1. Thuto
ke
Lesedi
Page
|
1
Thuto ke Lesedi
A Model for Fee-Free Undergraduate Higher
Education in South Africa
The South African Higher Education system is in crisis. This report investigates the challenges
facing the system and proposes a potential funding model as a solution.

2. Thuto
ke
Lesedi
Page
|
2
Table of contents
Title Page
Executive Summary 3
Introduction 5
Philosophy Statement 5
Anatomy of a Crisis 8
Proposed Solution 19
Conclusion 32
Appendices 33
References 36

3. Thuto
ke
Lesedi
Page
|
3
Executive Summary
Thuto ke Lesedi (Education is the Light) is a report prepared by the student movement in pursu-
ance of the #FeesMustFall agenda. The report was commissioned in response to the Ministerial
announcement regarding university fee increases for 2017. This announcement further proved
the lack of political will that exists in solving the higher education funding crisis. Its primary ob-
jective is to exhibit that students actually do have an understanding of the implications of their
legitimate demands and that students are capable of providing tangible solutions towards the
realisation of free, decolonized and quality education. Through a detailed exercise of analysing
university funding mechanisms and trends over the past 2 decades, we are able to assess and
quantify the current university system. Beyond that, we also provide a historical perspective un-
derpinning the higher education system and how the higher education funding crisis gave birth
to the #FeesMustFall campaign.
Our approach was dual in nature. Firstly we advocate for a universal reduction in the fee burden
to students by calling upon the state to restore its proportional contribution to the system to
50%. Thereafter we advocate for the creation of a dedicated infrastructure fund whose role will
be to carry the burden of infrastructure costs away from the universities. These twin initiatives
will reduce the cost burden to the universities at large and these reduced costs would be funded
from alternative funding sources instead of students shouldering the burden.
Hence the secondary aspect of our model focuses on injecting new funding into the system
through new avenues that form part of the broader fiscal framework. We present a multitude of
options that can be looked into. It is our intention to simply highlight areas of interrogation rather
than providing a scientific answer to the problem statement. It remains the prerogative of the
state and its various agencies to determine the actual cost streams and the avenues that can be
exploited.
Our mandate limited us to simply providing a framework for funding solutions to the current cri-
sis. Our report structure is to firstly state our recommendations; assess the current situation and
then provide a framework for how the stalemate can be resolved. We have instead created this
model to stimulate a student centred conversation around solving the crisis given that gover-
nemt has shown no leadership in this regard.
Recommendations
Free higher education in South Africa is feasible therefore this is not the question the govern-
ment through the Fees Commission should be asking. We are more interested in how we fund
Free Education and this requires the buy in of various stakeholders within the education system.
Government has a major role to play by increasing its current subsidies to a sustainable level of
approximately 50% of total costs currently incurred by the system. The private sector is the ma-
jor beneficiary of the education system and needs to play it’s part in ensuring that the education
system produces a vast amount of skilled graduates from various social backgrounds to ensure
a transformed and diverse South Africa. A transformed corporate South Africa in particular not
only ensures compliance with employment equity regulations within the Republic but is in line
with international best practice for good corporate governance. This also creates a more equal
society as envisioned by the freedom charter and the constitution.
The research task team mandated by students at Wits recommends an indepth sustainable fun-

4. Thuto
ke
Lesedi
Page
|
4
ding solution to addressing the current flaws within the current system that is anti-poor and anti-
black. We have evaluated various sources of funding, carefully assessing their suitability to the
South African narrative whilst taking into consideration any possible unfavourable effects these
solutions may have on the South African economy.
The proposed solutions recommended in delivering free and quality education are stated below:
1. Restoration of subsidy allocation to universities to 50% of costs: The sta-
te’s declining subsidies to universities are well documented. In the 15 year period ending
2014, the state’s contribution moved from around 50% to 38%. This is deeply problematic
considering that 15 years ago more money was spent per student when the proportion of
white students was greater than it is now.This has left South Africa spending just around
0,7% of GDP on the higher education system. It is our recommendation that the government
must immediately restore its contribution to the 50% level.
2. Establishment of an Independent Capital Infrastructure Fund: Infrastructure
costs are a significant aspect of residential universities. They are also a significant compo-
nent of university costs and are critical in ensuring that institutions are able to effectively
provide world class research and education. Historically black universities are severely im-
pacted by a lack of investment to service their infrastructure backlogs, which are amongst
the highest.
South African corporate balance sheets are currently carrying large amounts of cash that
can be used to invest in the education system. It is recommended that these companies in-
vest their excess funds into an infrastructure fund that is to be utilised in building and main-
taining the necessary infrastructure to ensure universities are able to deliver quality educati-
on from across the board.
3. Higher Education Endowment Fund: Government and corporates alike are required to
contribute to a central endowment fund that will be administered for the benefit of the vari-
ous institutions to ensure all universities are adequately funded. The allocation of the en-
dowment fund needs to be done in a strategic manner to ensure an unbiased, progressive
allocation taking into account the needs and strategic position of the institutions. The alloca-
tions will also take into account the inherited system of black and poor vs white and privile-
ged universities.
Alternative funding options for the residual cost to the system after government and private sec-
tor’s contribution are listed below. These options and the role they will play in fully funding the
cost to the system will be addressed later.
• Skills Development Levy: An increase in the Skills Development Levy by 1% is re-
quired to raise additional funds that will be utilised solely for the funding of universities.
OR
• Increase in corporate taxes: The effective corporate tax rate has decreased from
36.89% over the last decade to an effective tax rate of 28%. An increase of 2% to 30%
is justifiable and is not too far off comparative economies around the world. It is
recommended that the increase be applied exclusively for the benefit of the tertiary
education system. OR
• Increase in Personal Income Taxes: It is important that the wealthy play a critical ro-
le in sharing their privilege within the sea of poverty that the vast amount of South Afri-

5. Thuto
ke
Lesedi
Page
|
5
cans live within. An increase in the maximum tax rate for individuals is a possibility. As
with the corporate taxes It is recommended that the increase be applied exclusively for
the benefit of the tertiary education system. OR
• Once-off Apartheid Windfall tax: During the apartheid regime, South African com-
panies that benefited unfairly by abusing state resources and other means should be
liable to a once-off tax. This tax must be levied on the basis of profitability that was
generated unfairly. We recommend an inquiry into this by a reputable Commission to
determine liable parties and approximation of amount payable.
It is important to not disregard the positive effects an educated society has on an economy and
the country at large. No African child should be denied an opportunity to educate themselves.
The free education model is in line with other State initiatives such as the National Development
Plan. It is imperative that the hidden talent that exists in abundance within the country is given
an opportunity to build a future and play a meaningful role in creating a dynamic South African
economy.
Introduction
This report has been commissioned by the student movement under the banner of the #Fees-
MustFall campaign. This was in response to the state’s failure to address the concerns raised
by the nationwide student movement in 2015 regarding the exclusionary and exploitative nature
of university fees in South Africa.
In SeTswana, Thuto ke Lesedi means that Education is the light. The report seeks to reaffirm
the importance of education in South Africa and how it is imperative that we invest in it. The re-
port itself has the primary objective of providing funding solutions to the current higher education
crisis. It does not pretend to provide an absolute solution but rather a reference point for a con-
versation aimed at realising the goal of free education.
The report also makes recommendations that will be taken forward by the student movement
and used as a point of engagement with the state.
Philosophy statement
In his final judgement as the Deputy Chief Justice of the Constitutional Court of South Africa, the
eminent Dikgang Moseneke said:
“Education’s formative goodness to the body, intellect and soul has been beyond question from
antiquity. And its collective usefulness to communities has been recognised from prehistoric
times to now”

