Equal Education media statement: Banking on Fees Commission will leave vulnerable students trapped in debt
The crucial work of assessing the recommendations of the Commission of Inquiry into Higher Education and Training (Fees Commission) has begun in earnest. While Equal Education is pleased with the direction provided by the Commission in certain areas, we are troubled by some of the recommendations. Our contention in our submission to the Fees Commission was that education is a public good, and that poor students must be prioritised in the realisation of free higher education. Thus, while we applaud the introduction of free education for students enrolled at technical vocational education and training (TVET) colleges, we must register our alarm at the models proposed to fund university students.
The Income Contingent Loan (ICL) System
EE rejects the recommendation of the Fees Commission that the National Student Financial Aid Scheme (NSFAS) be replaced with the Income Contingent Loan (ICL) system. This loan system would work as follows: students would receive a loan, with the funds coming from the banking sector, and the loan would be repaid upon reaching an income threshold appropriate to their repayment obligation. The income threshold does not take “black tax” into account in determining repayments in relation to income.
The Fees Commission recommends that the State either purchase these loans or guarantee their repayment. In turn, the financial stability of the ICL system is ensured through the use of unclaimed pension fund benefits, on the condition that the State guarantees repayment if a demand for the unclaimed pension is lodged. The State, already saddled with enormous debt, takes on the secondary liability of paying back the banks should students default on their loans.
In his medium term budget speech the Minister of Finance alluded to a shift from high social spending to debt servicing due to South Africa’s high debt-to-GDP ratio and credit downgrades. Yet the State also continues to guarantee loans to SOEs that hemorrhage taxpayer monies, and will now guarantee these ICLs for higher education funding. The question then is this: if the State truly cannot afford fee-free higher education, how can it afford to guarantee these bankrolled ICLs? The State has taken the easy way out by abdicating its role to provide higher education as a public good, and to effectively budget for it. This was the time for making tough decisions about South African Airways and other projects that explicitly waste public funds. Yet the State has opted to hand over its efficiencies to the banks. Playing the role of the guarantor is not governance, it is laziness and it opens up the most vulnerable members of society to predatory lending and insurmountable debt!
The Commission recommends that SARS act as the collecting agent for student loan repayments, with students registering as taxpayers upon receiving an ICL. It would be one thing for SARS to be appointed to collect funds on behalf of NSFAS, which is a state-run funding mechanism. However, the suggestion that SARS as a public state body will collect funds on behalf of the private banking sector is a serious cause for concern, as a state body which is accountable to the public would be acting in the interests of private profit-making corporations.
As for the student, they would be entering into a debt-agreement that offers no more than a deferred liability. For example, as part of the ICL system, the Commission recommends the discontinuation of the current incentive bursaries from NSFAS. NSFAS has long held a condition that if a student passes all the courses they are registered for in a funded year, up to 40% of their loan is converted to a bursary. This condition, while not completely alleviating the financial burden on the student, is a motivating factor for students, who know that a portion their debt could be removed if they uphold good academic standards. The Commission further proposes a “strict academic requirement” for continued access to an ICL. It appears that students will not only end up locked in a debt repayment system, but their continued access to loans will also be contingent on meeting requirements that are as of yet undefined.
It is also crucial to ask what happens to the interest generated from ICLs. This is not an aspect that an initial read of the report seems to answer. EE would want to see this interest used to fund more students, rather than being pocketed by the banks.
This proposal to replace a State-run loan system (NSFAS) with a loan system run by a public private partnership (PPP) ignores the repeated and legitimate calls for education to be made accessible without binding conditions. The Commission acknowledges that South Africa has low university participation rates and even recommends that “enrolment planning must form a key part of the ICL process to ensure that there will not be excessive debt”. Yet it is clear that the system proposed by the Commission will lead to mounds of debt and will most probably not address enrolment concerns. Furthermore, access to higher education via ICL’s will be limited to students who are most likely to be able to repay their loans.
In essence the Commission’s proposal just replaces one loan system with another. It is not clear why it opted for this option instead of focusing on how to capacitate and better develop NSFAS, thereby keeping student loans under the ambit of the State. Private sector involvement should be defined by an understanding that qualified graduates play a fundamental role in growing the economy, not the guaranteed return on investments.
Ikusasa Student Financial Aid Programme (ISFAP)
As an alternative to the ICL system, the Commission proposes the Ikusasa Student Financial Programme (ISFAP), a PPP that has already been piloted at eight higher education institutions and one TVET college.
ISFAP is the product of a Ministerial Task Team (MTT) tasked to Develop a Support and Funding Model For Poor and ‘missing middle’ Students, established in late 2016 and led by former FirstRand Limited CEO and current NSFAS chairperson, Sizwe Nxasana. The MTT’s findings were released in a report which declared that fee-free university education is both possible and financially viable in the short-term for very poor students, and will be funded by means of combined grants and loans.
However, this funding programme entails an expected family contribution, dependent on family and household means - the higher the household means, the higher the expected family contribution. The MTT report recommended the establishment of a Donor Steering Committee to govern and direct ISFAP, rather than a publicly-appointed board (as in the case of NSFAS).
The private component of the ISFAP PPP, ManCo, will receive private sector funding through its parent company, FundCo. NSFAS, as the public component of the PPP, will funnel public sector funding to the private company.
