase to the dotted line indicates the investment income of Scenario 1 . The level
of the dotted line indicates the combined income, based on Scenario 1, over the next 10 years.
P.6 The dark blue bars indicate the operating income as determined in Part 1 2A of Section 6, while

R:\South Afrtca\UIF\2016\Reports\002 Amendment 8111.docx n
683
' ' '
20
15
10
0
5 -
(5)
(10)
( 1 5)
(20)
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus (Part 1 2A) - Investment income (Part 1 2A)

--Operating surplus (Scenario 1) - - Combined income (Scenario 1)
P.7 The above graph shows that the operating surplus under Scenario 1, including Part 12A,
drastically decreases during the next 10 years. The combined income is positive from 201 8 and
decreases over the next 10 years.
P.8 Scenario 2: The Impact on the Fund. should there be significant economic turmoil In 2017.
P.9 The graph below shows the solvency ratio and accumulated surplus of the Fund, should the
investment returns be as shown in Appendix M and the amendments reviewed in Parts 1 to 1 1
and Part 12A be implemented.
P.10 The blue lines indicate the solvency and accumulated surpluses as per Part 1 2A in Section 6,
while the grey lines are based on the investment returns in Appendix M.
Unemployment Insurance Fund I Actuartal Review

684
.,, i t .,
160
- - - - - - - - 700 %
-
- - - - - - - - ... -
140 600%
5 1 20 500 %
----
-
:: 1 00 >,
u
.c 400 %
0:: 80 ID
>
Cl)
...
:::J
c. 60
300%
200%
"'
0
40
20 1 00%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- - Accumulated surplus (Part 1 2A) - - Accumulated surplus (Scenario 2)

-- Solvency ratio (Part 12A) - Solvency ratio (Scenario 2)
P .11 The graph below shows the impact which this scenario has on the income of the Fund over the
next 1 0 years. The solid black line indicates the operating income. The increase to the dotted
line indicates the investment income of Scenario 2. The level of the dotted line indicates the
combined income, based on Scenario 2, over the next 1 0 years.
P.12 The dark blue bars indi9ate the operating income as determined in Part 12A of Section 6, while
20
15
10
5
.2
:c (5)
0::
(1 0)
( 1 5)
(20)
(25)
2016 2017 201 8 2019 2020 2021 2022 2023 2024 2025 2026
- Operating surplus (Part 1 2A) - Investment income (Part 12A)

--operating surplus (Scenario 2) - - Combined income (Scenario 2)

R \South Afrlca\UIF\2016\Reports\002 Amendment 8111.docx 74
685
. ' .,.
P.13 Investment losses in 2017 result in a combined loss in 2017, despite an operating surplus.
P.14 From 2018 to 2021 the combined income is similar to that shown in Part 12A, while from 2022
to 2026 the combined income is lower, as investment returns return to the original 9.01% level.
P.15 The combined income remains positive over the next 10 years.
Unemployment Insurance Fund I Actuartal Review

R:\South Afrlca\UIF\2016\Reports\002 Amendment Blll.docx 75
686
- )
Appendix Q: Benefit description
Q. 1 The table below summaries the key components which define the benefits which the Fund
currently provides to contributors.
Unemployment lllnen Maternity & Adoption Death

