Lesedi Education Endowment Fund

Lesedi Education Endowment Fund 11_89 Executive Summary SA higher learning environment characterized by escalating costs, declining subsidies and inadequate funding solutions Current state interventions are inadequate to address the underlying issues Situation is critical and requires holistic examination to formulate a sustainable solution 2 critical questions need to be addressed in formulating a suitable solution How big is the funding gap to be filled? Free for all or for some? How do we fund the higher education funding gap? We propose a multi-pronged solution drawing on state and corporate participation, but ultimately driven by the creation of the Lesedi Education Endowment Fund The proposal has benefits for all stakeholders therefore everyone participates Funding to be rolled out in phased approach, prioritizing students facing greatest affordability challenges Success will be achieved through the creation and efficient administration of a system with the committed buy-in from state, students, corporate SA and society Lesedi Education Endowment Fund

Lesedi Education Endowment Fund 3_89 Agenda Lesedi Education Endowment Fund Review current South African higher education situation Present our proposed solution and benefits to South Africa What we ask of you

University enrolments Lesedi Education Endowment Fund State funding for higher education has not kept pace with the cost of study and growth in student numbers University enrolments Total cost of study Government subsidy Lesedi Education Endowment Fund

University costs outstripped inflation from 2009 - 2015 Lesedi Education Endowment Fund No increase in tertiary education fees, result of Fees Must Fall Protests in 2015 Source: Stats SA 2008 - 2016

Despite growing enrolments, the system has not proportionally increased black student participation % white students with university access % black students with university access University enrolments Lesedi Education Endowment Fund Student enrolment 2000 – 500 000 2015 – 980 000 2030 – 1.6 million (NDP target)

NSFAS designed in 1997 as interim mechanism but has not been adapted to meet increasing fee burden NSFAS funding not enough to cover fees High burden on qualifying families Lesedi Education Endowment Fund Source: NSFAS recovery as quoted by Minister for Higher Education and Training Blade Nzimande

Lesedi Education Endowment Fund 3_85 Current state interventions do not provide required level of financial support, therefore rejected by students intervention Challenges & concerns 2015: 0% fee increase Does not provide a long-term solution to cost increases 2016: 8% cap on fee increase Does not address overall affordability Does not address self-funded costs (e.g. private accommodation, books) Does not amend qualification criteria for access to funding 2017 – 2019: Additional R8B funding for NSFAS Does not address operational inefficiencies of NSFAS Does not amend qualification for full access to funding platform Lesedi Education Endowment Fund Longer term, holistic solutions are required to address the underlying challenges Source: 2016 Medium Term Budget Policy Statement:

Lesedi Education Endowment Fund Current funding gap of R25B needs to be filled to ensure higher education access to all students in the system Lesedi Education Endowment Fund Funding gap could grow to R90bn by 2025 if state and Corporates maintain current funding levels Success would be a system that would ease the country’s educational funding burden now and into the future Note: Total cost includes tuition in all institutes of higher learning including UNISA based on weighted average cost per student, accommodation on and off campus, books & catering allowances; state subsidy assumed to remain at 38% of cost,

Lesedi Education Endowment Fund 3_89 Agenda Lesedi Education Endowment Fund Review current South African higher education situation Present our proposed solution and benefits to South Africa What we ask of you?

Designing the solution: Lesedi Education Endowment Fund 11_89 Designing the solution: Lesedi Education Endowment Fund Understanding the system – How does its current design feed into inequality issues? Free for all – Does an ‘ability to pay’ exist? Free for some students – The rich paying their own way into social services gives them an incentive to create parallel societies The rich are being funded by the poor The black tax issues – Only black, poor students ever get presented with loan statements The students are responsible for highlighting the problem – The solution crafted needs to talk to their issues and include them Lesedi Education Endowment Fund