6. Thuto
ke
Lesedi
Page
|
6
We have already titled this report as
“Thuto ke lesedi la sechaba”
translated to “Education is the
light of the nation”.
The acknowledgment that education is a public good that benefits communities and the nation
has been endorsed not only by one of the country’s greatest legal minds but also by generations
of elders. In spite of this realisation, there is a strong view across society that education mainly
benefits the individual. This is evidenced in pronouncements by the likes of a leader of the ruling
party who believes that universities should be shut down for 18 months in order to teach stu-
dents a lesson. This implies that there is no understanding that education serves an engine for
the collective development of society.
Education has the ability to transform society and the power to emancipate our people. Educa-
tion is not a commodity to be bought by the individual for his or her private advancement in so-
ciety. No one should have to pay to learn. Rather, the public function that higher education
serves –
that of producing graduates to perform various duties and services, and to produce
new knowledge for the development of society –
must be acknowledged, facilitated, promoted
and protected.
Over twenty years since the end of apartheid rule, our universities are in a crisis. Equal access
to education for all is still a dream. The neglect in adequately skilling the youth has resulted in
another lost generation reliant on the welfare of others and the state to survive. The doors of
higher education and learning remain closed for the poor and working class entrenching them to
an indigent life of poverty. Our existing higher education system has come to represent an alter-
native reality that excludes the poor and the working class. The balancing of the accounting
books has become of utmost importance to lily-white university councils even at the expense of
outsourced workers who remain exploited on our campuses.
In October 2015 students decided to shut down the higher education system. The government
then decided on a 0% increase on tuition fee for 2016. It was also mandated to find a solution to
the gross neglect of the higher education system. Students left the technicalities of this model to
those appointed and elected to do so. It is now a year later and nothing has changed. The gov-
ernment has had the time and has not provided clear leadership on what is now a national cri-
sis. A year later students and young people have been failed by the incompetence of the state
and the exclusionary nature of the system.
One of the gross failures of the system is the National Student Financial Aid Scheme (NSFAS),
which is once again being held up as part of the solution to today’s crisis. NSFAS has stood at
the centre of this ongoing crisis since its inception. It must therefore be seen as part of the prob-
lem. NSFAS loans do not cover the full costs of study and students on NSFAS reflect a high
drop-out rate. This is not because they are not academically deserving but because NSFAS is
financially inadequate and abusive. When NSFAS students graduate and get employed, they
often have to support more than just themselves. They are required to not only support their
immediate family, but often extended family as well. This stifles their financial stability, entraps
them in life-long debt and perpetuates the culture of black tax in our society. This simply leaves
students trapped in an economic system where their progression is limited by an ongoing debt
burden.
Debt is not the answer to the current crisis. Financial exclusions and student protests are going
to become an annual feature in South African universities if no adequate solutions are found

7. Thuto
ke
Lesedi
Page
|
7
and implemented. Free education will do away with the neoliberal idea that one should pay for
education or that there should be cost recovery mechanisms as these further punish the black,
poor and working class. These cost recovery mechanisms entrench young black people to a
circle of debt before their careers have even started.
The idea that one needs to prove their poverty in order to access higher education is dehuman-
ising. This entrenches the class structures in our universities. The movement’s conversation re-
garding the decolonisation of our education talks to destroying these class structures. This is
why we reject the idea of free education for the poor, and support the call for free education for
all.
We also have no confidence in the President’s Fees Commission. We know too well that com-
missions in our democratic dispensation have come to represent cosmetic exercises in pretend-
ing to address pressing societal issues that no one has the political will to change.
The call for free education in South Africa is deeply connected to our oppressive history and the
crisis in our higher education institutions is linked to the very same system that black students
fought against during apartheid. We are facing a crisis in our universities and through this, stu-
dents are calling on everyone to imagine a new reality.
Since the dawn of democracy, we have not dealt with our inherited inequalities from hundreds of
years of colonialism and apartheid. Inequality at universities cannot be looked at in isolation but
operates as part of a broader milieu that places black people at the bottom of the food chain,
and black universities at the bottom of the rankings. The problems facing the higher education
system do not exist in isolation, our basic education sector itself is divided into two largely inde-
pendent systems split by race and socioeconomic status. South African learners in the majority
of (dysfunctional) schools are further hindered by the poor quality of teachers in the basic edu-
cation system, and the disadvantages faced by children from poor families in early childhood
development. As students we are well aware of the dysfunctions of the basic education system
because we are the most recent generation to have exited it, and we unambiguously call for a
concerted effort to fix these problems. A criticism often levelled against students is that by advo-
cating for reform to the higher education system we somehow neglect the issues facing the ba-
sic education system.
However our basic and higher education systems have reached such crisis level that we need
to start collectively finding solutions. Given the social impact that higher education has on deve-
lopment –
we need to act decisively. The resultant domino effect will be felt in many sectors in
South Africa –
including basic education. We must have the confidence to solve more than one
societal problem at a time. This also speaks to the intersectional nature of the student move-
ment.
One of the important characteristics of public universities is academic autonomy and freedom.
We remain committed that academics remain autonomous in their production and dissemination
of knowledge. Academics should not bow to pressure from either the state or the private sector.
South Africa finds itself needing to make some important decisions as to the direction the coun-
try is taking. With rising levels of youth unemployment, and the ongoing problems of poverty and
unemployment in the general population, free education is a necessity, most importantly be-

8. Thuto
ke
Lesedi
Page
|
8
cause it returns us to the question of the role of higher education in society. As the nature of
work and the economy changes and graduating into a permanent, full-time job becomes less
and less likely for the majority of graduates, we need to reimagine what role the university could
potentially play in such a context. To demand that higher education be treated as a public good
and not as a commodity reopens questions about the types of knowledge, learning processes
and graduates we want our institutions to cultivate and produce.
For too long, being intelligent and talented has not been enough if you are poor. We are now
reimagining how our higher education system works, because the question is not whether we
cannot afford free education but whether we can afford not to have free decolonised and quality
education.
Anatomy of a crisis – a picture of inequality
The origins of a crisis
In order to understand how the higher education crisis developed over time, we need to revisit
the various moments and events in history that influenced the structure and the architecture of
the system. The Freedom Charter of 1955 is often cited as one of the points of reference by the
student movement. In articulating its ideals in relation to education, the Freedom Charter stated
that education “shall be open to all”. In 1996, the Constitution of the Republic stated that basic
education is a fundamental human right but higher education shall be made “progressively ac-
cessible”. It is therefore important to clarify the distinction between healthcare and basic educa-
tion –
which are fundamental human rights and must be provided without any limita-
tions/disclaimers; and other socio-economic rights, which must be provided within the confines
of existing resources. We need to reiterate that the student movement has an intimate under-
standing of this distinction.
It is useful, to articulate the more nuanced interpretation of the Freedom Charter and the result-
ant Constitution which was adopted as the Supreme law of the land. In identifying basic educa-
tion as the fundamental human right; the Freedom Charter had an understanding that access to
basic education facilitates social mobility, economic participation and emancipation from the
poverty trap. Unfortunately, the nature of our schooling system in South Africa indicates that the
possession of a Matric certificate is no longer a license to economic participation. There are cur-
rently over 3 million South Africans between the ages of 18 to 24 who are economically exclud-
ed from our society. 3 million to whom the basic education advocated by the constitution has not
managed to provide the social inclusion, economic freedom and poverty emancipation that the
Constitution advocated for. It therefore becomes a social imperative to understand that the pro-
vision of free undergraduate education in South Africa is now a basic necessity. We need to ad-
vocate for this.

9. Thuto
ke
Lesedi
Page
|
9
Picture 1: Comparison of youth (aged between 18 and 24) and their ‘activities’ between 2010
and 2014 (Source – CHET)
The 1997 White Paper on post-school education was created with the intention of outlining the
structure of post-secondary school education in the long term. The Paper considered issues re-
lating to access; equity; redress and growth in the system. Over time, some elements of the
White Paper have been addressed to a limited extent.
In the 15 years from 2000, there has been a shift in the funding of the higher education system
that has created the current crisis. In 2000, the state contributed around 50% of the costs to the
university system. The private sector contributed 27% of the costs which left the students being
liable for 24% of the costs. The 24% costs borne by the students include direct contributions,
third party contributions (scholarships, bursaries), loans and the National Financial Aid Scheme.
Since then, the state’s contribution has been progressively declining in spite of the repeated
number of warnings from the university authorities. For 15 years they have lobbied for increased
state funding in order to retain the stability of the system. Such appeals have not won favour
with the state. By 2014, the funding mix had shifted to state contributions (38%); private sector
(29%) and the student contribution had increased to 33%. This means that in the past 15 years
the declining state contribution has been passed on directly to the students. At the same time,
the demographics of the student body has shifted towards a predominantly black profile. There
are more students from poor and working class backgrounds than ever before. It is clear that
when the demographic profile of the system was skewed towards white students the state’s
contribution was higher. These days –
in a response to the increased participation rates of black
students, the state’s contribution has declined on real and nominal levels per student. This is
unacceptable.
The consequence of this decline in state is that fees for the poor and the working class have
simply become unaffordable. It was this realisation that led to the countrywide call for the aboli-
tion of fees in 2015.