Application of This Act applies lo all e"l)loyers and e"l)loyees, other than-
theAcl (a) elll)loyees errployed for less than 24 hours a rronth wtth a pertk:ular erl1Jloyer, and their errpoyers;
(b) errpoyees under a con!ract of errploym11nt conltnl)lated In section 18(2) al the SkiBs Development Act, 1998, and thl!ir
errployers;
(c) enl)loyees In lhe nallonal and provincial spheres of governrn,nl who are offlcer1 or enl)loyees as defined Jn section
1(1) or the Rlblic Service Acl, 1994 (A-oclarmtlon No. 103 of 1994), and their ertployers;
(d) persons who enter the Rapublc for the purpose of carrying out a contract of service, apprenticeship or leamershlp
w tthln lhe Republic If upon the terrrinaUon thereof the errployer Is required by law 0( by the contract of service,
apprentieeshlp or leamership, as the case nay be, or by any other agreem11nt or undertaki'lg, to repatriate lhat person, or
that person is 10 required lo leave the Republic, and thl!ir errpoyers; and
lel cersons who recl!ive a m:mlhlv """lion as contermlRled in section 14lallll and thl!ir erTDiovers.
Contributors not A contributor Is not entitled to benefits for any period that the contributor was In receipt of-
erigible for a (Q a rronthly pension fromthe Slate;
beneftt If: (ii) any benefft from the Corrpensatlon Fund estabished under the Corrpensation lor Occupational Injuries and Diseases
Act, as a r11Sult of an occupational injury or disease, which Injury or disease caused lhe total or temporary unell'pioym11nt;
(iii) beneltts from any unerrpoymenl fund or schll!lll establshed by a c:ounci under section 2B(g) or 43(1)(c) of the Labour
Rl!latlons Act, 1995;
Accrual rate 1 dav for everv 6 davs worked
Period of accrual 4 vears v
ApplcaUon wthln 6 rrtJnths \Mlhln 6 ITDnths Matern!y: At least 8 weeks wthln 6 rrtJnths of death
period before childbirth
.... _.....
Adoption: w Nhln 6 rrtJnths of
.__
Duration From dale of unenl)loyrn,nt, Fromdatethat work ls Mat11rn!y 1T11X: 17.32 weeks Unenl)loyrTl!nt beneftt
rrax 238 days ceased due to llness, rrax MscarrlagefstlD born rrax: 6
238 days weks
Adoption: from date court
grants adoption, rrax 238
- davs
Right to benefff The reason for the (a) unable to performwork on Clnly one contributor of the Toa surviving spouse or a life
unell'pioyrrent is- account of lness; adopting parties is entitled to partner al a deceased
(ij the tenrinallon of contflltt (b) fulfis any pr11Scrlbed the adoption beneftts in contributor
by the eriployw or ending of requltemints In respect of respect ot each adopted child Any dependent child of a
a fixed term contract, any specified llness and only If- deceased contributor If
(II) the disnissal of the (a) adopted in term1 of the (a) there is no surviving
contributor, Chid Care Act; spouse or life partner; or
(ii) lnsotvency; or (b) the period was spent (b) the surviving spouse or
(iv) in the case of a dorrmli: caring for the child; lfe partner has not rrade
worker, the temtnaUon of (c) the child is below the age application for the benefs
errpoyrrent by the death of of two wffhln six mmths or the
the IHTDlover. contributor's death.
RR Mn 38%; Max: 60%
Waitino oerlod 14 days 14 davs N'A N'A
Benefff cycle May only claim once in a 4 N'A N'A N'A
year cycle
Unemployment Insurance Fund l Actuarial Review

687
I ' II
Q.2 The table below summaries the key components which define the benefits as proposed in the
Amendment Bill, and under discussion in NEDLAC. bChanges from the current benefits are
shown in bold.
Unam nlovment I Illnes s Matarnffv & Adontlon

11) This ActappllH to all em ployers and em ployees, other than employaes employed for leas than 24 hours
Oaath
Applic:ation of
the Act a month with a particular em ployar, and their em ployers.
12) This Act does not apply to m em bar11 of parliament, cabinet m Inlstare, deputy m lnl1ter11, m em bars of
provlnclal executive counclls, member of provincial laglslaturas and m unlclpal councmors.
NBLAC propos&1 that the Act also apply lo the Informal sector.
Contribu1ors not A contribulor is not entitled lo beneffts for any period that the comritnrtor was In receipt of-
e&gible for a ( a m:mlhly pension fromthe State;
benefH If: (ii) any benefit from the Compensation Fund estab&shed under the Compensation for Occupational tljurles and Diseases
or
Act, as a resuft an occupa!kmal Injury or disease, w hich ln)Jry or disease caused the total or tell'!lDrary unellllloyrnmt:
(ii) benefits lromany unerrpoylTlln1 fund or sche1T11 establlshed by a councl under section 2B(g) or 43(1)(c) of tha Labour
Relations Act, 1995:
Accrual rate 1 dav for everv 5 clavs worked
or
Period accrual 4 vears
Applicallon V\llhln 12 rronths V\llhln 6 rronlhs or
Maternfty: \Mlhln 12 ITIJllths Wthl n 11 rmnths death
period after chDdb1r1h
Adoption: w fthln 6 ITIJllths af
court order
D.lrallon From date of unerrpoylTllnt, From date that w ork Is Maternily muc 17.32 weeks l..kierrpoy1T11nt beneu
rrax 238 days ceased due ta Illness, rrax Mscarrtage/slil born max:
23B days 17.32weeks
Adoption: from date court
grants adoption, rrax 238
gay,
Paternltv leave: 12 d1111
Rght to benefit Toa reason for the (a) unable to performw ark on Ooly one con1ribu1or of the The spouse or a Ie partner
unellllloym,nt Is- account of lne11: adoplilg parties Is en1itled to Any dependent child If
(ij the terrrinatlon of contract (b} furls any prescribed adoption benefils for each (a) no spouse/life partn11r; or
by the errpoyer or ending of requiterrents In respect of child and only If- (b) spouse/lf11 partner has
a Jilted term conuact, any specified mness (a) adopted In tem11 of the not !l'Bde application w tthln
(i) the disrrissal of the Chld Care Act: sbc rronths.
comrlbutor, (b) the period was spent A nominated beneficiary If
(i) Insolvency; or caring for the chld; there Is no spousentra
(Iv) In the case of a do1T11stic (c) the child Is below the age partner or dependant
worker, tha leminatlon of DI two child
errpoymint by the death of Fathars ara eOglble for a
1h11 errpoy11r. pate rnlty benefll
Jf a contributor losn his
or har Income due to
'reducid working time; or
If a contributor res lgns
from em ployment
RR Mn: 38%; Max: S<W.: flat rate of 20'/. altar 2311 days Flat rate of 88% Mn: 38%; Max 60%; flat
rate of 20% after 2311 davs
Waltlna Deriod 14 davs 7 <laVS NIA NIA
Benefft cycle May claim m ultiple times NIA NIA NIA
In a 4 year cycle, provided
there are credits avallable