Lesedi Education Endowment Fund 4_85 26_85 Lesedi Education Endowment Fund will be created from four major funding sources, funding initially classes 1 & 2 funding uses NSFAS Lesedi Education Endowment Fund Corporate infrastructure contributions R10bn every 5 years Tier 1 & 2 students Corporate SDL Education Levy Tier 3 & 4 Tier 5 Annual contributions into endowment fund until fund self-sustaining through interest income Growth in number of students covered driven by increase in class 1 & 2 growth (to a lesser extent class 3 & 4 growth) as student body becomes more representative of national demographics Phased funding of students start with Class 1 & 2, subsequent increased coverage of Class 3 & 4 and lastly inclusion of Class 5 once fund self-sustaining Note: Skills Development Levy (SDL)

Parallel societies created through privatising social goods Free for all vs free for the poor? – Healthcare system South African approach – the rich pay their own way into a parallel system Tax incentives based on 2 questions Are you a member of a medical aid? Did your expenses exceed 7% of your taxable income? If yes – you get a tax benefit Such tax benefits end up in the profits of private medical aids Lesedi Education Endowment Fund Detail Private Healthcare Public healthcare Population covered 7 million 48 million % of population 13% 87% Percentage of budget 55% 45% Tax benefits R50 bn + NIL

4_85 12_84 We propose a multi-pronged solution ultimately driven by creation of self-sustaining Lesedi Education Endowment Fund Restore state subsidy to 50% INCREASE Corporate SA support Creation of education endowment fund University as STAKEHOLDER Current system: Total cost of higher education is 40% subsidized by state Corporates (third stream) contribute ~30% of total cost of higher education Infrastructure (incl. residence) is responsibility of state and universities, and is facilitated through earmarked grants Res can only support ~20% of students; private accommodation is expensive and ill-located Inefficient NSFAS system is incapable of supporting ballooning enrolments Outdated criteria means too few students eligible for support Recovery of ~4% makes it a permanent cost to the state Current structure has led to inflated university costs due to duplications of similar offerings across the system, e.g. research mandate applied to all universities No clear connections between basic, college and university education structures, leading to high drop-out costs Proposal: Restore state subsidy to 50%, as it was in 2000 Creation of a Capital Infrastructure Fund that is fully supported by Corporate SA, in addition to maintaining current third stream contribution Create centralised fund to consolidate & distribute all higher education contributions Fund to have independent structure overseen by DHET Initial investment to come from current NSFAS allocation and SETA contributions Longer-term, fund will be self- sustained by graduates that exit the system through a graduate levy Cluster universities into research (6-7), comprehensive (degrees and diplomas) and technology Link basic, college and university education structures by making students attend college before migrating to comprehensive/ technology universities, and thereafter research universities In the short term students studying critical (e.g. medicine) and strategic (e.g. engineering) skills to be allowed direct access to universities Financial impact (p.a.): Additional R 12B Additional R 10B (on top of current third stream contribution of R 18B) NSFAS allocation: R 12B Skills Levy: ~R 30B [Cost of drop-outs - TBC] [Cost of duplicated costs -TBC] Focus of this discussion

Lesedi Education Endowment Fund 16_85 Proposed solution benefits all stakeholders; incentivizing all to participate State Corporate Family Graduates What’s in it for me? Transformation goals of the state likely to be achieved Reduced dependency on social welfare initiatives/programmes Reduced inequality gap, lower unemployment and poverty rates More diverse and representative graduates joining the workforce Tax benefits on contribution Superior innovation and economic growth Affordable education provided for family members Improved quality of life for entire family, form higher earning potential Access to affordable education provided to students Social investment driven by graduates once they are earning an income Mechanics Initial redirection of NSFAS allocation; SETA contributions; and corporate philanthropy Graduate levy will be funneld into the same fund Students below a certain income level will be subsidised by state Corporates contribute to an infrastructure fund Family Income will be used to determine level of contribution State contribution will be reduced the greater the family income level Free education will be provided for families below threshold (<R300k p.a.) Charged on all beneficiaries of the system; triggered as they become eligible for tax Levy will be removed by corporates much like UIF Amount will be captured in state fund to Lesedi Education Endowment Fund