10. Thuto
ke
Lesedi
Page
|
10
The 2016 interventions
During 2016, various developments relating to the crisis were witnessed. Firstly, NSFAS under-
took to aid all students who had been denied access in the past and had historic debt that pre-
vented them from accessing academic records and graduating. Then, the President of the Re-
public commissioned a Commission of Enquiry into the feasibility of free education under the
guidance of retired Justice Heher. The Commission is due to report on its findings in the winter
of 2017. In addition to this Commission, there are various other teams/structures dedicated to
unpacking the solution mix for the crisis. On the ground level, there have been mixed views from
the student body regarding the participation in such forums. Some have participated in the He-
her Commission only to gain access and disrupt proceedings. It is the view of the student body
at large that a Commission of this nature needs to be fundamentally different to previous ones
whose recommendations/findings are matched by limited implementation at the best of times.
At the end of September 2016, under advisement from the Council of Higher Education; the
Minister of Higher Education announced on the recommended fee adjustments for the 2017 ac-
ademic year. The essence of the announcement is that the Ministry undertook to respect institu-
tional autonomy by not dictating what the fee adjustments ought to be. However, should institu-
tions decide to increase fees, then the Ministry will cover the increase for students whose family
income is below R600 000. The Ministry’s contribution will be limited to 8%. The Ministry rec-
ommended that any such increases should not exceed 8%. Due to the nature of autonomy as
currently understood, such a recommendation is not actually binding on the universities. In the
Ministry’s own statement, such a concession would cover 70% of the student base across the
system.
This announcement was justifiably rejected by students and further proved the government’s
lack of will to solve the crisis. The table below details why:

11. Thuto
ke
Lesedi
Page
|
11
Picture 2: the real picture of the Minister’s announcement, using an average Wits University
student as an example
This grossly inadequate intervention by the Minister sparked unrest across campuses and mass
protests flared up again. Core to the problem is the reality that the statement did not address a
key component of the conversation –
Free
Education. Rather it is seen as the repeat of the stop-
gap mechanism of October 2015 which simply froze the fees. Given the fact that this conces-
sion is rolled out to a limited audience (up to R600 000 income levels) it is viewed as a regres-
sion from last year when the fee freeze was actually applied across the board. In the new dis-
course, the student population is now classified into 3 groups –
the first group (income levels
below R122 000); the middle group (R122 000 to R600 000) and the wealthy group (above
R600 000).
It is worth noting that we take exception to the idea of branding the second group as the ‘miss-
ing middle’. The 1997 White Paper on Free Education stated that “it is important …
that the di-
rect cost to students should be proportionate to their ability to pay. Financial need should not be
an insuperable barrier to access and success in higher education. A realistic fee structure must
therefore go hand-in-hand with a sustainable programme of student financial assistance…” (4.8;
DOE White Paper 1997).
It is evident that the state has not respected this compact. In 2008, the average cost of study
was estimated at R38 700 and the NSFAS ceiling was set at R122 000. In this case, a student
whose family income is just above this value (for example –
R130 000) would be excluded from
the financial aid scheme. This would require the family to bear the full cost of funding the stu-
dent. In other words, such a family would be spending 30% of the family gross income in higher
education –
for one member of the family. From 2008 to 2016; the average full cost of study has
moved to R74 000 (NSFAS data, 2016) which means that such a family would now be paying
57% of the gross income into higher education. This is simply difficult to countenance.
Even if NSFAS has progressively amended its assessment of a family’s ability to pay, the fact
that higher education inflation far outstrips general inflation would have caused a problem. One
indicator from the Labour Force survey indicates that average wage inflation in South Africa is

12. Thuto
ke
Lesedi
Page
|
12
6% over the period from 2008 to 2016. This means that the same family would have an annual
income of R185 000 at the end of 2015. Even at that level, R74 000 from a family income of
R185 000 would amount to 40% of the combined family income. We therefore need to question
whether the ability to pay is at 30%; 40% or at 57%.
Picture 3: Trends in average full costs of study across universities
(NSFAS, 2016 Fee Commission Submission)

13. Thuto
ke
Lesedi
Page
|
13
The fact that the NSFAS ceiling has not been changed simply means we have spent 8 years
creating a new class of students whose ability to pay is declining every year and they are still
being excluded from financial assistance. It is also important to note that there is a second
group in this middle bracket. Not all students who are below the R122 000 income level are ac-
tually covered by NSFAS anyway. These students are what remains in a system once an institu-
tion’s NSFAS grant has been allocated to a fixed number of students. They might then raise
funding from other sources to facilitate access (registration fees) but then struggle for the re-
mainder of the year. These are the second casualties of the current model. The middle hasn’t
been missing –
it has been created by bureaucratic inertia and policy indifference. They are not
missing, they have just been ignored and neglected.
In relation to the Minister’s statement in September 2016, the fundamental problem remains.
The state has undertaken to cover the increase in fees relating to this student group. In other
words, such students are expected to pay fees set in 2015. The statement therefore does not
address the fundamental concern raised in October 2015 which clearly articulates that the mid-
dle group quite simply cannot afford to pay. For a state that is able to determine annual inflation
adjustments for all its public servants we do not think the data required to inform the adjustment
to the NSFAS cap is unavailable. It is simply a question of why it hasn’t been done.
The danger inherent in the Minister’s statement is that it acknowledges that there is a gap be-
tween fees charged to the middle students and their ability to pay. To then undertake to keep
plugging the increase indicates that such concessions would need to be repeated until such
time that the income levels of the middle group ensure that the fees charged to them are com-
mensurate with their ability to pay. In short –
we would have to return to the streets every single
year until such an equilibrium point is established. This is quite simply impractical.
We will therefore advocate for the adoption of a universally-accepted definition of ‘ability to pay’
which is adjusted on an annual basis.
A call to action – Designing the Thuto ke Lesedi model
The consequence of this underfunding is that the burden of costs has been passed on from the
state and corporate South Africa to the poor and working class families. Our parents –
the
teachers, nurses, police, domestic workers and miners have been called upon to try and buy
their way into the system so that their children can escape the poverty trap. We know that it is
through education that the child of a domestic worker can become a doctor; the son of a plumb-
er can become and engineer; and the daughter of gardener can become a pilot. It is immoral to
deny our people access to these opportunities on the basis that they are born black into a coun-
try that tolerates and abuses rather than appreciates them.
Having reminded the government of its obligations to to fulfill its promise for free, decolonized
and quality education; we believed that our government would finally take responsibility for the
chronic underfunding of our universities and provide us with a roadmap towards the realisation
of free education. We believed that our government would understand that the poor and the
working class are no longer able to afford the ridiculous fees charged by universities. Unfortu-
nately, it appears we were wrong.

14. Thuto
ke
Lesedi
Page
|
14
The government has created a Commission of Enquiry into the feasibility of rolling out free
higher education. The Commission is due to provide a report to the government in the middle of
2017. We reject the Fees Commission for 2 reasons. Firstly, the terms of reference for the
Commission are incorrect as we cannot be asking whether free education should exist but when
it will be implemented. We also reject the Commission as its decision to only report back in 2017
means that the government has failed to appreciate the urgency of the funding crisis. As a re-
sult of this collective sense of failure by the government to respond to the legitimate calls for
universal free education; our universities are burning. From Turfloop to Mangosuthu; from Ven-
da to Zululand; from Fort Hare to Soshanguve –
there is a national crisis. The militancy at the
universities is a result of the collective frustration of our brothers and sisters who are yet again
faced with the prospect of being excluded from the system in 2017 or furthering their studies in
a system that is built against them.
The President of the Republic has recently called upon all stakeholders to provide solutions
aimed at resolving the crisis. As the custodians of the #FeesMustFall movement, the students
should be at the heart of formulating a solution. In light of this, our students have committed to a
process of designing a model for the rollout of Free Education that will serve as a basis for our
engagements with the government. In the design of our model, the following variables were
considered –
• Free education should be for all students
• Students should not be subjected to a graduate tax which imposes a debt burden on them
after they graduate
• The money to fund should not come from the poor and the working class or from programs
directed at them
We then commissioned a team of students from different faculties and disciplines. We also
called upon experts from various fields to assist in the process of advising the student task team
and provide input into the design of the model. We are therefore pleased to present the model
for Free Education that has been designed by the people most intimately affected by the crisis –
the students.
One of the key social justice narratives is that it is unjustifiable and perhaps immoral to advocate
for a system of free education for all including the rich. Core to the argument is the idea that the
rich can afford their way and hence state funding should be directed to other resources. After
careful consideration of the merits of this argument we are of the opinion that a model that pays
for everyone is more appropriate in the South African context. Firstly, in a situation where the
rich are excluded from the free education model and have to pay their way they will definitely be
able to do this. However, this then means that their contribution to the education system is lim-
ited to the 3 or 4-year timeframe in which their children are in the university system. Additionally,
the consequence of apartheid planning being what as it is –
the vast majority of the wealthy live
within close proximity of the economic hubs where universities tend to be based. This simply
means that a child of a billionaire in Sandton will be living at home rather than on campus during
their studies. This means that their contribution to the education endeavour is actually limited to
just tuition fees and nothing more.

