We can fund higher education without it being free

For some time now, I have been concerned with how tertiary education is funded in South Africa and called for the matter to be reviewed with urgency on numerous occasions as we were sitting on a ticking time bomb. It seems that bomb may have exploded.

Having said that, this isn’t a simple challenge and the best answer would lie in a solution that considers all aspects of this rather complex debate. The approach from both students and government hasn’t always seemed mindful of this; often falling prey to over-simplification at times. I think the term “free education” is a misnomer and is not the most suitable answer in the South African context. Instead, we should seek a solution that ensures that deserving students are not deprived of higher education because of their financial backgrounds.

Universities are exclusionary by their nature. Depending on which part of the world you’re from, entrance is dependent on merit and of course whether or not you can pay the tuition fees. While there is some unanimity in merit-based admission, exclusion on financial grounds seems morally problematic when it denies some of the brightest minds the ability to flourish. This then becomes a social justice issue and I fully endorse students protesting for this.

University fees in South Africa are undeniably exorbitant. They are undoubtedly exclusionary to the working class who would otherwise not be able to afford tertiary education without being recipients of subsidies in the form of grants, scholarships and loans. This is why there is consensus around the appropriate interventions that seek to address this concern for this social class.

SA’s answer to this is the National Student Financial Aid Scheme (NSFAS) which provides more than R8-billion annually in needs-based financial aid to higher education students who come from underprivileged financial backgrounds. Other than the fact that the majority of people do not service their NSFAS debt, there are two additional problems with NSFAS however: the first is that it cannot always cover all tuition costs and recipients aren’t always able to service the deficit which is often made large by expensive fees.

The first port of call would be to ensure that we better understood these challenges and quantify the cost associated with adequately financing these studies. This does not require education to be free.

The second challenge for NSFAS is that the minimum requirements exclude what is known as “the missing middle” and moves inaccessibility more to the middle class. The missing middle are students deemed too rich for financial aid schemes like NSFAS, yet still too poor to afford tuition fees. They constitute many of the students advocating for free education and explains why we still have students that are advocating for free education while schemes like NSFAS exist. Whilst their plight is indeed understandable, it is not solvable only by making education free. Expanding the criteria to include the missing middle and to appropriately finance them would be far more fiscally responsible.

Universities aren’t just expensive for the sake of it, they require an immense amount of money for infrastructure and highly qualified staff to run successfully. These amounts run well into the billions for large universities. As a result, they typically require three streams of funding – government subsidies, tuition fees and fundraising through donors.

Economist Xhanti Payi rightfully points out that “we cannot speak of ‘free education’ since there is a clear cost component” involved. Free education would effectively mean no tuition fees, however the universities themselves would still have to be funded. A loss of a significant income stream would leave the entire burden on the remaining two streams. Since no one can force donors into anything, their contributions are likely to remain the unchanged – ultimately leaving the state to solely shoulder the additional cost which has been estimated to run between R35-50-billion a year.

The state has two options: The first is redirecting money from other priorities and the second is raising additional money for the fiscus through taxation. We would have to prove that free tertiary education outweighs those priorities and increasing taxation would mean an extra 5% on an already overburdened tax base. This is not impossible but is however not advisable for a number of factors.

The students marched to the Chamber of Mines and demanded that corporations commit themselves to partly funding free education. We will await their response, but I am positive they will not considering the tremendous pressure that the mining sector is under. Business at large will also not follow. The government could attempt to fund free education through increasing company tax. However, this would be detrimental to already lacklustre economic growth. SA needs rapid growth to reduce high unemployment and our economy cannot be further destabilised.

We should also steer clear of increasing VAT even though it is comparatively lower to other countries as it would have devastating effects on the poor. While the noble trade-off is higher education, I don’t think it justifies the strain you’d put consumers under, especially the poor.

The last option would be to increase income tax on individuals. This would speak to the middle class and the wealthy. On one hand this makes sense for the middle class as much of it constitutes the missing middle and therefore would benefit the most. It doesn’t however for the wealthy who already contribute to 93% of the tax base and can afford university tuition. The tax implications on these individuals would be far worse than finding money to finance students from the missing middle.

As a first step, we need to make sure we engage the government to spend more on its subsidy to higher education and training. Currently, it sits at around 0.6% of GDP – much lower when compared with other emerging nations such as India (1.3%), Russia (1.8%) and Saudi Arabia (2.3%). Our spending on higher education sits at a mere 12% of education as a whole, whereas the continental average is 20% and the global average sits close at 19.8%. This subsidy is too low and it is no wonder universities are forced to increase fees.

Then, universities need to not be able to increase fees without meeting their savings targets. There are many inefficiencies within the universities and these are costly. Across the world, technology has been used as an enabler to improve efficiencies and drive down cost. Gains from technology efficiencies can translate to 7% savings on cost. These would ensure that fees are not increased unnecessarily. Some forward-thinking universities are already doing this.

We are better off with those who can afford to pay tuition doing so and finding funding for those who cannot. Free education is not the only way in which to achieve this.