Presentation at SOTL @ UJ Seminar Series by Salim Vally on the case for free higher education in South Africa

1. Declining State Funding
• In the period 2000-2012, state funding to universities decreased in
real terms annually from 49% to 40%. Contribution to universities’
budgets from student fees rose from 24% to 31%. This has caused
high tuition fees, exacerbating financial exclusion. Additionally,
universities increase enrolments to raise income and not employing
more staff for a reasonable lecturer-student ratio. This has a negative
effect on student performance, quality and contributes to dropout
(push out) and failure rates.
• Universities also receive parts of their income from donors. However,
this cannot be relied upon as a steady source of income. Historically
disadvantaged universities also do not receive high number of
donations/third stream income compared to the universities that are
perceived as more ‘prestigious’. This places these universities at a
disadvantage as usually a large part of the student population comes
from low-income families.

3. Declining State Funding (2)
• October 2013 Report of the Ministerial Committee for the Review of the Funding of
Universities: South Africa ‘lags behind funding on Africa as a whole, the OECD
countries and the average for the rest of the world and admits that ‘its expenditure
on higher education is much lower than desirable.’
• In 2011, South Africa’s state budget for universities as a percentage of GDP was
0.75%, (DHET 2012g) less than Africa-wide average (0.78%) OECD countries (1.21%)
and the rest of the world (0.84%). From 2012 data, the proportion of GDP for Brazil
was 0.95%, Senegal and Ghana 1.4%, Norway and Finland over 2% and Cuba 4.5%.
In South Africa, the 2015/2016 budget for higher education was R30 billion. If the
government were to spend 1% of GDP on higher education, this would amount to
R41 billion – an additional R11 billion and almost four times the reported shortfall
due to the 0% increase.
• The Committee recommended: an ‘increase the funding for higher education, to be
more in line with international levels of expenditure. This will enable the system to
improve the functioning and resourcing of the universities, especially the under-
developed universities’.

5. Proportion of Institutional funding per source and institution(2008/09 - 2013/14)
Source: CHE:

6. NSFAS
• Qualification for NSFAS is determined by a means test. The annual family
income threshold for NSFAS students at the University of Cape Town is R250
000, at Rhodes University it is R180 000, while at the University of Limpopo and
other historically disadvantaged institutions it is R122 000. There is thus no
uniformity in the application of the means test across the sector.
• All loans are income-contingent meaning that students only have to start
repaying the loan when they have stopped studying, either from graduating or
dropping out. They also need to be earning an income above a certain threshold
per year (R30 000 [or R2500 per month] in 2012).
• Interest rates are set at 80% of the Repurchase (Repo) Rate, the rate at which
the SA Reserve Bank lends to commercial banks. Currently this equates to 5,4%.
For NSFAS, interest only starts to be charged 12 months after a student starts
studying.
• Academic success (passing) is rewarded by a significant incentive in the form of
a conversion up to 40% of a student loan to a bursary on an annual basis.

7. NSFAS (2)
• NSFAS is unable to meet the demand for funding as the available funds are not enough.
Students at historically disadvantaged universities who qualify for NSFAS funding are
particularly left out. At these universities, NSFAS funding is shared across all students,
meaning that tuition is subsidised, but important secondary costs are ignored - leading to
high failure and dropout rates. It is estimated that NSFAS only meets half of the demand
from students qualifying for funding.
• NSFAS requires an expected family contribution equalling one third of disposable income.
Given that the non-disposable income is calculated on a basic needs level, this is a severe
financial strain. Other additional partial payments may be required that poor families
simply cannot afford, with a “shortfall [that] can be up to R40,000 a year”. Wealthy
universities like UCT and WITS top up this amount, but still fail in many cases. Students at
poorer campuses struggle much more.
• The maximum amount one can earn to qualify for funding is actually very low - R122 000
for historically disadvantaged institutions translates to just over R10 000 a month for an
entire family. This means the child of a mineworker would not qualify.

8. NSFAS (3)
• “Black tax” is ignored, i.e. the means test may not account for supporting extended
family, high debt levels, or large unexpected costs without savings plans to cover
them. These contributed to financial strain, forcing poor students to make unfair
choices that may limit their ability to succeed academically.
• Therefore, a second important group to analyse are families who fall just outside of
the NSFAS bracket. This speaks directly to financial access. Leaving aside the
unfairness of poor students having the burden of loans, is it possible for students to
find these loans? Many banks are unwilling to lend where little collateral exists.
• Bank loans require students to pay interest while studying. In order to take out a
student loan from a bank (using FNB as an example), the primary debtor needs to be
earning a minimum monthly salary of R6000.
• 200 000-220 000 poor students who fulfil the entry requirements of NSFAS are still
financially excluded. In addition an estimated 85% of poor students do not graduate,
leading to a future of debt payments.