15. Thuto
ke
Lesedi
Page
|
15
The rich in South Africa are a small fraction of the population and are –
at least anecdotally –
predominantly nuclear families. This means that the contribution made by them in terms of di-
rect payment into the system is actually quite low. For the sake of sustainability, we would prefer
an additional tax on the wealthy which targets the money that they have rather than the number
of children that they have. Such an additional tax must be ring-fenced for education purposes as
it essentially keeps them contributing into the education system for much longer than the dura-
tion of their children’s degree or diploma.
Our model is based on the understanding that the full cost of study of each student needs to be
covered. This includes the costs of tuition, accommodation, meals, books and basic necessities.
It is not acceptable to have a model that fails to cover all these items as research has indicated
that students perform best when all costs associated with their studies are covered.
Our model is based on the understanding that the crimes of apartheid planning have created a
system where the infrastructure resources are not equally distributed across the system. The
inequalities created by the apartheid planning exercise simply mean that our black universities
are missing laboratories, have collapsing lecture theatres, limited accommodation and poor
maintenance. The inequalities are further perpetuated by the fact that corporate South Africa
allocates its contributions to institutions based on issues related to location, proximity to the cor-
porate and the hysteria associated with the public relations capital that privileged universities
enjoy. It is therefore a key component of our model to advocate for a centralised ‘infrastructure
fund’
which will be utilised to clear the infrastructure backlog across various institutions based
on the institutional need rather than the proximity. This means that we are creating a model that
seeks to achieve solutions for a holistic education system in the long term.
Our model is also based on the understanding that we all share a collective responsibility to
maintain the autonomy of our institution; the quality in the production of knowledge (research)
and excellence in the dissemination of knowledge (teaching). We do not share the view that the
call for free education will result in a decline in quality as our model insulates the academic en-
terprise from any adverse impacts. Furthermore, the argument that free education
Our model is based on the understanding that higher education is a public good that generates
significant benefits for society and the individual. Consequently, there is a need to fund it using
available resources in a sustainable manner. The model is designed to achieve the primary goal
of the reduction of fees and the secondary goal of universal free education.
The primary goal – this is how #FeesWillFall
In seeking to achieve the primary goal, we advocate for a model that calls upon the state to in-
crease its contribution to the funding of our universities to a level last seen in 2000. This means
that of the projected cost of running the system –
the state will be responsible for 50% of that
cost. The government currently contributes around 0.7% of GDP to the university system. This
is below the OECD average of 1.1% and the African average of 0.78%. We believe that a con-
tribution of 1% and above is the only acceptable long-term equilibrium point. In testing our mod-
el, we can confirm that if the government contributes 50% of the cost of running the system, it
will still be below the 1% level we are advocating for. So we are indeed giving the state breath-
ing space towards achieving the 1% benchmark.

16. Thuto
ke
Lesedi
Page
|
16
Picture 4: comparison of higher education expenditure as a percentage of GDP (CHET)
It is clear to us that as soon as the state increases its contribution from 38% to 50% then the
cost burden per student will fall and we would have achieved our primary goal of #FeesMust-
Fall. This takes us further down the road towards free education.
Picture 5: Comparison of university funding trends in South Africa from 2000 to 2014

17. Thuto
ke
Lesedi
Page
|
17
In addition to the state restoring its contribution, we believe that the introduction of an infrastruc-
ture fund will also facilitate a universal reduction in fees allocated to students. In the current
model, university infrastructure is the financial responsibility of the university which either funds
it from internal resources or from earmarked state subsidies (‘the earmarked grant’). In a situa-
tion of limited funding available in the state coffers, infrastructure development is the usually first
casualty of cost rationalisation. This is usually followed by the outsourcing of vulnerable staff. In
a model where infrastructure costs become the financial responsibility of the dedicated infra-
structure fund; we can reduce the burden to the university system which translates to a reduced
cost burden for the students. This is core to our primary goal of #FeesMustFall.
We believe that these 2 initiatives are more progressive than the mere capping of fees at 2015
levels as advocated by the state. They would also be a more direct answer to the question high-
lighted by the student movement last year which calls for fees to fall.
What does it all mean for an individual student?
In order to articulate the nature of the interventions required to resolve the current crisis, there is
a need to understand how the current funding model impacts on an individual student.
2015
UCT
Wits
Limpopo
Average
Tuition fees
R52 000
R49 000
R29 000
R34 000
Full cost of study
R113 600
R99 500
R69 500
R74 820
2016 increase –
10.5%
R125 530
R109 950
R76 800
R82 700
NSFAS Cap –
2015 (only families earning less than R122 000 qualify)
R71 800
Average annual income –
black households
R101 000
An example of the 2015 costs plus the impact of adopting the 10.5% increase in fees that uni-
versities had advocated for before the President’s intervention.
Source –
NSFAS submission to the Fees Commission; Labour Force Survey.

18. Thuto
ke
Lesedi
Page
|
18

19. Thuto
ke
Lesedi
Page
|
19
The proposed solution
The Higher Education Capital Infrastructure Fund (HECIF)
A university is principally focused on 3 core functions –
the production of knowledge (research);
the dissemination of knowledge (teaching) and the transfer of skills/social engagement. The fa-
cilitating mechanism for these core functions is the infrastructure and the human capital aimed
at ensuring that the core functions meet the critical tenets of autonomy, quality and relevance.
Of these facilitating mechanisms, there are intimate overlaps between the human capital aspect
and the core functions. Consequently, it is critical for the human capital question to remain au-
tonomous from externalities as far as possible. In relation to the infrastructure component how-
ever, there exist sufficient latitude to enable external/third party participation without infringing
on the identity and autonomy of the academy itself. Examples of such collaborations are naming
rights given to buildings and donations/endowments allocated by external stakeholders to vari-
ous institutions. In the South African context there exists a significant infrastructure backlog
across all institutions. This backlog is even more explicit at the traditionally black institutions
which suffer from the tragic inheritances of distance from the centres of economic influence and
poor institutional research and collaboration pedigree.
For the purposes of illustration, if we estimate a number of R60 billion as the amount required to
run the university system, this is in fact an upper estimate of the cost of the higher education in
SA, there is a component of the cost allocated to infrastructure creation, restoration and mainte-
nance. Such costs therefore have a direct impact on the final cost burden allocated to students
(tuition fees). To illustrate the point, if a system costs R60 billion to run and has enrolments of
600 000 students, for example, the theoretical cost allocation per student amounts to R100 000.

20. Thuto
ke
Lesedi
Page
|
20
However, due to the funding mix which has 3 sources –
we currently use a residual approach to
determining tuition fees. So (for illustration purposes) if government subsidies amount to 40% of
the cost (R24 billion) and private sector contributions (third stream income) amount to 25% of
the costs (R15 billion) it means that the amount to be allocated to students to determine tuition
fees is the residual of R21 billion which would then yield average direct fees of R35 000 per stu-
dent. If we can find a way of moving the infrastructure burden away from the universities and the
Department of Higher Education, we can facilitate a cost reduction per student. This is simply
because the university and the state would no longer be responsible for the infrastructure bur-
den. In this regard we would recommend that a dedicated infrastructure fund be set up to deal
with the infrastructure requirements of various institutions.
It is important to recognise that the current approach of universities lobbying individually for in-
frastructure grants from the same source (the state) and the open market adds to existing ine-
qualities across the system. For example, the strength of UCT’s balance sheet is very different
to Fort Hare’s balance sheet so in an open market it is unlikely that Fort Hare could attract sig-
nificant capital investment for its infrastructure. In addition, if the state only had to priorities Fort
Hare in this example it would then lead to a backlog creep at UCT in the long run. (UCT and
Fort Hare are used as proxies to illustrate some of the challenges inherent in the current ap-
proach that does not advocate for a holistic view of the infrastructure backlog).
In our blueprint –
the fund would be set up as follows –
• An infrastructure audit is conducted across the university system –
this gives an indication of
the funding requirements
• A priority list is generated classifying the infrastructure requirements in terms of urgency and
strategic value. For example –
laboratories versus residences etc.
• In instances of the requirements exceeding the funding available –
the prioritisation is based
on the current policy which has a bias towards institutions where the backlogs are the high-
est
• The structure itself is independently managed through a joint venture made up of all the par-
ticipating corporates. The governance and management processes are determined by this
independent structure
• The structure will be designated as a ‘public benefit’
entity in terms of the Income Tax Act
which then exempts all its returns (interest etc.) from taxation
• There is a commitment from National Treasury to introduce a tax rebate system which ena-
bles corporates to claw back their investment over an extended period. Entities can be al-
lowed to claim a tax rebate over a 15 to 20-year period limited to their initial investment plus
the requisite cost of capital to compensate for the use of shareholder funds
• In relation to the possibility of cost inflation by construction agents, an independent adjudica-
tion panel/ombudsman would be responsible for evaluating cost proposals and determining
an appropriate profit margin that can be charged. This is to avoid a stakeholder contributing
to the fund and then bidding for the contract and charging excessive profit margins