The ISFAP model is tiered according to students’ financial circumstances and their year of study. Some students qualify only for a loan, some for a combined grant and loan and others for a full grant. However, should a student qualify for a combined grant and loan, it is likely that the grant component will evolve into a loan that includes an expected family contribution in their final year of study. For example, a student categorised by ISFAP as “lower missing middle” would receive a grant in their first year of study, but ISFAP would also expect some financial contribution from the student’s family. In their second year, the grant would cover half the fees, while a loan covers the rest. This loan is income contingent and would be payable by the student once they begin working. A financial contribution from the student’s family is still expected. From the third year of study onwards, the same student will receive a full loan, rather than a grant, to cover fees.
This model is concerning as it seems to assume that a family’s financial situation will suddenly change while a student is studying. EE’s concern in this regard, is that students and their often poor parents may end up locked in deeper debt.
Another cause for concern is that the pilot has been predominantly funded by banks, with a whopping R40 million being “donated” by the FNB Foundation, a subsidiary of FirstRand Bank. If this model were to be implemented, and the number of students requiring funding increases from 1000 to 100 000, would all the donors be willing to scale up their investments to ensure that students are funded? What will the return on their investment be?
There is also no clarity on what the interest rate on loan repayments to ISFAP will be. WIll this be subject to the regulation NSFAS has that caps rates at an affordable level, or will rates be modeled after what the donating banks usually charge?
It is also not evident what changes to the legislative framework will be put in place to protect South Africa’s most vulnerable young people - those from poor economic backgrounds. Legislative changes suggested by the MTT for this model appear to only benefit private companies, corporate South Africa, and the banks.
For the full implementation of the programme, amendments to the following Acts have been proposed:
The NSFAS Act
The SARS Act
The Banks Act
The Income Tax Act
The National Credit Act
The need to make such changes to legislative framework that is intended to protect the public’s interests is a cause for great concern. For example, the proposed amendments to the SARS laws would see ISFAP loan repayments being collected by SARS from loan recipients in a manner similar to that of other salary deductions such as tax and UIF. What prevents ISFAP donors from garnishing their repayment order with other financial obligations and instructing SARS to deduct this money? What legislative framework exists to ensure that this would not occur without the ISFAP loan recipient’s consent? The social grants crisis revealed to South Africans just how predatory PPP agreements can become if they are allowed to run unchecked.
Accessing higher education should not condemn young people to poverty while big corporates benefit at their expense. We are currently observing a trend where PPP’s replace the capacity of the State to provide public services such as education and allows private institutions (in this case banks) to profit.
EE rejects this model with contempt and would go further to say that ISFAP was a done deal even before the Heher commission released its report - the ISFAP pilot has been running since the beginning of 2017.
EE calls on South Africans to not allow the private sector to commodify higher education and trap young people in inescapable debt! Young people should not become victims of another money-making scheme by big corporates and banks.
Funding for technical vocational education and training (TVET) students
Equal Education is immensely pleased that the Fees Commission recognises the importance of technical vocational education and training (TVET) colleges, and that for these institutions to be the first choice of students it will require substantial funding. The TVET college system is indeed equally as important as the university sector.
We applaud the recommendation that all students enrolled at TVET colleges should benefit from fee-free education. TVET college enrolments have nearly doubled since 2010, and the Department of Higher Education and Training plans to expand them even further, to eventually outstrip universities and with the aim of inverting the skills pyramid.
The quality of education offered at these colleges must urgently and drastically be improved. While there are a few highly functional TVET colleges, the sector as a whole does not perform well. Completion rates are low, and as a result of the poor quality and neglect of some colleges, the public and the market hold negative perceptions of TVETs – those who have a choice tend to prefer university, and unemployment rates for youth with TVET college qualifications were more than double that of youth with Bachelor’s degrees (although still much lower than unemployment rates for youth with just a matric).
Accordingly, the Fees Commission report states that money must be poured into improving not only infrastructure, but also the curriculum and teaching standards. EE welcomes this proposal.
Funding students at private institutions
According to the report 10-15% of higher education enrolments are in private institutions of higher learning. There are 114 private higher education and 627 private colleges in the country. The commission understands the existence of the private education sector to be necessary based on two primary points:
Public higher education institutions will not have sufficient capacity to provide access to the additional number of individual students who will benefit from recommendations outlined in the report. Private institutions can, thus, supplement the lack of capacity.
Students and potential students, regardless of economic status, should have a right of choice in attending an institution, particularly when it comes to specialised courses not offered by public higher education institutions.
The Commission, therefore, proposes that the ICL scheme be extended to students who choose to attend private institutions of higher learning.
EE recognises the value of this proposal to address the urgent issue of public higher learning capacity, but recognises it as a short-sighted and temporary intervention. Rather, we support the Commission’s vision of a systemic improvement of public universities and TVET colleges towards building capacity for broad quality access. These recommendations, however, will be deemed illegitimate unless they be coupled with a long-term process towards the de-commodification of education.
Stop the commodification of education!
EE has consistently argued against privatisation in the South African education sector. We recognise education as a social requirement and a public good. We are deeply concerned about the approach that views education and knowledge as a market – that should be bought and sold. There is a worldwide trend of privatising universities, which is leading to the emergence of transnational universities that serve capital interests and reproduce market-led knowledge. We are cautioning the South African government to not be complicit in this trend, by allowing the Commission's recommendations to encourage the privatisation of education. Coupled with our call for the staggered introduction of free higher education is our call to build the capacity of democratised public universities. This continued commodification of education will have the consequence of trapping the poor in a vicious cycle of debt and leaving the vulnerable young people open to exploitation by the private sector.
 Further details about the amendments can be found in the complete MTT Report, which EE has commented on.
Statement issued by Philile Ntombela-Masson, EE Researcher, 14 November 2017