9. NSFAS (4)
• Governance, management and impropriety
• Problematic use of ‘race’ as proxy for socio-economic
need
• Current formula leads to unequal institutional allocations –
HAIs with middle class black students receiving equal
allocation as HDIs with many black students
• Means test excludes the ‘missing middle’ – upper working
class & lower middle class families
• Institutional discretion
• Exclusion of University practice of ‘topslicing’/
• Increasing debt

10. Working Group on Free Education
• Draft completed in Oct 2012 but not released until 2015
• Terms of Reference
• Contestation in group
 Key Agreements: Free university education for the poor in
South Africa is feasible; 'Fees' to be considered 'free' are
taken to include not only tuition fees but the full cost of study
necessary for success at university, including: registration and
tuition fees; meals and accommodation; books; and travel.
• Key Recommendations: Those initially and primarily eligible for
free university education, on the basis of NSFAS income-
contingent loans, should be learners holding National Senior
Certificates who are admitted into a university and come from
households earning less than the lowest SARS tax bracket (R54
200),meaning that they will be required to make no household
contribution.

11. Free Education Recommendations
• Learners holding National Senior Certificates who are admitted into a
university and come from households earning between R54 200 and
R271 000 (in 2010 prices) should be eligible for free university
education in a similar manner, but should be required to make some
household contribution.
• As and when additional funding can be sourced or provided,
additional categories of needy students may be progressively included.
• Should be seen as a starting point for developing a fully-fledged
costing model both for free university education for the poor and,
ultimately, for a comprehensive student financial aid and academic
support system which takes into account adequate housing, proper
nutrition, cultural inclusion, and enhanced awareness through career
and vocational guidance at school level.

12. Free Education (cont)
• additional funds to be made available to cover costs
related to:
• improved and better funded academic support, tutorial
support and residential or living-learning support
mechanisms;
• affordable technological solutions (such as in-class audio
and visual feeds, on-line learning or distance education);
and
• sufficient additional numbers of academic and
administrative staff to ensure adequate class sizes at
universities and improved quality of contact time between
staff and students.
• Change the regime around income contingent loans

13. Taxation
• Taxes make up almost 90% of all government revenue and is the key source for public
expenditure.
• Even in nominal terms, SA’s tax rate has become less progressive over time. Corporate tax
steadily declined from 50% in 1990 to a flat rate of 28% now.
• Internationally, South Africa’s stated corporate income tax level is well below the highest
levels.
• Corporate wealth through capital flight. Nine of our largest corporations (Anglo, Billiton,
SAB etc) were allowed to move to NY and London.
• There are some breaks that have been introduced for small and medium sized companies.
However, the level of tax paid by large firms is often far less than the stated 28%. This is
typically the result of legal and sometime illegal measures. These methods range from tax
avoidance, which is the legal practice of finding ways to reduce tax burden, and tax
evasion, which is the illegal counterpart. “Transfer pricing”, a type of tax evasion, is the
practice of underreporting revenue by claiming they were derived from lower priced
goods. Less taxes are then payable. This is particularly important in the South African
context as transfer pricing is has been found to be a practice in resource industries.

14. Taxation (2)
Through transfer pricing, large firms, mostly mines, have under reported vast
sums in revenue. Over several years the government has offered amnesty
which firms have ignored. It is believed instead that since 1994 the illicit flows
have continued.
Capital flight
Illegal capital
flight from SA
pricing
Time
period
$32bn (1985
prices)
1970-
1993
$89bn (2007
prices)
1994-
2007
(Susan Newman:
Presentation at 3rd IIPPE
International workshop,
Ankara, Turkey)

15. Taxation of the 1%
• In 2013, there were about 4,200 individuals registered for an
income of R5 million or more. Their average income (3,337 tax
forms assessed) was R9.5 million, and the tax they paid was
R3.7 million per person.Cap Gemeni’s “New World Wealth”
2014 report estimates that there are about 48, 800 High Net
Worth Individuals (HNWI) in South Africa. A HNWI has an
income of more than R7 million, or R70 million in accumulated
wealth. If only 10, 000 of these HNWIs paid income tax like the
3,337 income millionaires did in 2013, instead of hiding outside
the tax system, this would yield additional R37 billion in tax
revenue.