21. Thuto
ke
Lesedi
Page
|
21
• As a risk-mitigating exercise, the title deeds can belong to the joint venture or National
Treasury until the investment is clawed back and the title deeds can then vest to the univer-
sity
• We think that this approach has the capacity to unlock capital which otherwise rests unu-
tilised on corporate balance sheets and inject it into a system that needs it urgently
• In addition, since the beneficiaries of the system are the universities at large which have a
predominantly black student base we can allow the corporates to include their investment in
this infrastructure fund as part of their BEE scoring matrix
• The Fund could be co-funded by various pension funds. This would require an amendment
of regulation 28 for example in order to recognise such a fund as an ‘acceptable’
asset class
for investment purposes
Required stakeholders
• Corporate South Africa –
the owners, funders and custodians of the fund
• The Ministry of Education –
advisory role relating to the prioritisation of infrastructure pro-
jects
• The Universities –
as the beneficiaries of the fund
• The National Treasury –
provider of guarantee (the tax rebate)
• The Pension Funds Industry
• The construction industry –
the facilitation agents for the infrastructure rollout
An illustration of the impact of restoring subsidies and creating an Infrastructure Fund:
Illustration –
based on estimates
Current
system
Infrastruc-
ture Fund
ONLY
Government
restoration to
50% ONLY
Infrastructure Fund
& Government resto-
ration to 50%
Total cost estimate
R60 billion
R60 billion
R60 billion
R60 billion
Capital Infrastructure Fund
0
R10 billion
0
R10 billion
Government contribution –
40% of
total cost in current model, 50% in
proposed model
R24 billion
R24 billion
R30 billion
R30 billion
Third stream income –
30% of cost
R18 billion
R18 billion
R18 billion
R18 billion
Student fees –
residual
R18 billion
R8 billion
R12 billion
R2 billion
Full-time enrolments
600 000
600 000
600 000
600 000
Cost per student
R30 000
R13 333
R20 000
R3 333
Reduction in costs –
compared to
R30 000 under current model
56%
50%
89%

22. Thuto
ke
Lesedi
Page
|
22
In any approach we adopt to facilitate the reduction in fees, there will still be a burden allocated
to students. Our next mission is to therefore source funding to cover the student burden in order
to faclitate the rollout of fee-free education. In its 1997 White Paper, the Department of Educati-
on rejected the idea of a centralised Education Fund on the basis that the initial capital required
to set it up would be too large. The report does not actually quantify the cost but advocates for
the creation of NSFAS as a stop-gap mechanism to deal with the issue of funding universities. It
also premised that the idea of ring-fencing tax revenues was not the preferred approach for the
fiscus.
It must be noted that this statement pre-dated the introduction of the Skills Development Act
which actually enables the ring-fencing of funds for a specific purpose. We are therefore advo-
cating for the creation of a centralised education fund (to be known as the Higher Education En-
dowment Fund‘).
In the secondary part of our model, we advocate for the sourcing of funds from within existing
legal parameters in order to implement tuition-free education. Our recommended approach is
the creation of an umbrella fund where all funding is directed and then distributed across institu-
tions based on enrolments and costs associated with enrolling students at that university. The
funding of this umbrella fund (‘the Endowment Fund’) is based on the current state and private
sector contributions plus the new sources of funding that we will highlight.
In responding to the question of how such a fund retains its solvency, we advocate for the adop-
tion of a corporate levy based on a company’s payroll. This levy will be set at a rate that takes
into account the needs of the endowment fund as determined on an ongoing basis. In adopting
this approach, we advocate for the gradual abolishment of the current loan-based approach to
funding students as the business case for loan-funding is not particularly strong.
The Higher Education Endowment Fund (HEEF)
In the current funding model for universities, the 3 funding sources have an element of discre-
tion that is applied in distributing funding. For example, whilst the generic mix indicates that a
third of the funding comes from third stream sources (private and corporate) there are inequali-
ties regarding the spread of such income. Part of the reason is that most such income is ear-
marked for research activities which are driven by postgraduate numbers. UCT has a postgrad-
uate cohort of 35% whilst Limpopo has a postgraduate cohort of 2%. Consequently, some insti-
tutions essentially have only 2 sources of funding and thus have a greater reliance on state con-
tribution and tuition fees. In addition, corporates generally apply discretion in allocating scholar-
ships and bursaries. There is generally a bias towards to high-tier institutions which further en-
trenches inequalities within the system. We need to revisit this approach.
In a model where third stream funding is unevenly distributed across the system, some universi-
ties have a higher reliance on tuition fees than others.

23. Thuto
ke
Lesedi
Page
|
23
Picture 5: comparison of university reliance on fees. High reliance indicates lower levels of third
stream income (CHET)
The Second Endowment Fund
An alternative to the option of the Endowment is a co-investment into the Fund where the state
and corporates make a contribution into the general pool. In this model, the government stands
as a guarantor of the shortfall. For example, if 100 students are funded, the corporate funds are
allocated to all of them at inception. If a student drops out, then the state contributes the amount
associated with the student back into the fund. This ensures that the Fund does not run out of
funding due to dropouts. It also creates an incentive for the state to implement measures aimed
at reducing dropouts in the system.
Required stakeholders
• Corporate South Africa –
the owners, funders and custodians of the fund
• The Ministry of Education –
co-funder/guarantor
• The Universities –
as the beneficiaries of the fund
• The National Treasury –
provider of guarantee and co-founder

24. Thuto
ke
Lesedi
Page
|
24
Other alternatives – Sale and leaseback arrangements
Some higher education institutions are in a unique position of possessing ‘trapped capital’
or
reserves. This occurs when the market value of the university’s assets (usually infrastructure)
has been valued using latest market values and is reflected as a high-value asset in the balance
sheet. The current provisions of the Higher Education Act do not provide for the wholesale sale
of university assets without the approval of the Ministry of Higher Education. A common practice
in the property sector is the concept of a ‘sale and leaseback’
arrangement. In terms of such an
arrangement, one party that owns an asset and wishes to raise cash whilst still having access to
the asset, enters into a sale with a counterparty (which is in possession of cash but does not
need the asset) whereby the second party buys the asset from the first party and then immedi-
ately lends it back to the first party (the university) over an extended period.
In a traditional sale and leaseback arrangement the university would then pay a lease fee to the
new ‘owner’
of the asset. However, this is then subject to the anti-avoidance provisions con-
tained in section 23 of the Income Tax Act. In our proposal, the university would not pay a lease
to the ‘owner’
of the asset but rather the owner of the asset would be granted tax rebates over
the lease term limited to the actual exposure. At the end of the lease term, the asset would then
revert back to the university. In order to facilitate this, an amendment to the Higher Education
Act would be required together with an update of the anti-avoidance provisions of section 23G
of the Income Tax Act in order to insulate such transactions from adverse tax consequences.
Involvement of pension funds
Pension funds in South Africa are regulated by the Pension Funds Act of 1956. A key feature of
the Act is the identification of asset classes where pension funds are allowed to invest. Regula-
tion 28 then prescribes the maximum exposure that a pension fund is allowed to have in any
particular asset class. It is recommended that the pension funds industry is engaged to consider
whether an investment in the Higher Education Infrastructure Fund could be recognized as a
designated asset class.
What about NSFAS?
The most critical and occasionally controversial component of the funding mix when we focus
on tuition fees is the role of the National Student Financial Aid Scheme (NSFAS) which allo-
cates funding to poor students (gross income of up to R122 000). This is advanced in the form
of loans that are collected from 12 months post-graduation. Unfortunately, due to legacy issues
the system is performing sub-optimally. Furthermore, the collection rates are below 10% of
funds rolled into the system due to the following key factors –
• Poor throughputs –
extend the funding to beyond regulation time
• Dropouts –
immediate write-off due to the low possibility of attaining employment
• Governance limitations –
failure to collect from successful graduates
• Conversion model –
even students who graduate have parts of their loans converted to bur-
saries and consequently no repayment
In addition to these issues, there is a philosophical issue that is attached to the NSFAS scheme
which is colloquially termed as ‘black tax’
which relates to the fact that black graduates start off