Lesedi Education Endowment Fund FEES FALL The rollout – 2017 possibilities 2017 fee increases – the R400 million shortfall conversation and the 8% problem Current students – evaluate current students under new qualification rules (R300 000 test) New intake 2017 – subsidy funding across the board subject to the family contributions matrix (i.e. students below R25 000 per month do not pay) Rollout of centralised application platform – enable students to link academic status (including ranking) and funding status in advance (2018 intake) Lesedi Education Endowment Fund

Student population split FEES MUST FALL Student population split Income level Class Participation rates Number of students Tuition cost – Average is R40 000 Average full cost of study – R80 000 0 – R300 000 Class 1 – Quintile 1 – 3 10% 10 000 R400m R800m Class 2 – Quintile 4 – 5 15% 15 000 R600m R1 200m R300 001 – R450 000 Class 3 20% 20 000 R1 600m R450 001 – R600 000 Class 4 25% 25 000 R1 000m (R1bn) R2 000m Above R600 000 Class 5 30% 30 000 R1 200m (R1,2bn) R2 400m Total 100 000 R4 billion R8 billion Lesedi Education Endowment Fund

More students funded over time Lesedi Education Endowment Fund Funding to be rolled out in phased approach, prioritizing students facing greatest affordability challenges More students funded over time Tier 1 and 2 Tier 3 and 4 Tier 5 Family income <R300K R300 – 600K >R600K % of students today 70% (NSFAS covers 19% only) 30% Funding level Full and immediate Based on family ability None Notes Funding for regulation time plus 1 academic year Excess covered through state subsidy Potential to extend funding once endowment is sustainable Lesedi Education Endowment Fund

Comparison – Lesedi Model vs alternatives 4_89 11_89 16_89 3_85 Comparison – Lesedi Model vs alternatives NSFAS LESEDI Design Loan-based funding; ignores families above R122 000 Recovered through direct repayments from R30 000 annual income 15-year lock-up Only charges poor beneficiaries of education system – ignores those who benefit from state subsidy Free education at student level – rolled out over a set period Incorporates working class families by moving initial ceiling to R300 000 Inclusive approach that gets state and corporate contribution to support family contributions Forces the rich to pay through permanent contributions Sustainability Permanent cost to society – low recovery rates Suboptimal design – fails to incorporate proper coverage Exploitative in nature, inefficient execution Example of black tax problem Education levy at graduate level Contribution aligned to ‘affordability’ level of R300 000 – in other words, graduates across the system start contributing when it makes sense to do so Lesedi Education Endowment Fund

Lesedi Education Endowment Fund FEES FALL Cost implications – how much can we do? Assumptions – 2017 intake; projected for 2017-2020 Cohort size – 100 000 (out of 175 000 new intakes) Cohort split – Certificates – 17% (17 000) Diplomas – 33% (33 000) 3-year degrees – 30% (30 000) 4-year degrees – 20% (20 000) Average tuition cost – R40 000 – inflate at 8% to 2020 Average full cost of study – R80 000 (2016: R74 820) – inflate at 8% to 2020 Lesedi Education Endowment Fund

Lesedi Education Endowment Fund 3_89 Agenda Lesedi Education Endowment Fund Review current South African higher education situation Present our proposed solution and benefits to South Africa What we ask of you

Contribution from all stakeholders is critical for success 3_89 12_89 19_84 Contribution from all stakeholders is critical for success Government and national treasury have to commit towards the process… Corporate SA and civil society also have a role to play… Restore state subsidy to 50% of education costs Abolish NSFAS and redirect current NSFAS funds to Lesedi Fund Set up structures to ensure the education endowment fund becomes self sustainable Incorporate the corporate/education levy within the current tax structures Increase the skills levy from 1% to 2 % Corporate SA to Contribute to the capital infrastructure fund Ensure absorption of qualifying students into the working world Civil Society to engage in driving policy change (i.e. use available channels or media) Lesedi Education Endowment Fund Success will be achieved through the creation and efficient administration of a system with the committed buy-in from state, students, corporate SA and society