R:\Soulh Africa\UIF\2016\Reports\002 Amendment BIii docx 71
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.,
About QED
QED Actuaries & Consultants (Pty) Ltd is one of the largest independent actuarial consulting firms in
Africa. With a team of 30 actuarial and support staff, we provide actuarial and consulting services to
more than 60 clients in in South Africa and the broader African continent. We are firmly established in
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For more information visit our website - www.QEDactuarial.co.za
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P O Box 413313, Cralghall 2024, Johannesburg, South Africa
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Oitectors C Falconer I R Chauhan
Consulting Actuaries: T Fahy I X Feure I L Moroney I S Porfozis J H Snyders I C van Heerden
689
. ' . ....

...
690
Annexure D
691
692
693
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695
696
697
698
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701
702
703
704
705
706
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709
710
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Annexure E
747
748

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REPORT OF THE COMMISSION OF ENQUIRY INTO HIGHER EDUCATION

AND TRAINING TO THE PRESIDENT OF THE REPUBLIC OF SOUTH

2 The Mandate of the Commission .................................................................. 26

3 Higher Education and Training: Purpose, Policy and Historical

3.1 The purpose of higher education ...................................................... 32

4 Fee-free in the Context of Higher Education and Training ..................... 105

5 Feasible ....................................................................................................... 107

6 Legal Considerations, including the Constitution..................................... 107

6.1 The constitutional obligation in relation to higher education and

7 International Obligations ............................................................................. 125

9 Testimony on free education ....................................................................... 137

9.1 An overview of the testimony on free education ............................. 138

10 The Cost of Education: The Research Report on the Costing and

11 National Student Financial Aid Scheme (NSFAS) ..................................... 210

11.1 NSFAS legislative and regulatory framework ................................. 210

12 Prioritisation of Higher Education and Training ........................................ 246

13 The Balancing Process ................................................................................ 248

14 The Historical National Budget and Future Financial Outlook................. 248

15 Government Funding on Higher Education and Training as a Percentage

17 Enrolments Outpace the Subsidy ............................................................... 263

18 The Appropriateness of Using GDP as a Measure to Assess the Level of

19 Government Spending on Higher Education and Training as a Percentage

20 Improvements in the Budget ....................................................................... 268

21 Funding of Institutions in the Post School Education and Training Sector

21.1 Introduction ..................................................................................... 271

22 Funding Framework for Government ......................................................... 292

22.1 Analysis .......................................................................................... 292

23.1 Introduction ..................................................................................... 299

24 Outsourcing .................................................................................................. 314

26 TVET Colleges............................................................................................... 323

26.1 Regulatory framework .................................................................... 323

27 Decrease in Subsidies and Increase in NSFAS Allocation ....................... 335

27.1 The factual position ........................................................................ 336

28 Rationale for the Increase in the NSFAS Allocation.................................. 344

29 Student Success ........................................................................................... 350

29.1 Introduction ..................................................................................... 350

30 The Working Group on the Feasibility of Providing Fee Free Higher

30.1 The 2013 White Paper .................................................................... 353

31 Alternatives to Address Accessibility ........................................................ 359

31.1 Introduction ..................................................................................... 359

32 Funding of Open Learning ........................................................................... 375

32.1 Submissions to the Commission .................................................... 377

33 Fee Regulation .............................................................................................. 448

33.1 Introduction ..................................................................................... 448

34 Student Funding Systems ........................................................................... 464

34.1 Online university ............................................................................. 464

35 The ICL Scheme Proposed by Professor Fioramonti................................ 512

35.1 Conclusion ...................................................................................... 525

36.1 Introduction ..................................................................................... 526

37.1 Funding the sector .......................................................................... 540

Annexure B : Governance innovation for funding tertiary education in South

Annexure C : Unemployment Insurance Fund: Assessment of the Financial

Annexure E : Letter from the Banking Association of South Africa to the

1.1 THE START OF THE #FEESMUSTFALL PROTEST: THE DEMANDS

AND THE OUTCOME

1. In 2015, the South African higher education sector was shaken by

of these protests was at the historically-white universities. The majority

of the protests experienced since 2000 were focused at the historically-

black universities, where issues including fees, access to the National

Student Financial Aid Scheme (NSFAS), student accommodation needs