25. Thuto
ke
Lesedi
Page
|
25
their careers with a debt burden. It is therefore ideal to find a way of removing this social stigma
if possible. We would think that a model that eliminates the loan component altogether would
meet this social mandate.
It is also important to note that in its commitment to funding the greatest number of students
possible, the scheme occasionally fails to contribute to the full cost of study for a student. The
scheme provides an annual ‘funding ceiling’
which indicates the total amount that can be allo-
cated to any particular student. In such a case, priority is given to university internal fees –
tui-
tion first –
and then accommodation costs if the students are part of the university residence.
The problem with this approach is that even though there is a universal acknowledgment that
the full cost of study needs to be catered for, the funding gap faced by students means they
need cover food and other necessities on their own. This leads to psycho-social problems that
negatively impact on their performance.
For students that are fortunate enough to obtain NSFAS funding; there is a debt accumulated
that needs to be paid post-graduation. This has become colloquially known as another form of
‘black tax’. NSFAS does have a partial loan conversion option for students who succeed.
To illustrate the point, a NSFAS graduate who has fees of R100 000 per annum for a 3-year de-
gree would have 40% of the first 2 years converted to a bursary and 100% of third year fees
converted to a bursary if they graduate in regulation time. This means that from the R300 000
advanced, only R120 000 needs to be collected (the 60% of the R200 000 paid in the first 2
years). Unfortunately, in the global population the success rates of NSFAS students is very low
(even after allowing for students to be funded for regulation time plus 2 additional academic
years) and the employment attainment is below 100%. This means that the ratio of live loans as
a percentage of the total investment is low. In addition, there are issues related to collection of
the loans. According to the NSFAS submission to the Fees Commission in 2016, of the R15 bil-
lion owed to the scheme, only R248 million is being collected. There is therefore limited eco-
nomic merit in keeping the scheme operational. More critically, if we then look at an individual
student who does succeed, NSFAS will then collect the R120 000 plus interest (at a rate below
prime) and then cease any collections once the full payment has been made.
We would advocate for a different model that is not a loan system. Rather, the state’s contribu-
tion into NSFAS should rather go into a dedicated ‘Endowment Fund’
which is then used to fund
students. The state’s contributions to NSFAS will therefore be allocated into the Endowment
Fund.
Raising the funds –
where does the rest of the money come from?
The primary proposals outlined above –
the restoration of the subsidy to 50% and the creation
of an infrastructure fund, serve the primary purposes of facilitating the reduction in the cost of
running universities that is borne by the state and the universities themselves. This is in line with
the core mandate of #FeesMustFall.
South Africa currently spends around 0.7% of its GDP on universities. Our view is that an ideal
contribution to the system should be 1% of GDP. We do not think that this will be achieved
overnight. If the first 2 recommendations are implemented, we still have a cost base that still
needs to be funded. In a universal rollout of free education, we need to find avenues for raising
the additional funding required to run universities.

26. Thuto
ke
Lesedi
Page
|
26
As part of our research, we have identified 5 possible avenue to raise funding for the rollout of
Free Education. The overriding caveat in all the permutations is that any additional funding
raised in pursuance of this objective would have to be earmarked/ring-fenced for the purpose of
funding higher education.
The five avenues are as follows –
• Amendment of the Skills Development Act in order to increase the Skills Development Levy
• Increase in corporate income tax rates
• Increase in personal income tax rates for the rich
• Windfall tax on apartheid beneficiaries
• Increase in the wealth taxes
Skills Development Levy
The Skills Development Levy is collected in terms of the Skills Development Act under the aus-
pices of the Ministry of Labour and the Ministry of Higher Education. The levy is payable by all
employers with a payroll in excess of R500 000 at a rate of 1%. The levy was initially set at
0.5% and increased to 1% of payroll in April 2001. The levy currently generates R13 billion
(2015) which is channeled to skills development through SETAs and direct allocations to the
National Skills Fund. The levy is unique in that it is one of the few revenue streams that is ring-
fenced and not allocated to the general national revenue fund. Any increase in the levy to an
amount that covers the funding deficit would be the least interruptive intervention in the system.
Based on our estimates, an increase in the levy to 1,5% of the payroll would generate in excess
of R6 billion in additional funding on an annual basis which can be injected directly into the sys-
tem. If the levy is raised to 2% then the additional funding raised will be in excess of R13 billion
(post-additional admin costs).
In the current regime, the levies collected are directed towards SETAs with a contribution being
earmarked for NSFAS. We would continue with that approach as we feel the SETAs remain a
crucial role-player in the greater ambit of skills and development. Although we suspect there is a
need to initiate a conversation about the role of SETAs within the education and training land-
scape, we have assumed that they will remain part of the system and hence it is not our inten-
tion to call for an abolishment of the SETAs at this stage.
Corporate income tax
The corporate income tax is levied at a rate of 28% and currently generates around R190 billion
in taxes (Wits submission to Fees Commission). This makes up around 18% of taxes collected
by the fiscus in 2015/16. Over the past 15 years, the rate has moved from an effective rate of
36,89% (including secondary tax) to the current levels of 28% for standard corporates (exclud-
ing small business corporations). An increase of 2%, from 28% to 30%, could possibly yield an
additional R13,5 billion on a gross level. However, in order to remain in line with Treasury’s de-
sired objectives relating to the collection of taxes from this sector, this might require a review of
the rate of tax levied on dividends.

27. Thuto
ke
Lesedi
Page
|
27
Risks associated with an increase in corporate tax rates is the risk of inflationary adjustments
being passed on to consumers and marginal reductions in foreign direct investment.
Personal income tax
The marginal tax rate is South Africa is currently at 41% and affects taxpayers with an annual
taxable income of above R701 000. An increase in the rate from 41% to 42,5% could yield an
additional couple of billion into the system. A key social dynamic that gets mentioned in the con-
versation regarding the wealthy is the perceived social injustice associated with a developmen-
tal state funding the children of the rich. Anecdotally this has merit. However, it is also worth not-
ing that the wealthy make up a fraction of society and tend to have family structures that are
more nuclear in nature. Consequentially, their contribution to the population is marginal at best.
More importantly, if a child of a wealthy family is required to pay their own fees they can do so.
But the reality is that the family itself will then limit its contribution to the education system to the
4-year period until graduation. However, in a model where the wealthy are charged a higher tax
then their incremental contribution to the system outlasts their children’s actual participation in
the education system.
Other possible wealth taxes are donations tax; capital gains tax; dividends tax and estate duty –
all of which are unlikely to yield significant additional revenues in the medium term.
Windfall tax on apartheid beneficiaries
One of the enduring points of discomfort in corporate South Africa is the question of whether
companies that unduly benefited from apartheid-era looting should be required to pay a windfall
to the fiscus. This includes companies like Sanlam, ABSA, Naspers, and Sasol. Some estimates
of such taxes indicate that up to R26 billion could be returned to the fiscus in the form of a wind-
fall tax (CIEX report).
Wealth taxes
South Africa has the following wealth taxes –
dividends withholding taxes, donations tax, capital
gains tax, transfer duty and estate duty. The rates on such taxes range from 15% (dividends
tax) to 20% (donations tax and estate duty). The taxes generally make a minor contribution to
the fiscus and any increase in the rates levied are unlikely to yield significant additional reve-
nues.
Addressing leakages in the system
The contribution of corporate South Africa to the education system is fragmented, discretionary
and inefficient in its design. The discretionary nature of it simply means that funding resources
are allocated primarily on the basis of a corporate’s own objective rather than directed towards a
holistic system that allocates resources efficiently. We believe that contributions towards a cen-
tralised fund should be considered.
In addition, there are tax leakages associated with the current learnership model. The essence
of learnership incentive schemes is that corporates employ graduates and then claim tax deduc-
tion from the state on the basis of the number of graduates employed. We think that this needs
to be reviewed in light of the need to fund the education system. In National Treasury’s own
contributions to the discussion paper on learnerships (August/September 2016); over R6 billion

28. Thuto
ke
Lesedi
Page
|
28
has been paid back to corporates in terms of learnership incentives. It would make more sense
for such funds to be directed towards the universities directly.
VAT is not the solution
VAT was introduced in 1991 to replace General Sales Tax and was initially charged at a rate of
10%. The rate has been levied at 14% since 1993. The average rate for OECD countries is
19%. In that regard, there is scope for an increase that does not take us beyond the average
rate. In its submissions to the Fee Commission, the fiscus has indicated that an increase in the
VAT rate would indeed generate billions in additional revenue. However, due to its pervasive
reach the increase would affect the poor and be inflationary and regressive and should therefore
be seen as the last resort.
We therefore do not support an increase in VAT rates in order to fund higher education.
A summary of the possible avenues of raising additional funding is as follows –
Source of Income
Current
Rate
Proposed
Rate
Additional fund-
ing estimate
Qualitative considerations
Skills Development
Levy
1%
2%
R13 billion
Flexibility
Ease of administration
Corporate Tax
28%
30%
R13 billion
May affect international com-
petitiveness and FDI attraction
Affects a specific cohort of tax-
payers
Individual Tax
41%
42.5%
At least R3 billion
In line with the ‘social justice’
imperative of taxing the rich
Affects a limited tax base
Windfall Tax
NIL
R26 billion
Justice tax
Likely to be once-off
Wealth Taxes
15% -
20%
20%
Negligible
Minor contribution

29. Thuto
ke
Lesedi
Page
|
29
The required interventions
The solution to the funding crisis is only possible through the collaboration of all stakeholders
across society. However, the state remains at the centre of any solution mix that is adopted. In
our view, the following interventions should be adopted –
Role player
Required intervention
Effect/impact
National
Treasury
Amendment of the following sections of the
Income Tax Act –
• Section 5 (corporate tax rates)
• Amendment of section 5 of the Income
Tax Act (individual tax rates)
• Section 6 –
create a rebate provision for
companies invested in the Infrastructure
Fund
• Section 9H
Amendment of the Tax Administration Act –
• To provide for ring-fencing of incremental
skills levies to a dedicated education en-
dowment fund
Creation and custody of the Infrastructure
and Endowment Funds
Give legal effect to the recom-
mended sources of funding
• Increase tax rate to 30%
• Increase the marginal tax rate
to 42.5%
• Create a rebate for investments
into university infrastructure
which injects capital funding into
the system
• Create an exit tax for graduates
who emigrate
• Enables the split of education
funds from the general national
revenue
Department
of Labour
Amendment of section 3 of the Skills Devel-
opment Levies Act
• Enable an increase in the levy
and the ring-fencing of the addi-
tional levy into the Education
Endowment Fund
Department
of Higher
Education
Amendment of section 4 of the Higher Edu-
cation Act –
• To enable universities to enter into
leaseback arrangements relating to uni-
versity infrastructure
• Gives legal basis for universities
to enter into non-traditional ar-
rangements relating to infra-
structure
What happens if we don’t roll out free education for everyone tomorrow?
This model advocates for the rollout of Free Education for all. In defining the essence of a
rollout, there is an implicit concession that the model might not be implemented overnight. In
that case, there is a business case for the rollout firstly to the most vulnerable students –
those
from poor families, then the middle class and finally everyone. The status of NSFAS within the
current environment is worth revisiting.

30. Thuto
ke
Lesedi
Page
|
30
NSFAS and the black tax conundrum
One of the key issues relating to the funding of students from poor households is the use of the
state financial aid scheme (NSFAS). The current model provides convertible loans which gener-
ate returns once graduates once start earning an income. Different research exercises have
been undertaken to evaluate the effectiveness of the scheme in its current form. The low gradu-
ation rates, conversions of loans and low recovery rates make it difficult to make a business
case for the continued existence of the system. More anecdotally –
there is an ongoing mass
movement against the idea of predominantly black graduates being burdened with loans that
impact on their ability to support their families once they graduate. This is especially important
as most of the beneficiaries tend to be first-generation graduates. A first-generation graduate is
therefore subject to pressures on the domestic front that are not expected by other graduates.
These include supporting elder members of the family, providing for the education of siblings
etc. Key to this phenomenon is the idea that it is currently presented as a loan. However, the
key requirement for a candidate to start repaying the scheme is graduation and the attainment
of a job. Very few of the students are currently graduating and given the toxic mix of conver-
sions, suboptimal employment and the low recovery rates it is clear that the scheme itself is in
need of reform.
We would advocate for a system that operates as a subsidy to students that are classified as
NSFAS students. This simply means that a student who graduates in regulation time will be fully
subsidised for the duration of study. A student who then takes additional time would then be al-
located a loan for the additional time. We are also open to the social justice aspect of this which
is premised on the fact that most of the lower quintile candidates are at great risk of dropout. We
would therefore advocate for an ‘n+1’
rule for students from the first up to the third quintiles. It is
possible for students from poor households to obtain schooling from quintile 4 and 5 schools
(through philanthropic schemes, sports and academic scholarships etc) so we acknowledge that
they would be classified as financially poor but be in possession of a relatively better academic
background and should therefore be expected to graduate in regulation time.
In advocating for the rollout of free education, the expectation is that such graduates will con-
tribute to the economy in the long run and become part of the taxpayer base. We do
acknowledge the risk of graduates being funded by the system and then emigrating soon there-
after and not making a contribution to taxes in South Africa.
In relation to graduates who then exit the tax net through emigration etc we would advocate for
an amendment of section 9H of the Income Tax Act (the so called ‘exit tax’
which currently ex-
ists). In terms of the current structure of section 9H, an individual who emigrates is charged a
tax on the value of their assets (except fixed property) on the date of emigration. In relation to a
graduate who has benefited from free education, we would then levy such an exit tax based on
the taxable income generated in the last completed tax year prior to emigration.
The social injustice consideration
One of the core arguments against the rollout of universal free education is the social injustice
associated with using state resources to fund those who can afford to pay. Assuming the level
of R600 000 is used as the reference point to distinguish between those who can afford to pay
and those who need assistance (below R600 000); it is worth noting that a small percentage of
South African households fall within the ‘rich’
bracket. Anecdotally, such households are more
likely nuclear families with a couple of children on average. In a model where such households

31. Thuto
ke
Lesedi
Page
|
31
are required to fund their own fees there is the reality that their contribution is simply limited to
the cost of their own children. In other words –
their contribution into the specific education pool
is a function of whether they have children in the system or not.
We would argue that the converse makes sense. If the children of the rich are offered free edu-
cation alongside everyone else, then their contribution to the education fund is not just limited to
the duration of their children’s tenure of study. In our view, the country would benefit from a
gradual increase in the top tax rate on the proviso that the additional taxes raised are allocated
to the dedicated Endowment Fund. (All the proposals on this document are subject to this im-
portant caveat). In the initial rollout however, we would support that the rich must pay their share
until the necessary legislative processes are in place to increase the tax paid by the wealthy cit-
izens.
Rollout of free education –
the Thuto ke Lesedi Plan
In the instance where the social justice considerations and the general social consensus is that
we are not yet in a position to offer universal free education, we would advocate for a sliding
scale model which classifies students into the following strata –
• Low income students –
defined by household income of R0 to R300 000
• Lower Middle class students –
household income of R300 001 to R450 000
• Upper middle class students –
household income of R450 001 to R600 000
• Upper class –
household income of above R600 000
In this model, some students are fully subsidised and then the rest are subject to a family con-
tribution with the subsidy covering the excess. The family contribution is per family rather than
per student. This means that a family with a particular income will spend a fixed amount regard-
less of the number of children it has in the system.
The classification of poor students will have one additional variable –
quintile profile of the high
school the student went to. Quintile 1 –
3 students are funded on the basis of ‘regulation time
plus 1 year’
(n+1) and the quintile 4 –
5 students are funded on the basis of graduation time only
with any additional time funded through a loan.
We have adopted the concept of a family contribution that increases with higher income levels
to acknowledge the increasing ‘ability to pay’
as income levels rise. This means that a family will
have one fixed contribution into the system regardless of how many family members are in the
system. This is especially important for our black students who usually come from extended
families.

32. Thuto
ke
Lesedi
Page
|
32
Conclusion – It’s not just the funding, but the entire archi-
tecture of the system that we need to fix
A key contributor to the funding crisis is the very structure of the higher education system. The
higher education system is made up of 26 universities and 50 colleges (which have 260 cam-
puses). The current system however is characterised by fragmentation, lack of articulation, lack
of specialisation and differentiation, quality concerns and institutional stigma perceptions. The
transition from secondary education through higher education and eventually the workplace is
therefore still determined by chance rather than a singular, coordinated pathway. It is also in-
formed by the fundamental weaknesses in the feeding system (secondary education).
Our view is that the system itself needs to be restructured as a matter of urgency. In our analy-
sis, there is a need to acknowledge that the distribution of resources; proximity to economic
hubs and spread of intellectual capital is currently suboptimal. The reality is that not all institu-
tions can pursue the same research agenda to the high standards that we would like to have.
Not all institutions have a teaching culture that produces graduates that secure immediate em-
ployment. The consequence of this system is that we have high attrition rates; high dropout
rates and low graduation rates. This simply escalates the cost of running the system.
In our model, the university authorities remain exclusively responsible for academic matters in-
cluding setting enrolment targets and facilitating success and improvements in graduation rates.
The post-secondary education system should be a continuum designed to manage the transi-
tion from secondary education through to the workplace. The proposed rollout of free education
at higher education level is the first step towards advocating for a gradual overhaul of the sys-
tem at large. It is in our view that a radical approach towards the process of fixing out education
system is necessary at this level. Calling for free education for all is the first bold step towards
fixing South Africa. We welcome further engagements in this regard.
The Student Research Task Team

33. Thuto
ke
Lesedi
Page
|
33
Appendix 1
Terms and acronyms used in this report
Annual taxable income: Amount that is used to calculate tax payable by taxpayer. It is calcu-
lated as all incomes less any deductions, allowances and exemptions.
Basic education: Also referred to as pre-university, basic education is education below the lev-
el of tertiary education. This typically includes primary education along with secondary educa-
tion.
BEE: Black Economic Empowerment. A programme in South Africa that seeks to redress ine-
qualities caused by Apartheid. It effects this by providing previously disadvantaged groups with
economic privileges previously not available to them. (BEE Partner, South Africa Economic
Watch)
Black tax: The financial burden faced by the majority of black professionals whereby they are
responsible for supporting their extended families.
Commodification: Transformation of good, services and ideas into commodities or objects of
trade with a profit motive.
Corporate Levy: An amount collected from companies by compulsion or by law.
Corporate South Africa: Umbrella term describing large companies operating in the Republic
of South Africa.
DHET: The Department of Higher Education and Training.
Economic participation: this refers to people who are involved in the economy through either
employment or involvement in their own business.
Endowment Fund: A central fund which collects funds from various sources which are then
used to cover students’
tuition fees.
FeesMustFall: A student movement founded in 2015 that recognises university education as a
public good and operating with the mandate of ensuring university fees are abolished.
Freedom Charter: The freedom charter was the statement of core principles of the South Afri-
can Congress Alliance which consisted of the ANC and its allies in 1955.
Full cost of study: All-inclusive university costs including the costs of tuition, accommodation,
meals, books and basic necessities.
Funding mix: The classification of different sources of funds into the university system, being
the government contributions, private sector contributions and tuition fees.
GDP: Gross Domestic Product. GDP represents the monetary value of all goods and services
produced within a nation's geographic borders over a specified period of time.
Graduate tax: An alternative form of tax on recent graduates of tertiary education.
HECIF: The Higher Education Infrastructure Fund.
HEEF: The Higher Education Endowment Fund

34. Thuto
ke
Lesedi
Page
|
34
Heher Commission: The Fees Commission that was established in January 2016 to inquire
into, report on and make recommendations on the feasibility of a fee-free higher education. It is
chaired by Justice Jonathan Arthur Heher.
Infrastructure Fund: A structure into which companies make contributions that will be used to
fund the building of infrastructure. These contributions are then allocated to universities to pay
for buildings and other structures needed for each university to operate.
Institutional autonomy: Allowing the universities the freedom to make decisions on how they
operate.
Joint Venture: Business arrangement in which two or more parties agree to pool their re-
sources for the purpose of accomplishing a specific task. (Investopedia)
Minister of Higher Education: The Honourable Minister, Dr Bonginkosi (Blade) Nzimande, MP.
Missing middle: Students who are above the National Student Financial Aid Scheme (NSFAS)
threshold and as such don’t qualify for NSFAS funding but for whom university education is still
considered unaffordable. (News24)
NSFAS: The National Student Financial Aid System. A loan and bursary scheme funded by The
Department of Higher Education and Training for students who lack funding for university stud-
ies.
OECD: Organisation for Economic Co-operation and Development. An international organisa-
tion formed to strengthen world trade and commit to democracy and solve common problems
countries face.
Private sector: The private sector encompasses all for non-profit businesses that are not
owned or operated by the government.
Public benefit: Decisions or actions that add value to society.
Public universities: The 26 universities in the Republic of South Africa that are predominantly
funded by state funding.
Regulation time: Prescribed or minimum time required to complete a tertiary qualification
Sale and lease agreements: An agreement in which one party sells an asset to another party.
The agreement then entails the seller obtaining the right to use the asset by renting or leasing
back the asset.
School quintiles: The classification of high schools from poorest to richest by the Department
of Basic Education in order to allocated funds to subsidise each learner.
SETA: Sector Education Training Authorities. Their main function is to contribute to the raising
of skills, to bring skills to the employed, or those wanting to be employed, in their section. (Na-
tional Skills Authority)
Skills Development Fund: A centralised funding pool whose cash resources are used to fund
training and education in order to reduce skills gap in the economy

35. Thuto
ke
Lesedi
Page
|
35
Skills Development Levy: A Levy imposed on companies in order generate money that will
pay for skills development and improvement. The funds raised are paid into the Skills Develop-
ment Fund
State funding: Government contribution to the education system at large.
State subsidies: Financial aid given by the government to businesses or organisations with the
view of promoting its economic and social policies.
Tax rebate: A tax benefit granted to a corporate or an individual whereby the taxpayer’s paya-
ble tax to SARS is reduced by a specified amount.
TVET: Technical and Vocational Education and Training. The 50 Colleges which provide stu-
dents education and training aligned with a specific job, employment or entrepreneurship.
1997 White paper: A general notice by the Department of Education addressing the pro-
gramme for transformation of higher education.
Working class: The social group consisting of people who are employed for wage, especially in
manual or industrial work.

36. Thuto
ke
Lesedi
Page
|
36
References
Ciex. (1999). Operations on behalf of the South African Government, August 1997-December
1999.
Constitutional Court. (Act 108 of 1996). The Constitution of the Republic of South Africa. Cape
Town: Parliament.
Council on Higher Education (CHE). (1997). White Paper 3: A Programme for the Transfor-
mation of Higher Education. Pretoria: CHE.
Council on Higher Education (CHE). (2016). Kagiso Number 10 - Student Funding. Retrieved
from Council of Higher Education: http://www.che.ac.za/media_and_publications/kagisano-
series/kagisano-number-10-student-funding
Department of Higher Education and Training (DHET). (2012). Report of the Working Group on
Fee Free University Education for the Poor in South Africa. Pretoria: DHET.
Department of Higher Education and Training (DHET). (2014). Statistics on Post-School Educa-
tion and Training in South Africa: 2014. Pretoria: DHET.
Gordhan, P. (2016). Budget Speech. Pretoria: National Treasury.
National Planning Commission. (2012). National Development Plan 2030: Our Future – make it
work. Pretoria: National Planning Commission.
National Treasury, SARS. (2015). 2015 Tax Statistics. Pretoria: National Treasury.
National Treasury. (2016). Submissions to the Commission. Pretoria: National Treasury.
North West University. (2016). Submissions to the Commission. Retrieved from Fees Commis-
sion 2016: http://www.justice.gov.za/commissions/FeesHET/submissions/ihl/2016-FHETC-Sub-
NWU.pdf
National Student Financial Aid Scheme (NSFAS). (2016). Submissions to the Commission. Re-
trieved from Fees Commission 2016:
http://www.justice.gov.za/commissions/FeesHET/submissions/oinst/2016-FHETC-Sub-NSFAS-
20160724.pdf
OECD. OECD Better Life Index, Education [website], 2016,
http://www.oecdbetterlifeindex.or/topics/education, (accessed 1 October 2016).
Parker, D. (2014). Presentation on Affordable Higher Education. Pricewaterhouse Cooper Con-
ference on Higher Education.
Philip, K., Tsedu, M., Zwane M. (2014). The Impacts of Social and Economic Inequality on Eco-
nomic Development in South Africa. New York: United Nations Development Programme
(UNDP).
South African Revenue Service (SARS). (2015). 2015 Tax Statistics. Pretoria: SARS.
South African Revenue Service (SARS). (2014). 2014 Tax Statistics. Pretoria: SARS.
South African Revenue Service (SARS). (2013). 2013 Tax Statistics. Pretoria: SARS.

37. Thuto
ke
Lesedi
Page
|
37
South African Union of Students (SAUS). (2016). Submissions to the Commission.
http://www.justice.gov.za/commissions/FeesHET/submissions/sto/2016-SAUS.pdf
Statistics South Africa. (2015). South African Statistics 2015. Pretoria: Statistics South Africa.
Statistics South Africa. (2015). General Household Survey 2015 Statistical Release. Pretoria:
Statistics South Africa.
Statistics South Africa. (2016). Mid-year population estimates 2016. Pretoria: Statistics South
Africa.
Statistics South Africa. (2015). Mid-year population estimates 2015. Pretoria: Statistics South
Africa.
Statistics South Africa. (2014). Mid-year population estimates 2014. Pretoria: Statistics South
Africa.
Statistics South Africa. (2013). Mid-year population estimates 2013. Pretoria: Statistics South
Africa.
Statistics South Africa. (2012). Census 2011 Statistical Release. Statistics South Africa.
Statistics South Africa. (2012). Income and Expenditure of Households 2010/2011 Statistical
Release. Pretoria: Statistics South Africa.
Statistics South Africa. (2011). Mid-year population estimates 2011. Pretoria: Statistics South
Africa.
Statistics South Africa. (2010). Mid-year population estimates 2010. Pretoria: Statistics South
Africa.
Statistics South Arica. (2004). Mid-year population estimates 2004. Pretoria: Statistics South
Africa.
Statistics South Arica. (2000). Mid-year population estimates 2000. Pretoria: Statistics South
Africa.
Students for Law and Social Justice (SLSJ). (2016). Submissions to the Commission. Retrieved
from Fees Commission 2016: http://justice.gov.za/commissions/feesHET/submissions/sto/2016-
SLSJ.pdf
United Nations Development Programme (UNDP). (2015). Human Development Report 2015.
New York: United Nations Development Programme (UNDP).
Universities South Africa (USaf). (2016). Submissions to the Commission. Retrieved from Fees
Commission 2016: http://www.justice.gov.za/commissions/FeesHET/submissions/oinst/2016-
FHETC-Sub-USAf-30June2016.pdf
University of Johannesburg (UJ). (2016). Submissions to the Commission. Retrieved from Fees
Commission 2016: http://justice.gov.za/commissions/feesHET/submissions/ihl/2016-FHETC-
Sub-UJ.pdf
Wits University. (2016). Submissions to the Commission. Retrieved from Fees Commission -
2016: http://justice.gov.za/commissions/feesHET/submissions/ihl/2016-FHETC-Sub-Wits.pdf